Why Dual Pricing Is a Better Option Than Surcharges

Customers hate credit card surcharges. According to a recent survey, 56% said a surcharge made them want to switch merchants. Fortunately, there’s a viable alternative any business can use: dual pricing.

Dual pricing, or cash discounting, is widely used by businesses. You’ve likely encountered it before.

Many gas stations display two prices for gas: one for cash and a higher price for credit card payments. Using this pricing strategy, business owners can avoid expensive card processing fees. This can result in thousands in savings each year.

So why do businesses use dual pricing?

First, dual pricing increases profit margins by reducing a business’s processing costs. Also, with cash discounts, businesses avoid credit card surcharging – a practice that’s illegal in some states.

The good news is that most businesses can roll out dual pricing with the right POS system. But is cash discounting right for your business? In many cases, yes, it is. And it can save you thousands on processing fees each year. Keep reading for tips and advice for using dual pricing to offset credit card fees.

What Is Dual Pricing?

The idea of dual pricing is simple. Retailers offer a discount to shoppers when they pay with cash instead of a credit or debit card. You can offer it in a couple of ways: a percentage off the total bill or using two prices for each item.

Here’s a closer look at how it works:

1. You total a customer’s order at the register, and the POS automatically adds the percentage off. Then, if paid in cash, the POS applies a line-item discount to the bill. This discount typically accounts for the credit card processing fee.

2. Alternatively, a retailer can set two prices in the database for individual items. After totaling the order in the register, the POS applies the cash discount to all items, if paid in cash.

Examples of Dual Pricing Models in Retail

Here are some examples of how a retailer might use dual pricing:

• A restaurant might offer a 5% discount to customers who pay with cash.
• A grocery store offers a “cash-only” lane with lower prices or a discount for shoppers.
• A convenience store sets a discounted price for items in the store. When a customer pays with cash, the discount is applied to the order.

Why Consider Cash Discounting?

Credit and debit card transactions remain a popular payment choice in the U.S.

However, cash still accounts for about 20 percent of payments, according to Federal Reserve data. And, on average, customers carried about $73 in cash in 2022, a rise from previous years.

A dual-price cash discount, therefore, incentivizes cash payments. This approach frames the discount as a reward rather than a penalty (like a credit card surcharge). The result is a more positive customer experience.

In essence, dual pricing can help increase the number of cash sales. And result in reduced payment processing costs.

Legal Requirements for Cash Discounting

If you want to use cash discounts in your business, there are some rules you need to follow to stay compliant. Generally, these regulations vary by state. For example, you may be required to have a permit in some states.

However, cash discounting is protected by the Durbin Amendment, of the Dodd-Frank Act. It’s a legal practice in all states.

Here are some things to keep in mind:

1. Dual Pricing Signage

A rule of thumb: You can’t display the cash price without also displaying the credit card price. Instead, most businesses display the credit card price only. Then, use additional signage at the register to disclose the cash discounting terms.

2. Point of Sale Signage

Use POS signage at the register to make it clear to customers how the cash discount works. You could use customer-facing displays or printed signage.

3. Entrance Signage

Use signage at the store’s entrance to market the dual pricing program’s terms and conditions. Your signs should disclose the percentage of the discount, limitations, and any fees that may apply. The key is transparency. Customers should be able to easily understand how the program works and how the discount affects the total cost.

Dual Pricing vs Credit Card Surcharges

Many retail businesses use credit card surcharges to offset costs. A credit card surcharge is an added fee that’s charged to customers when they pay with a credit card. For example, a business might include a 3% surcharge fee on all credit card bills.

Although surcharges seem effective, there are limitations, including:

• Create an added cost (penalty) for consumers
• Can be confusing or frustrating for consumers who are not aware of the surcharge
• Can damage a merchant’s reputation if not implemented in a transparent way

Are Credit Card Surcharges Legal?

Another limitation is that surcharges aren’t legal in every state. In some states, surcharges are completely prohibited. And other states allow them with limitations.

For example, in Connecticut, Massachusetts, and Puerto Rico, surcharges are illegal. But in California, Colorado, Florida, Kansas, Maine, New York, Oklahoma, and Texas surcharges are subject to limitations.

This is another reason why dual pricing credit card processing is a better option. It’s legal and offers a more customer-friendly approach to reducing processing fees.

Considerations Before Implementing Dual Price Discounts

Before starting a dual pricing program, first think about your customers.

How do your customers prefer to pay? If you already accept a high percentage of cash payments, discounting might be a great option. And if you don’t, it will incentivize and encourage customers to pay with cash.

Again, be transparent. Make sure your customers know how pricing works and what the potential discount will be.

Pricing Strategy

You should increase prices to account for credit card processing fees and the discount. For example, if the average card processing cost was 3%, you would increase prices by 3%. That would mean a $10 item would cost $10.30 for card-paying customers but $10 with cash.

Potential Savings

You can save a lot. But the total savings depends on your credit card processing volume and how well you market the program. An effective program can increase margins by 3-5%, on average. This translates into thousands in savings per year.

Staff Training

Ensure your staff can answer any questions about terms and conditions. Plus, your employees should understand how to apply cash discounts at the register.

Lost Sales?

Many retailers fear cash discounts will reduce sales and encourage customers to spend less. Again, this depends on your customers and average order values. But because cash discounting is so common, most customers are OK with paying a slight premium for the convenience of paying with a card.

Remember, since you’re not charging a penalty or added fee, people paying with cards might not even notice it.

Other Options for Reducing Credit Card Fees

Dual pricing is a useful tool for lowering credit card processing costs. However, if you implement cash discounts with other strategies, you can maximize savings.

Fortunately, most of these strategies don’t require big changes. Instead, you can implement most with signage and pricing strategy or with the help of a powerful all-in-one POS system.

1. Establish Minimums

Set a minimum purchase amount for credit card transactions. This will steer customers towards using cash for smaller purchases. And it can also encourage them to bundle items to reach the threshold for credit card use.

2. Negotiate Processing Fees

Talk with your credit card payment processor to explore lower processing fees for your merchant account. Your processing volume and willingness to switch providers can influence the negotiation process.

Use FTx Card Payments for Dual Pricing Credit Card Processing

Dual pricing is a feature that will soon be available in FTx POS. Plus, we offer the best integrated credit card processing rates in the industry. We offer:

• No high-risk fees for smoke shops and other “high-risk” businesses
• Next-day fund transfers
• Unbeatable rates in the industry

Interested in learning more? Schedule a call for a custom quote for credit card processing.