In the fast-paced world of financial decision-making, staying ahead of the curve is essential for any business seeking growth and success. This is especially true as you search for cost-reduction exercises to retain employees without cutting back on any other avenue of your company. As someone responsible for the financial health of your organization, you understand the importance of optimization to guarantee success. One aspect of your organization where optimization opportunities exist is your merchant account — specifically, the fees associated with payment processing. Taking advantage of the tools at your disposal will give you more control over your processing fees and help you counteract market shifts and inflationary pressures.
In the wake of Visa’s most recent changes to the surcharging cap, merchants are searching for alternative strategies that offer similar impacts. A lesser-known and under-discussed payment solution exists that not only offers unparalleled transparency but also empowers you to tailor services to your unique business needs. This solution is called dual pricing and it’s a game-changing model that’s revolutionizing the merchant services industry, especially after recent developments regarding surcharging. Dual pricing gives you a more hands-on approach to managing your organization’s financial health. In the ever-evolving world of commerce, staying ahead of the game is crucial for businesses seeking sustainable growth and profitability. Among the many advancements that have reshaped the merchant services landscape, dual pricing stands above the rest as a disruptive and incredibly useful tactic. In this blog post, we will explore dual pricing, its benefits, and how it is making a major impact in the industry.
What is Dual Pricing?
Simply put, a dual pricing system provides discounts to customers who opt to pay with cash. This is a win-win incentive that saves your customers money while reducing your credit card transaction fees. Businesses can adopt this pricing model through a payment terminal or point-of-sale (POS) system, presenting both cash and credit prices. Or, if you’re handling business-to-business transactions, you can list the payment options on your clients’ invoices. To ensure compliance, it’s crucial to advertise the credit card price either as the full amount or alongside the cash price.
Dual Pricing vs. Surcharging
As a financial officer, it’s vital to distinguish dual pricing from surcharging, considering their unique characteristics and legal implications. Surcharging entails adding a line-item fee to the purchase price when customers pay with credit cards. Dual pricing, on the other hand, displays a lower cash price as a discount. While surcharging increases the price, dual pricing discounts it. This is significant because each system could influence customer perception differently.
Additionally, while dual pricing is legally permissible nationwide, surcharging is prohibited in some states and subject to specific regulations in others, with varying maximum surcharge rates. Furthermore, credit card brands may have their own rules concerning surcharging.
Dual Pricing vs. Cash Discounting
Now that we’ve analyzed the differences between dual pricing and surcharging, the next step is to examine the relationship between dual pricing and cash discounting. Thankfully, this comparison is much easier to make: they’re the same thing! Whenever you see cash discounting mentioned, consider it a dual pricing strategy and vice versa. These terms are interchangeable and refer to the same payment model.
Considerations Before Implementing Dual Pricing
Just like with surcharging or any other payment solution, dual pricing will impact your business differently depending on a wide variety of factors. For the purposes of this analysis, we’ll take a deep dive into dual pricing considerations for a middle-market B2B service provider. However, it’s important to perform a similar analysis if your business doesn’t fall under this category. As you assess whether dual pricing aligns with your middle market B2B service provider’s objectives, keep these essential factors in mind.
The Payment Preferences of Your Customers
Analyze your customers’ payment habits and preferences. If a significant proportion already prefers cash or ACH payments, dual pricing could be an effective strategy to introduce alternative ways to collect dollars while reducing your days to collect. This approach allows credit card users to cover the full price while regular cash-paying/ACH customers benefit from the discounted cash price. However, if a substantial portion of your customer base uses credit cards, dual pricing might be perceived as penny-pinching and could adversely impact your business.
For example, many of our merchants operate in the manufacturing space, which is a great vertical for applying a dual pricing strategy. This is because there is very little resistance to introducing fees, as every business is identifying strategic ways to reduce overhead costs to maintain employee headcount. If your business operates in a vertical where this trend is uncommon, your customers could react more negatively because they are caught off-guard.
Your Credit Card Processing/Payment Processing Fees
Carefully review your agreement with your payment processor while considering dual pricing. Since raising your full prices results in higher credit card rates, negotiating the best processing rate directly might offer a more advantageous solution. Just because you pass on the fees does not necessarily mean you’re getting good processing rates. Consider having a dynamic conversation with your processor to identify how you can cushion the cost to your customers and alleviate the stress of passing on the fee. If your merchant services provider has your best interest in mind, you should leave the conversation confident in the options available to you and the feasibility of dual pricing. The Evolve Payment team regularly speaks with our merchants about this topic. With the popularity of dual pricing increasing significantly, this topic should never surprise or confuse your provider.
The Availability of Professional Assistance
Effectively utilizing dual pricing while staying compliant requires expertise in implementation and management. Enlisting a trusted payment partner, like Evolve Payment, can help ease the process and give not only positive return on investment, but more importantly positive return on time. Your partner can assist with raising prices, providing appropriate signage, and ensuring your payment terminal or POS system complies with all necessary regulations.
Bring Dual Pricing Into Your Merchant Services Package
As a CFO or Controller of a middle market B2B service provider, strategically adopting dual pricing could offer significant cost-saving benefits. Dual pricing is a hidden gem that can have a big impact on your merchant account. By partnering with Evolve Payment, you can ensure a smooth implementation and take advantage of our suite of tools that enhance efficiency and boost revenue, leading to a more profitable and successful business. Assessing the preferences of your customer base and considering the potential impact on sales will help you determine whether dual pricing is the right pricing model for your middle-market B2B service provider. If you’re ready to learn more, book a quick call with Don Raleigh, one of our merchant experts. He can answer any of your questions about our programs, what we bring to the table, or simply act as a resource for clearing up anything mentioned in this blog.
Talk with our merchant expert
Book a time to chat with Don, our merchant expert, and learn how you can implement the perfect dual pricing strategy for your business and customers.