In my previous post, I gave some general information about cash discounting, what it is, and Visa’s rules regarding it.
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So exactly what is the appeal of cash discounting for merchants then?
First, it is important to understand that EVERY time you use a credit or debit card, a percentage of the purchase goes to the credit card company that issued the card. Another portion of the sale goes to the processing company. The fee is charged to the merchant for the privilege of being able to accept your credit or debit card.
Since each credit card charge varies depending upon card type, Interchange rates and any additional fees or charges in the merchant agreement. These fees can greatly impact the bottom line.
So potentially, a small business with $250k per year in sales, with an average of 5% processing charges and fees, could incur 12k in charges and fees.
Cash discounting allows the merchant to essentially pass on the costs of these fees to the customer without imposing a surcharge. (which may be illegal) This allows the merchant to offset or recoup the fees that would be paid to the credit card processor. for each credit card transaction.
So for a merchant, cash discounting programs can be an effective way to remain whole when accepting credit cards.
It will be interesting to see how this will all play out, considering that Visa has drawn a line in the sand.