It’s a bright sunny morning and your shop/store is getting prepared to open its doors for business as usual.  You checked that your auto batch from last night to see if everything was deposited into their account.  Life is grand…  Now what about some of my employees.  Two are late and one called in.  I still must open my doors and provide the best world-class service.

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Now you have a sales agent walking in your front door asking the merchant questions about their business.  It’s all the same types of questions.  Some agents are a little more sly and charming then others.  There are those that come across as being 100% honest and genuine?  Maybe they are under-trained would you as the merchant know any better?

Not to undermined business owners but I can honestly tell you that with my experience I think not.  Most that I interviewed have went through several processing companies and felt like one way or another they been screwed…

I’ve noticed a trend with agents....  Many of them, still in their minds, think that surcharging and cash discounting are the same.  There are a lot of differences between the two.

The cash discounting (cash adjustments, in-kind incentives, or whatever name is used) programs are predicated on increasing the revenue on all non-cash sales, including both pin debit and signature debit.  Whether a check card is run as credit or debit doesn’t matter.  If the payment isn’t cash, it’s a card.  The service fee (non-cash adjustment, price increase, or whatever name is used) must be added to any card payment.

On-the-other-hand, surcharging is heavily regulated by compliance rules and state laws.  Currently, merchants cannot add the surcharge to a signature debit or pin debit transaction, only to pure credit card transactions.  That is the fundamental difference between cash discounting and surcharging.

why bother surcharing

The states with no-surcharge laws are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, according to the National Conference of State Legislatures as of 2019.

The big question in our industry right now is, “should we switch from cash discounting to surcharging, or should we add surcharging?”  There are three big issues with surcharging which comprise the reason why I’m advising most of my clients not to make a full switch to surcharging just yet.

  1. Surcharging is much more complicated for a sales agent to price and sell.  Especially newer sales agents who struggling with understanding the details that are involved.  For instance, many newer agents don’t even know what signature debit is.  They don’t even know it exists!  I should add that they all used it for their personal transactions but explaining it to merchants can be an issue.

Three agents with whom I spoke last week thought that since they didn’t set up merchants with a pin pad, it was the same thing as cash discounting because they were adding the service fee to everything. In using our instant quote tool which gives an accurate proposal, these agents couldn’t understand why there were still debit fees?  I explained that even though the card is processed without a pin, it’s still a debit card.  Another problem is with negotiating the pricing.  Without good understanding of the pricing, newer agents can very easily give away all the margin.

I am creating two new articles.  One is on surcharging and the other is cash discount.

  1. Surcharging is not legal in all fifty states yet.  Also, the ruling in New York to “allow surcharging,” has further complicated the issue.  The ruling is prohibitive in the way that pricing and labels must be adjusted.

It is likely, within six to twelve months surcharging will be in all fifty states, and the New York law will be struck down or revised in some way.  Thus, the time will come when surcharging makes good sense.  I personally think the time will come when surcharging will be allowed on all the card types, too, as it is in Australia.

  1. Surcharging isn’t integrated with any POS systems.  I don’t know of any POS systems which do compliant surcharging.  The reason for this is simple.  To develop software for the cash discount program is not complicated.  If the transaction is a cash sale, the service fee IS NOT added.  If it is not a cash sale, ADD the service fee. All of that can be done in a one-step algorithm.

Clover Station
Clover Station

However, there are extra steps in that process necessary for surcharging. First, the type of card used must be determined.  If a credit card is being used (NOT A DEBIT CARD), then and only then the service fee (or surcharge) must be added.  Then the transaction total must be presented to the customer.  Possible, but apps for it haven’t been written yet.  I haven’t seen surcharge apps in Poynt or Clover, or in any of the other popular POS systems. They just don’t have the capability yet to do surcharging.  Now, having said this, there are terminals such as Pax and Dejavoo that do surcharge for sure.  There are many companies using terminals to do compliant surcharge programs, so agents can do that on a smaller merchant.

To offer a compliant surcharge program and a cash discount program.  More experienced agents could sell more surcharging than cash discounting.  When talking to merchants in the field, the biggest objection will be, “My customers won’t like that they have to use cash” or “they don’t carry cash” or “I don’t want to push the extra charge onto my customers.”  When selling surcharging, agents can say, “Well, that’s okay.  Consumers could still just use their check card.  By using pin debit or signature debit, they can avoid the surcharge (service fee.)”  So, the experienced agents are going to like the surcharge program.

Obviously, the cash discounting (cash adjustments) programs are still significantly more profitable than surcharging and merchants need to recognize this because it’s true.

I think in our industry we’ve “picked sides” on this issue.  I’m sorry I’ve also been guilty of this in my younger years of not grasping the concept; I’ve been talking about cash discounting for a long time.  Because of the three reasons I just gave you, I still believe cash discounting is on par or a little better than surcharging for a sales organization.  However, there is no reason these two things must be mutually exclusive.

I think the key is offering surcharging and cash discounting to the point where merchants are educated and understand.  Then, perhaps in a year or two, cash discounting will phase out and surcharging will be integrated with everything.  Surcharging will be in all fifty states.  Whether people want to believe it or not but when banks lose money due to federal or states laws the banks will care of who makes the laws and lobby to get them changed.  Then the life of a banker resumes.  After all, Mayer Amschel Rothschild said “permit me to issue and control the money of a nation, and I care not who makes its laws! “