Dual Pricing – Why Your Credit Card Price Needs To Be Your Regular Price
Dual pricing has become one of the most talked-about topics in the merchant services industry, and for good reason. Business owners are looking for ways to offset the cost of accepting credit cards without simply raising the price of everything for every customer. When structured correctly, a dual pricing or cash discount program can give a merchant the ability to offer a lower price to customers who pay with cash while allowing the merchant to recover some or all of the cost associated with accepting credit cards.
But there is an important concept that many business owners don’t fully understand when setting up a dual pricing program: the credit card price should be the regular, displayed price of the product or service, and the cash price should be presented as a discount from that price. Gross Receipts Tax Applies to the amount collected by the Merchant.
This distinction is important because the merchant is not really creating two unrelated prices. Instead, the merchant establishes a regular price and then offers a discount to customers who pay with an eligible alternative payment method, such as cash. The credit card transaction is processed at the regular price, while the customer paying cash receives the advertised discount.
Let’s use a simple example. Suppose an auto repair shop normally charges $100 for a service. Under a properly structured dual pricing program, the $100 price would be the regular price displayed to customers. A customer paying with a credit card would pay $100. A customer paying with cash might receive a 4% discount and pay $96.
The important point is that the merchant isn’t advertising the service as costing $96 and then adding 4% because the customer uses a credit card. Instead, the merchant is advertising the regular price of $100 and offering a discount for customers who choose to pay with cash.
The merchant needs to understand that in a dual pricing program, the credit card price is not necessarily a “surcharge.” A surcharge generally means that a merchant starts with a regular price and then adds an additional amount when a customer chooses to pay by credit card. Visa and MasterCard allow merchants to surcharge credit cards but not debit cards. Therefore, if the merchant chooses a surcharge program, not all plastic is marked up with the sur
A cash discount works differently. The merchant establishes a regular price and then gives a discount to customers who pay with cash or another qualifying payment method. In our previous example, if the customer chooses to pay with a credit card, the customer pays the displayed $100 price. It is much easier for the customer to understand when it is clearly presented at the display and at the point of sale.
It also creates a much cleaner conversation between the merchant and the customer. Instead of telling customers, “There is an extra fee if you use your credit card,” the merchant can explain, “Our regular price is $100, and we offer a discount when you pay with cash.”
That difference in language and presentation can make a big difference in how customers perceive the program. The key is not to think of the cash price as the “real” price and the credit card price as an extra fee. Think of it the other way around. The credit card price is the regular price, and the cash customer receives a discount.
This is a subtle difference, but it can be extremely important when designing the program, programming the point-of-sale system, training employees and explaining the program to customers.
Important Considerations for Merchants
A merchant can potentially save a meaningful amount of money by reducing the amount of payment processing expense it absorbs. But the program needs to be structured correctly from the beginning.
This is why I don’t recommend that a business owner simply put a sign on the counter saying “4% credit card fee” and assume they have implemented dual pricing correctly. There is a big difference between a compliant cash discount program and simply adding a fee to credit card transactions.
The technology also matters. A properly designed point-of-sale or terminal configuration should make it very clear to the customer what the regular price is and what the discounted cash price is. The receipt should accurately reflect the transaction, and the merchant’s employees need to understand how the program works so they can explain it consistently.
Another important point is that merchants should not assume every dual pricing or cash discount program is automatically legal or compliant simply because a payment processor offers it. Card-brand rules, state laws and regulations can vary, and the requirements can change. A merchant should make sure the program being implemented complies with the applicable Visa and Mastercard rules as well as state and local requirements.
When customers see a regular price and then receive a discount for paying with cash, the program is much easier to communicate. The customer has a choice. They can use their credit card and pay the regular price, or they can choose cash and receive the advertised discount.
And for the business owner, that choice can potentially reduce the amount of money being spent on credit card processing while still allowing customers who prefer credit cards to use them.
Dual pricing can be a powerful tool, but it needs to be done correctly.
The basic concept is simple: establish your regular credit card price, offer a clearly disclosed discount for cash, and make sure your payment system, receipts and accounting all reflect the program correctly.
If you’re currently paying thousands of dollars a year in credit card processing fees, it may be worth taking a closer look at your options. At Electronic Money Company, we can help you understand how dual pricing works, what technology is available and whether it makes sense for your business.
At Electronic Money Company, we believe the most important thing is to educate the merchant before implementing a program. A dual pricing program isn’t something that should simply be turned on without explaining how the pricing, receipts, customer communication and reporting work.
A good goal is to create a program that makes sense for the business and is easy for the customer to understand.
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Other topics you might be interested in: Avoid Costly Mistakes: Download our free report, 5 Mistakes to Avoid When Choosing a Credit Card Processor
