As noted in a November editorial, credit card processing fees aren’t cheap, especially for smoke and vape shops. That leaves some businesses wondering how to cut costs. If you’ve researched ways to reduce your processing fees, you’ve probably come across companies promising that cash discounting is the solution to your problems. The fact is, it’s not quite that simple.

What is Cash Discounting?
True cash discounting simply means that you price all products assuming customers will pay with a credit card. You build the cost of credit card processing into the shelf price. Then, when a customer wants to pay with cash, you offer a discount (typically the amount you pay for credit card processing) to that customer. Since you won’t pay credit card processing fees on a cash transaction, you pass that savings back to the customer.

For example, if you pay a rate of 2.75% for credit card processing and a customer pays with cash, you would discount their purchase by 2.75%.

Cash discounts are legal in all 50 states and are permitted in merchant agreements with the card companies provided you follow guidelines for implementation. The discount must be on the shelf price, not an “immediate discount” after imposing a service fee at checkout.

Cash Discounts or Surcharges?
Cash discounts are different than credit card surcharges, even though they sound similar. A surcharge is when you add a fee at checkout if a customer chooses to pay by card. Your shelf prices are the cash price.

For example, if you pay a rate of 2.75% for credit card processing, and a customer pays with a card, you would add a 2.75% fee to their purchase.

Surcharges are legal in all but a handful of states, and are likely to become legal everywhere over the next few years as court battles progress. They’re also permitted by merchant agreements with the card companies provided you follow guidelines for implementation. Individual states may also have requirements on how the surcharge must be handled.

According to card brand rules, surcharges are capped at 4% of the transaction price, or the actual cost of processing, whichever is lower. You’ll also need to inform the card brands that you intend to surcharge and must post approved signage at entrances and cash registers disclosing that you surcharge. The charge must also be a separate line item on receipts.

Misleading Programs
The problem is that some processing companies are misleadingly calling surcharge programs “cash discount” programs. This is an issue because surcharging is not permitted in some states and it’s never permitted on debit cards. Surcharging in those situations can open you up to fines or loss of your merchant account. In late 2018, Visa issued a bulletin warning processors that it could take action on “non-compliant” cash discount programs that are actually surcharge programs.

Spotting a Surcharge Program
Fortunately, these “non-compliant” cash discount programs are usually easy to spot. They will reference things like posting the cash price on shelves or say that you’ll impose a “service fee” at checkout and offer an “immediate discount” if the customer pays with cash. A simple way to remember: if you’re adding a fee at checkout, it’s a surcharge program, even if you immediately remove that fee as a ‘discount.’

A cash discount program is only truly a cash discount if you provide customers with a discount on the shelf price, not if you remove a fee you just added at the register.

How do customers feel?
Various industry sources like have done studies and found that most consumers don’t like the idea of paying more for using their card – that is, they don’t like surcharges. Customers would rather fees be built in to the price.

The flip side is that many customers aren’t swayed by the minor savings of a cash discount, especially since more and more people carry cards for convenience and security.

That indicates that many businesses will be fine simply including the cost of credit card processing into their shelf prices and not bothering with cash discounts. But if you’re going to do one or the other, you’ll receive less pushback by offering a cash discount instead of imposing a surcharge.

What’s in it for the cash discounting companies?
Companies that offer cash discounting programs are still credit card processing companies. They’ll set you up with a merchant account to enable you to take cards, but also allow the option to provide cash discounts. They know that many customers don’t bother with a cash discount for the minor savings it brings. They still make money on the card transactions, which they know will keep coming.

In the case of surcharging programs (and also non-compliant cash discount programs that add a ‘service fee’ at checkout) the processing company knows that you’re offloading the processing fees to your customers. In many cases, the processing company will charge higher processing fees than it otherwise would, because it can get away with charging more to the customer (who can’t directly fight it) than they could charge you.

The cap on surcharges is 4%. That’s why you’ll often see processing companies saying they’ll do surcharges or “service fees” at 3.85 – 3.95%.

In the case of vape shops and “high risk” businesses, there are some circumstances where your actual processing fees could be higher than 4%. However, the cap still applies. You could impose a surcharge of a cash discount of 4% to offset a portion of your fees, and pay the remaining amount.

However, if your processing fees are over 4%, it’s a good idea to check to make sure you’re not being overcharged. There are services that allow you to easily compare credit card processing companies and get pricing, so it’s a good idea to look deeper if your fees are on the high side.

Is surcharging or cash discounting a good idea for smoke and vape shops?
It can be. As with many things in processing, the answer is that it depends on your specific business. In-person smoke shops may not be subjected to more expensive “high risk” processing rates. If you run a brick-and-mortar shop selling tobacco and non-vape items, your processing costs will typically be lower than an online tobacco vendor or any type of vape shop. So it may not be necessary to surcharge.

On the other hand, vape shops will have higher processing costs. Implementing a cash discount program may encourage your customers to pay with cash, reducing your processing fees. Implementing a surcharge could help you recoup processing costs. (Though remember, customers are generally more averse to the ‘punishment’ of a surcharge.)

Cash discounts don’t really work for online businesses, as they would be inconvenient (for both you and your customers) and less secure.

In any case, if you accept credit cards, it’s important to factor them in to your prices. Credit card processing fees are a cost of doing business, just like labor and marketing. Use credit card processor comparison sites to find the lowest processing fees possible, and then account for the costs when you set prices. SVBS

Ellen Cunningham is the Marketing Manager for, a free service where businesses can easily compare credit card processors to find the right solution. Certified quotes through the marketplace include CardFellow’s business protections, including a lifetime rate lock, no cancellation fees, independent statement monitoring, and more. Both high and low risk businesses can use CardFellow to see real costs for accepting cards and to get advice from independent processing experts. Ellen can be reached at (800) 509-4220 or you can contact CardFellow on Twitter or Facebook.