Cash discount vs surcharge: what’s the difference?
Short answer: A cash discount posts both a cash price and a card price on the tag before anyone pays. A surcharge adds a fee to card payments, usually at the register. Card networks cap surcharges at 3%, ban them on debit and require notice; several states ban them. A properly posted cash discount isn’t a surcharge.
Side by side.
| Cash discount (what we set up) | Surcharge or “service fee” | |
|---|---|---|
| What’s on the tag | Cash price and card price, same size | One price; the fee comes later |
| At the register | Charges the price for how they pay | Adds a fee line to card payments |
| Debit cards | Pay the posted card price | Not allowed |
| Card network cap | Not a surcharge when both prices are posted, per Visa’s Q&A | 3% or your cost, whichever is lower (Visa) |
| Notice to networks | Not required | Required before you start |
| State bans | None found for posted prices | Banned or disputed in six places; limited in eight (by state) |
| Our card price | 3.75% above cash | n/a |
What Visa says.
Visa’s Q&A for merchants allows a “discount offer, commonly a cash discount”, as long as prices are shown as “both the card and the cash price listed side-by-side per item”. It adds that the card total must be shown in full and “not achieved by applying an additional fee for a card payment”, or it may be treated as a surcharge.
Surcharges, by contrast, are limited to credit cards, capped at your cost or 3%, must be disclosed at the door, at checkout and on every receipt, and need notice to your processor and the network first.
Which should a small shop use?
A cash discount, posted on the tag. It’s simpler for your staff, works for debit, avoids the surcharge bans, and customers see the price before they decide. How a cash discount program works.
Questions owners ask.
Is a “non-cash adjustment” a cash discount?
Not if it’s added at the register. A fee line for card payments, whatever it’s called, is treated as a surcharge by Visa and by New York’s Department of State. A real cash discount shows both prices on the tag.
Can I surcharge debit cards?
No. Visa and Mastercard don’t allow surcharges on debit or prepaid cards. With a cash discount, debit simply pays the posted card price, which is allowed.
Which states ban surcharges?
Connecticut, Maine, Massachusetts and Puerto Rico ban credit card surcharges, and California’s and Texas’s bans are partly limited by court rulings. Eight more states limit them. See cash discount laws by state.
Sources
General information, not legal advice. Rules change and differ by state and city; check the rules where your business is. See our terms and disclaimers.