When you combine merchant fees with dynamic interchange fees issued by credit card companies, accepting credit cards can be costly and confusing for a small, growing business.
Customers often want to use their preferred method of payment, so not offering credit card payments isn’t an option.
First, let’s dig into the different types of fees before determining if a dual pricing program is right for you.
- Merchant fees are typically flat rate fees paid by the merchant to the issuer of the point-of-sale (POS) terminal every time you run a transaction.
- Interchange fees, which are levied by credit card companies, often include a flat rate transactional fee plus a percentage of each transaction.
How Do Customers Typically Want to Pay for Goods?
There isn’t a one-size-fits-all answer. It depends on a variety of factors.
A 2016 study of 1,000 consumers indicated that “40 percent chose credit cards, while 35 percent selected debit cards and only 11 percent specified a preference for using cash.”
But as soon as you factor in considerations like transaction value or even store type, those numbers change dramatically.
It’s important to consider your average transaction value and business type when determining whether a dual pricing program may be right for your business.
If you’re a business with a low average transaction value, like a nail salon or a coffee shop, merchant and interchange fees can add up to thousands of dollars a month. To combat this monthly expense, some businesses add a surcharge fee when customers pay with a credit card.
Credit card surcharges have somewhat of a negative connotation among consumers, and some states even prohibit businesses from charging these fees. The following states don’t allow surcharges:
- Oklahoma
- Maine
- California
- Texas
- Colorado
- Connecticut
- Kansas
- New York
- Massachusetts
- Florida
In some cases, surcharges don’t make business sense. With a low average transaction value and high credit card usage among your customer base, it may make sense to implement a dual pricing program.
What Are the Benefits of a Dual Pricing Program?
A dual pricing program offers merchants a way to offset tiered fees incurred when running credit card transactions.
A dual pricing program allows merchants to implement a service fee (no more than 4% per transaction) to customers who pay via credit card while offering a discount to customers who pay with cash.
Dual pricing programs require merchants to notify customers at least once before they make a purchase that service fees are added to the purchase, though multiple points of notification are recommended. Information about the service fees must also be included on customer receipts.
A dual pricing program often encourages many customers to pay cash, which in turn reduces the transaction volume fees you incur from the credit card companies, your bank, and the terminal leasing fee needed to run credit cards.
In fact, you can use the money you save and your additional cash flow to reinvest in your business—something your customers will likely appreciate. If you’re a coffee shop, for example, you can use your new cash flow to make WiFi free or add a few comfortable couches for your guests to relax in.
If you’re considering dual pricing, you will need a specialized vendor. Look for a vendor with a varied fee structure that works with your business and average ticket size. This is a rapidly growing subset of payment processing, so there are many companies to choose from.
How to Select a Dual Pricing Program Vendor
Do your due diligence and ask potential vendors how much their customers save on average. You may also ask to view a sample receipt and check out their BBB rating. Your vendor’s technology should allow you to accept all credit card types, mobile wallets and EMV chip cards. Finally, make sure they disclose all fees to you.
Pricing usually comes in two forms: a flat rate, which works great for high transaction volume but low average transaction value, or a percentage of sale, which is ideal for businesses with a high dollar transaction value. Your vendor might also offer free in-store signage to make your customers aware of the change.
Payarc has recently launched our Dual Pricing Program, and we’re looking for motivated merchants to partner with. If you’ve been considering implementing a cash discount program, contact us today so we can show you the incredible savings we can provide.