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Data for today’s episode is provided by Mercator Advisory Group’s Report: Credit Surcharging and Cash Discounting: Approaches to Managing Processing Costs
Current Trends in Credit Surcharging and Cash Discounting:
- Surcharging is the practice of adding a charge to credit card transactions to cover the cost of processing fees.
- Just over half (51%) of small businesses in the United States make use of credit surcharges.
- For small businesses faced with high credit processing fees and narrow profit margins, credit surcharging can make a meaningful difference.
- Discounting is the practice of subtracting some or all of the price of credit card processing from the purchase price for cash transactions.
- In 2020, the Federal Reserve found that 23% of respondents in 2019 preferred to pay with cash, a 4% decrease from 2016.
- By contrast, 29% of consumers preferred to pay with credit in 2019, an increase of 5% from 2016.
Mercator Advisory Group’s most recent report, Credit Surcharging and Cash Discounting: Approaches to Managing Processing Costs, examines the changing regulatory landscape for surcharging and discounting, and offers recommendations on how to effectively adopt either strategy.
Credit surcharging and cash discounting are two approaches to shifting the cost of credit processing from the merchant to the consumer. While either approach can help merchants lower operating expenses and support their bottom line, they both come with challenges and risks. Merchants should be aware of the complex regulatory environment surrounding these strategies and weigh the risk of losing customers to competitors who do not surcharge or offer discounts.
“For small merchants struggling with profitability, two main approaches exist to shift the expense of credit transactions onto consumers. In many ways, credit surcharging and cash discounting are two sides of the same coin: one charges a fee to those who choose to use a credit card, one offers a reward to those who choose cash. Still, these two approaches have experienced dramatically different treatment by state regulators and credit card networks alike,” stated the author of the report, Laura Handly, Research Analyst at Mercator Advisory Group.