Hi, my name is James Shepherd and today I want to talk about a really important development
in the cash discounting world.
Clover has dropped cash discounting and so I wanted to talk about this today because
I’ve had a suspicion for awhile.
I actually shared it on a recent podcast episode with Patti Murphy about kind of what was the
attack going to be with cash discounting.
Because when you look at cash discounting, cash discounting is supposed to be two things.
It’s supposed to be a price increase and a cash discount.
Well, you know are you going to say that businesses can’t increase their prices?
I mean there is no way you are going to say that.
Are you going to say that a business can’t do a cash discount?
Well, if you look at the Durbin Amendment that’s guaranteed.
How is Visa going to go after cash discounting as many already in the industry already know
Visa is not very happy about cash discounting.
Clover over the weekend, I think it was Friday actually I got a notice.
Some of the reps did as well from Clover.
A lot of you did and there were some apps in the Clover market, the Clover app store,
that allowed it was like a cash discounting app.
I’ve been telling reps for months that have been calling me and saying, “Ah, I’m doing
cash discounting on Clover.”
I’m like, “You shouldn’t do that.”
They are like, “Why not?”
I’m like, “Well, because First Data does not believe in cash discounting and so you
are going to get all these people signed up and when First Data realizes what is going
on, they are going to cut it.”
That’s exactly what happened.
What I want to talk to you about today is why they cut it and what their rationale for
it was because it really confirmed my suspicion about the way that cash discounting is going
to be attacked and I want to talk a little bit about what to do about it as both a rep,
an ISO and even an ISB.
Their logic for it was really simple.
What they said was, “We’ve removed apps from the app store that are adding a service
fees only to credit card transactions basically at the point of sale.”
They said that those apps are illegally surcharging or they are not compliant and they are surcharging
the consumer in a way that is not in accordance with Visa and MasterCard rules.
The idea here is again with cash discounting you only have two things that you can attack.
You have a price increase and you have cash discounting.
Well, the idea of providing a cash discount is just you can’t attack that because there
is a federal law, the Durbin Amendment is a federal law that says that the card brands,
the banks, nobody can attack that.
So that is what it is, right?
Where they can put an attack is on the price increase.
So they can say, “That’s not really a price increase.
You are not really doing a cash discount because you never really did a price increase.”
I’m going to kind of be devil’s advocate today and kind of agree with Clover and First
Data a little bit on this even though I’m very bullish about cash discounting.
Because I want to talk about something the industry might want to consider.
Hopefully, some of you that are listening are CEOs of these processing companies and
ISV partnerships and stuff that you can think through this a little bit because you know
cash discounting is a huge opportunity and it’s not something that I want to squander.
One of my biggest fears is that our industry is just handling it in just totally the wrong
way.
Just I think it was two weeks ago, I had a conversation with somebody that told me they
are doing reverse processing.
I’m like, “What is reverse processing?”
“Well, it’s cash discounting.
We call it reverse processing.”
I’m like, “That’s illegal.
That’s illegal.
It’s not reverse processing.”
If it is processing, then it is illegal.
That’s a surcharge.
It doesn’t have anything to do with processing.
If it has anything to do with processing, then it is not cash discount.
Anyway, that’s a rabbit trail.
So here is the problem.
What they are basically saying is you can’t do a price increase by just putting a sign
at the counter that says, “We are increasing the price, but oh, wait, there is more.
If you pay with cash, we are going to wave the fee.”
Well, again as of right now, that’s totally compliant.
I mean it’s not like you know you can really I’m not a lawyer.
That’s not my legal opinion, but I mean you know there is really not much precedent
out there, but it is pretty clear to me that that’s how Visa is going to attack it.
Visa is going to attack it and say, “You can’t give a cash discount on something
that never really existed.”
So it is not really a price increase.
They really do have kind of a point here because the way that the industry is doing it is they
are adding a service fee.
Then they are taking it and saying, “Well, we are going to do a cash discount that is
the same amount” which makes sense, but they are like, “So that means that we just
won’t put the service fee on, if it is a cash transaction.
That service fee just won’t be there.”
Well, my thought is I think what would actually be more; what I know would be more compliant
is if you are working with a point of sale system.
You are trying to design this cash discount program to be really compliant.
What I think would make more sense is to actually add a service fee and actually have that service
fee be a line item on the receipt for everything.
You can’t do this if you are doing an individual terminal because the cash sales are going
through the terminal.
There is even a way to do it there where we could kind of customize the receipt to do
cash receipts or something, but the idea would be if the service fee was on every receipt
for cash sales and for credit sales, but the cash discount was only on cash sales.
So imagine if a customer got a receipt and they spent, let’s say they spend $100 to
make the math easy right?
So you have a 3.99% service fee and that would be I think an 3.84% cash discount.
So they would get their receipt and it would say if they pay with cash, it would say $100
plus $3.99 service fee minus $3.99 cash discount.
Total $100.
If they pay with a card, it would say $100 plus $3.99 service fee equals $103.99.
No cash discount.
Now I realize that would be potentially a little bit more confusing for consumers.
Consumers might actually notice it now because there would be two line items instead of one
and it might get complicated to the point where they would notice it, but I think that
we may need to start thinking about going that direction because if Visa come after
with that attack, they do have some merit there to say, “How can this really be a
price increase, if it only is on credit card receipts?”
The cash receipts don’t have the service fee.
You are saying you added a service fee to everything.
Then where is the service fee on the cash sales.
It’s not there because you know we waved it because they paid with cash.
Well, really they need to be two totally separate things.
Here is the takeaway from this.
Number one takeaway is Clover doesn’t do cash discounting anymore.
Be aware.
That’s because First Data doesn’t want to be the poster child that gets sued by Visa
for surcharging illegally.
Believe me they are not the only one that is concerned.
That happened.
Just be aware of that.
If you have people on Clover that are doing cash discount, you don’t anymore.
The second thing to be aware of here is that there is kind of a clear picture here.
I really believe; I don’t have any proof of this, but I really believe this is a result
of Visa talking to First Data.
I think that they are talking about this and Visa is saying, “Hey, here is this issue
with cash discounting.
We are against it.
Are you doing it?”
They are having a conversation.
I think First Data is kind of giving us a glimpse of how Visa is going to attack cash
discounting and the way they are going to do it is they are going to say, “This is
not a legitimate price increase.”
A price increase has to be on the sticker, which is literally what they say in the notification,
but it says it has to be like on the sticker and then you can provide a cash discount at
the counter.
So we have to think about creative ways.
With a point of sale system, it is easy there.
With an individual terminal, it could be a little more tricky.
You would almost have to print a cash receipt of some kind for each sale where you can put
in the amount and just hit print receipt and it will add the service fee and then do the
cash discount and provide that receipt.
I don’t know.
There is different ways you could do it, but somehow we need to make it so the service
fee is on everything and the cash discount is only when they pay cash.
So if you are an individual rep, nothing really to do about this yet.
I just want you to be aware of it.
It’s happening.
We all knew it was going to happen.
We all knew Visa was going to come after cash discounting.
So just be aware of it.
It’s happening.
Again, it’s going to take a while.
I don’t see this being like oh, next week I’m going to do a podcast that says, “Cash
discounting is over,” No.
It’s going to be in 3 years.
But during that time there are going to be some compromises that need to be made.
If you are an ISV partner, or you are a CEO of a processing company, think about this.
What if we just you know added the service fee to everything and then did the cash discount
to make it more legitimate and to make it more clear that cash discounting really is
cash discounting.
So important developments in the industry.
My name is James Shepherd.
Have an awesome day!