Cash Discounts on the Rise

Rule changes are prompting retailers to turn to cash discounts.

July 02, 2013

WASHINGTON – The Washington Post highlighted earlier this week the rising popularity among retailers of offering cash discounts to their customers.

Following new rules that went into effect earlier this year, business are allowed to tack on up to 4% on credit card transactions, as long as they share their intentions with the credit card companies and display signage communicating the policy to their customers.

“Retailers offer cash discounts because they want to reward customers for taking [transaction] costs out of the system,” said Jeff Lenard, vice president of industry advocacy for NACS. “But the challenge is, do people even carry cash anymore? It’s uncommon that they do.”

Ten states have banned credit card surcharges, while eight are considering similar legislation.

“To be honest, we’re not seeing very many merchants do this just yet,” said Trish Wexler, a spokeswoman for the Electronic Payments Coalition. “It’s something that generally takes a few years to go into effect.”

Wexler said it took several years for Australia to enter surcharge territory, where they proceeded cautiously.

“We saw it evolve gradually — one airline would try it and see if they could pull it off,” she said. “And then you’d see all the other airlines start to do it, too. Then hotels, and so on.” 

Wexler said gas stations have been enthusiastic about encouraging cash purchases, because it generates traffic flow, especially inside the store.

“As soon as [customers] step foot inside, there’s a chance they’ll decide to pick up some gum or that six-pack of beer,” she said. “Anything that gets customers into the convenience stores helps.”

Some retailers are balking at the two-tiered price structure.

“In today’s world, accepting credit cards is just a part of doing business,” said Cheryl Harrington, the owner of Shortcake Bakery in Hyattsville. “Yes, we pay a fee, but we wouldn’t pass that on to the customer.”

Meanwhile, at least one card company maintains the disparate pricing hurts consumers.

“We believe [surcharging] is harmful to consumers,” said Sanette Chao, a spokeswoman for American Express. “It is not a customer-friendly practice for a merchant to attract a customer to its store or website to shop, and then to penalize the customer for using a card that the merchant accepts.”

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