More merchants are offering discounts to customers who pay with cash rather than credit card for purchases, typically ranging from 2% to 4%. Although only 3% of cash payments currently receive discounts, this share has increased by over 60% since 2015. In contrast, nearly 7 in 10 cardholders have been charged extra for using a credit card for transactions. As consumer preferences shift towards cashless payments, cash incentives are expected to become more widespread.
Businesses offer cash discounts to save money on credit card processing fees, which can amount to 2% to 4% per transaction. This is the second-highest cost for most businesses, after labor expenses, making it more financially viable for merchants to give discounts on cash payments or add surcharges for credit card transactions. However, surcharges may be illegal in some states, and Visa has capped them at 3%, down from 4% in April 2023. Consumers are advised to calculate the potential cost of surcharges before making a purchase.
Research shows that cash incentives have a significant influence on consumer payment behavior, with individuals being more likely to switch to cash payments if cash discounts are offered. Many small independent businesses are more likely to provide cash discounts compared to large national chains. Gas stations have traditionally offered cash discounts, but more retailers are beginning to do so as well. Health care payments and big-ticket expenses like tax bills and college tuition are also best settled with cash due to additional processing fees associated with credit cards.
While credit cards offer certain protections such as fraud coverage and product return policies, there are instances when using cash may be more advantageous. Consumers who struggle to pay off their credit card bills in full and on time may be better off using cash to avoid accumulating interest charges on their balances, especially given the current high interest rates. Debit cards also serve as an alternative to cash and credit cards, as merchants generally cannot add surcharges to debit card transactions. Debit cards can be a cheaper and more convenient option in situations where credit card surcharges may apply.
Some experts suggest that it may be more financially beneficial to pay with cash, even after factoring in credit card rewards. Cash discounts often exceed the general cash-back rate of 2% on credit cards, allowing consumers to save more by using cash for transactions, especially when merchants establish high discount rates. Considerations should be made for different payment methods depending on the specific situation, as credit cards offer convenience and protections that may be worth the extra cost in certain cases. Ultimately, consumers should weigh the benefits and costs of different payment methods to make the most financially sound decision for their transactions.
