As a merchant, it’s frustrating when credit card processing fees eat away at your profits, especially on small-ticket items. That’s why “zero fee credit card processing” sounds like a very appealing notion. Of course, the name isn’t exactly transparent, nor is the phrase “cash discount.” So, let’s dive deeper into these two fee recovery methods and how they work. 

What is Zero Fee Credit Card Processing?

If you think that zero fee credit card processing sounds too good to be true, don’t make any assumptions just yet. While it’s called “zero fee,” this method simply passes the fee along to the customer. The fee is capped at 4%, but that’s still a large fee to charge your customers when paying with a credit card.

The way zero fee credit card processing works is simple: When a customer swipes their credit card, the payment terminal will disclose the fee and ask them to accept or reject it. If they reject it, they can either use a different form of payment or, in the worst case, cancel the transaction and shop somewhere else.

Asking the customer to cover the processing fee is common practice with charitable donations, but it hasn’t been quick to catch on in the retail space. Many retailers use the “zero-fee” method, but you’ll need to consider if introducing this fee could drive customers away. For instance, if you have equivalent competitors nearby or already charge more for your services, this method might only hurt your business in the long run. 

What is a Cash Discount?

The term “cash discount” is equally deceiving because you can’t merely offer a discount to customers who pay with cash. Card associations have strict rules on how you can implement a cash discount policy. The cash discount is widely used by gas stations, which is why they display both a “cash price” and credit price, but you aren’t required to display both. 

According to the rules set by card associations like Visa, the prices on your items should be the “card price.” Those who choose to pay with cash or check will receive a small discount, which should be added as a separate line item on their receipt. This rule aligns with the verbiage in the Durbin Amendment. 

The biggest mistake businesses make is posting the cash price, which is lower and more appealing to customers, and then charging more to those who don’t pay in cash. That’s when your “cash discount” program becomes a surcharge fee, which has much stricter regulations. To comply with the law, you must post the card price and offer a true discount to those who pay in cash. 

Which Method is Better?

There are pros and cons to both zero fee credit card processing and cash discounts. Here’s a side-by-side comparison so you can decide which is better for your business.

Cash Discounts Incentivize Instead of Penalize

By far, the best argument for choosing a cash discount over zero fee credit card processing is that cash discount programs incentivize instead of penalize. The outcome might be the same for the customer, but it’s all in the presentation.

Whereas zero fee credit card processing adds a fee to the posted price for those who choose credit, a cash discount saves them money when they choose to pay using cash or check. This incentive can be better perceived by your customers and lead to less backlash when you choose to implement a cash discount. 

Zero Fee Processing Keeps Posted Prices Lower

The biggest perk of choosing zero fee credit card processing over a cash discount is that you’re able to post a lower price. Whereas a cash discount requires you to post the “card price,” which is inclusive of any fees you want to cover, zero fee processing allows you to post the same price for everyone and add the fee at checkout. 

The result is that a store using a cash discount program is going to have higher posted prices. Even with signage reminding customers that they can save X% at the register by paying in cash, the higher price tags might discourage them from shopping, especially if you have nearby competitors who charge less. 

Cash Discounts Keep You in Control

When it comes to regulations and rules, cash discounts are much less scrutinized than zero fee processing or surcharge fees. You get to determine how big of a discount you wish to offer customers for paying in cash.

What’s more, you can decide how much of a discount you want to offer on a per-item basis by raising or lowering the posted card price accordingly. For example, if you want to implement a 3% cash discount but you don’t want to discount your best-selling item that’s priced at $94.99, you merely need to add the discount to the card price, raising it to $97.83. When the cash discount is subtracted, it comes out the same as always. 

Using the right pricing method, you can minimize the impact of the new “card price” on your customers who pay in cash while ultimately pocketing a couple more dollars for those who pay with a card, which is the ideal outcome when implementing a cash discount program. 

Put More in Your Pocket

Are you thinking about implementing a cash discount program or signing up for zero fee processing? If you’ve determined that your processing costs are too high, it might be time to look for lower rates. National Merchants Association can help. 

National Merchants Association is a merchant advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, NMA’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or e-commerce, NMA will create the best processing experience for your company.

For more information, visit us at our or call (866) 509-7199.