What is a cash discount program?
Offset Credit Card fees, reward the customers that pay cash at checkout. Merchant services like mobile wallet payments and credit card processing have become exigent in the present payment ecosystem. Customers are showcasing amplified preferences towards getting better electronic payment options. In the past two years, the arrival of the COVID-19 wave has magnified the demand for online payment choices. Thus, merchants seek upgraded payment systems to improvise the point of sale experience for their clients.
However, the decision to offer a multitude of payment methods gave birth to numerous associated charges and fees for the merchants. These outlays can become a source of stress for vendor businesses. Notably, credit card processing fees may cost many merchants dearly. Card companies continue to hike such credit card fees at regular intervals. Undoubtedly, the business ventures have to look for respite from such rising payment processing costs. Learn more about Contactless Payments.
What is a credit card processing fee?
Generally, for every credit card transaction that a business entity accepts from its customer, it has to bear a processing fee on the amount of payment received. The card companies like Visa and Mastercard charge such fee that ranges from 1.3 percent to 3.5 percent on average. This percentage fee remains contingent on the merchant category, the type of credit card plan used, and the relevant payment network. Technically, the cost comprises two components- the assessment fees and the interchange fees. A separate constituent of payment processing fees covers periodic transaction charges and the credit card machine used. If a business venture earns a 5-10 percent margin on its sale, the overall credit card processing fees can constitute a significant bite of their returns.
Therefore, on a serious note, merchants want to learn about money-saving approaches to optimize their overall payment processing spending. The cash discount program is one such ray of hope for struggling merchant business ventures. It can enable entities to use merchant services to lessen the burden of offering different electronic payment solutions to their consumers.
What precisely is a cash discount program?
Business ventures can consider a cash discount program as an ideal way to lower their merchant service charges. Such programs enable merchants to utilize credit card processing services by paying almost a negligible sum. These schemes represent the process under which business entities give out discounts to customers who make cash cash payment rather than adopting debit or credit card methods.
Cash discount programs have gained significant popularity in the merchant service industry. The program acts as a perk for customers to make payments via cash or check. As the name indicates, it enables them to avail of a discount on the price payable by debit or credit card users. Thus, it permits business ventures to use cash payments to lower the impact of their payment processing charges covered under credit/debit cards. Let us get a more detailed picture of a cash discount program.
How do cash discount programs function?
Implementing cash discount programs covers tuning the credit card terminals to discount the service fee payable by credit card users when they make cash payments instead. Merchants get a customer service fee equivalent to the payment processing charges. All and all, merchants have almost no obligations in the form of credit card processing costs. They are able to earn the entire sum attributable to their products without worrying about the credit card processing expenses.
We have a hypothetical illustration to help you better grasp the working of this discount program.
Mr. A gets goods worth $200 from an eCommerce store. As per the payment policy of the store, they additionally charge 2 percent payment processing charges for electronic payments through credit cards. However, they offer a 2 percent discount on cash payments.
If Mr. A pays in cash, he will get the goods at the original cost of $200. But, when he considers paying through a credit card, he has to face the burden of spending a 2 percent fee. Thus, he will have to pay the merchant a sum of $204. Overall, when Mr. A pays using cash, he can make a saving of $4.
Which types of business entities can find cash discount programs more useful?
The implementation of a cash discount program remains subjective to multiple factors. It depends on whether your clientele will be willing to pay extra for making payments through a credit card. You have to assess the needs of the customers and the business conditions applicable. As per the general trend, service providers tend to gain more benefits from cash discount programs than other businesses.
While finalizing whether or not you need a cash discount program, you should check the below-stated factors.
Competitors policy on cash discount programs
You should evaluate whether most of your counterpart merchants proffer cash discount programs to their customers. The success ratio of their program can act as a determining factor for you.
Repetitiveness of your client purchases
Many customers who make repeat purchases from your store might detest paying extra fees for making credit card payments. Thus, you have to account for the frequency of the purchases your clients make you before deciding on the discount policy.
Preference for cash payments among your loyal customers
While some types of customers still prefer making cash payments, many others have switched to debit or credit cards. If the general preference of your principal customer base is not towards choosing cash payments, using this program can lead to lower sales. Thus, stay very conscious about the majority preference.
Essentially of your product offerings for your client
Most patrons do not mind sparing some extra bucks for items or services that they feel are pretty indispensable. But, if your products do not fall in the necessary category for most customers, using a cash discount program can make a negative impact.
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