Big Changes are coming from Visa and the Card Brands! | Cash Discount | B2B Vault | Episode 154

Yo, what's up everybody? It's Justin live from B2B Vault, the payment technology podcast sponsored by Nationwide Payment Systems, hosted by this guy, the Vlad Divock of payment processing himself, Allen Kopelman., and we'll be providing you educational information about fintech, payment processing, small business, and the technology businesses are using in the world today. And in today's podcast, we'll be talking about Visa and its changes that it'll be implementing, and then how it will affect your business. Maybe it won't, maybe it will, maybe you should be looking out to see if it shall, and here we should find out. So take it over, Bucko.

All right, so this is important information because many businesses out there have implemented either a surcharge program or a cash discount program or whatever you want to call it programs so that they can pay 0% for credit card processing whenever you, you know, whenever I'm looking through search engines, everybody's promoting 0% credit card processing. So what, what that is, is when people come to your business, you ring up a sale for, let's say, $100, and then there's a small fee added on. So there's different types of programs, and now Visa has decided to implement a new rule to change how that works. So let's talk about, um, these two programs and then what's going to change about them. So the, the rule change for surcharging goes into effect April 15th. So all the credit card processing companies are out scrambling around to switch everything up. So first, let's delve into what are they actually changing. They're changing the rule on surcharge. So the original rule for surcharging was, um, as part of the Durbin Amendment, giving, um, businesses the ability to charge a fee, and that fee was capped at 4%. Okay, now Visa wants to lower it to 3%. So does that mean it affects everything else— MasterCard, Discover, and American Express? The answer to that question is yes, because in the rules it says if you're going to pass a, a fee, it has to be the same on all cards. Okay, so they're changing that. So merchants, they're saying Visa registration for this program is no longer required. Merchants only need to notify the company they process credit cards with 30 days in advance, the people, you know, that they're going to do it.

Do what?

Add the fee. Add a fee.

Oh, okay.

And now what's the difference between, you know, so this rule, they're saying this applies, the new rule applies to both card-present merchants, which means like, you know, restaurant retailers things like that, and non-card-present merchants, which means, you know, internet people sending out invoices. And it applies to all card brands. Now they're saying the Non-Cash Adjustment Program is no longer compliant, and new cash discount and dual pricing programs are being implemented as we speak. So which has all been around for a while. I mean, dual pricing is you go to the gas station, they go cash price, credit price. You've seen that, right? So that's been around for decades. Yes. You know, you go, you go in cash, credit, and you know, the Durbin Amendment, which was 2017, I think, that, that basically you know, made it where it's 4%. So what's the difference between surcharging and these cash discount programs, non-cash adjustment program, dual pricing program, right? What is the basic difference?

I have no idea.

Okay, so I'm going to explain.

I'm going to try not to fall asleep during this podcast, just for the ladies and gentlemen out there.

Okay, come on, Justin. I know you always tell me it's boring, but this is important.

I know it's important information, but I'm trying to be as supportive as I can.

Okay, so surcharging— the difference is surcharging is very specific in what it allows and doesn't allow. So surcharging says you can charge everybody who has a credit card, but then you can't put a fee on PIN debit cards, or what you call— what they call offline debit. So offline debit is when you have a card, like say you bank at Truist, or you bank at PNC, or you bank at the Navy Credit Union like Justin, and they give you a debit card. Okay, so when you put that in the machine and you put in your PIN, that's what they call online debit. If you just took it, put it in the machine, and you don't put your PIN in, right, then it's offline debit. So let's say— so then, so they're saying they don't allow it on any kind of debit. So whether it's pin debit or offline debit, you can't charge a fee. And then you can't charge a fee on prepaid cards. So if you have a prepaid Visa card or prepaid Visa gift card, you're not— you can't surcharge that either.

I am so confused, Allen. I'm sorry, bro. Like, between the cash discount, the surcharge, the fee, like, I just don't understand.

Well, that's why most merchants don't want to do surcharging programs because it's confusing.

There's way too many words, like the, the words, there's just too many different pro— I don't know how they got to do a better way of organizing this because if I was a merchant, I wouldn't know where to start. Yeah, well, no idea.

When I explain it to merchants, I say, well, you have to look at like how many, what types of credit cards you get that run through your business. Now let's say you're just, let's say you're a big business-to-business company right, and you sell like auto parts, but you sell to other businesses, you're probably gonna get— probably, if not 100%, more than 90% are going to be regular credit cards. And because businesses are definitely not going to be using a debit card to make large purchases. So, okay, but if you'd say you're a retail store, your mix could be like 50/50. Okay, so 50% of your cards you get, you could cert— you could surcharge people 3%, and then the other cards you would have to pay for. Okay, so that's basically surcharge. A lot of merchants, when you explain it to them like that, they're like, no, I want to charge everybody. So then they opt in for the cash discount program or non-cash adjustment program or dual pricing program, which are all basically the same. Those are just terms that everybody Way too many terms. Yeah, well, everybody uses them to be salesy, you know. But basically, the other program is that you— the other program can still remain at 4%. You just have to have another option to pay. So someone comes to your website and you want to run the dual pricing program. You say, oh, if you want to pass your credit card you could charge them up to 4%, or you can pay us with an e-check, you know, or ACH. So you give them an option. Oh, you can pay your invoice with this credit card and pay us a fee, or you can opt and let us take the money out of your bank account. Or like in this situation of a store or restaurant, you're saying, oh, here's the Bill, the bill is $100. If you pay by credit card, it's going to be $104. And if you give us cash, it's going to be $100. And then, so that's how they do dual pricing programs, similar to what's at the gas station.

Got it.

What's at the gas station. So the change, it's a big change because many merchants, I would say a lot of B2B Merchants like insurance companies, um, CPA firms, attorneys' offices, um, things like that, suppliers, tend to run more of a surcharge program than a cash discount or dual pricing program. So therefore, those businesses have to decide what they want to do. Should they go into— should they switch to a switch, or, you know, switch up to cash discount, you know, dual pricing, or stay with surcharging and lower the fee. Now I find that, like, the businesses who we have who run a traditional surcharge program, they usually run it at about 2%, so it's not going to affect— because I went and looked at clients that we have, and it's not going to affect hardly any clients. And the ones that it will affect, they're just going to have to switch over. You know, we're just going to change it over to the cash discount program, dual pricing. So everybody— so the— so now all the fancy stuff, cash discount, dual pricing, whatever else anybody was calling their program, is going to go away. Everything's going to be called dual pricing from from now on, which kind of makes sense. And then, you know, merchants are going to have to upgrade your— not upgrade the machine, but change the— probably get a software update so that the receipts now reflect the dual pricing versus the non-cash adjustment that used to be on there, or the service charge, or whatever. And, you know, Visa says that they're going to send out secret shoppers to enforce it. I sort of find that hard to believe that they're going to do any enforcement on that, but the other thing is, is that surcharging, there are some states that don't allow it. So Colorado, um, doesn't allow it, but after June I don't know, Colorado's on the list that they don't allow it. Connecticut's on the list, they don't allow it. Maine, Massachusetts, and Oklahoma.

But this is from June 2022 though.

No, no, I'm saying as of June 2022, Colorado, right, wasn't allowing it. But I'm saying that that doesn't stop people from doing the dual pricing program. I'm sure charging is not the same as dual pricing. So those things, so a lot of people do it. I mean, even New York had a rule against the whole surcharging thing, and then that just went to, went to whatever, hell in a handbasket when COVID started. And that's when this programs of charging people a fee kind of proliferated and went crazy because businesses were adding on fees left and right to their business And kind of the credit card companies were getting a little bit— I think Visa got a little bit upset about that because people were really piling on the fees. I mean, um, I saw receipts from places up in New York where they were adding a, you know, COVID fee. Yeah, for 10% and things like that. And, you know, the city, you know, basically like the city was allowing it and I guess if you didn't care as a customer, you just let them do it. So, you know, those type of things were happening. And I've seen other businesses get in trouble where they'll say, oh, we have a surcharge and it's 4% for Visa and 5% for American Express. And then they'll get a letter from American Express saying, hey, you can't do that, the maximum is 4%. So now you have to have your maximum set at 3%, but if you want to do the dual pricing, you have to just give another option for them to pay. So you can say, oh, if you want to pay your bill, it's $100, it's $104 with a card, you can give us an e-check and it'll be only $100.

Got it.

So, you know, those kind of things are What everybody— people are going to struggle with, and business owners have to realize and figure out, like, which program am I on? Is the company you're with going to make sure to change the software in your machine? We've talked to the people we do business with, they already have it all set up. They're going to start to push the updates out to the machines and then call them, call the clients. You know, that's the one really good thing is that with the newer equipment that's all Android-based, they can just put in an update and then, you know, boom, when they batch out, the machine will download an update. And it's not really that big of a change, just on the, on the screen it's just going to pop up, uh, credit price and cash price. So it's going to be, you know, pretty simple, pretty simple for everybody to implement. You know, V— you know, I always say this, you know, one thing, you know, with Visa and MasterCard and American Express, you know, they come up with a bunch of rules that they want to change and, you know, raise interchange rates continually. And then private businesses are going to make, you know, their adjustments accordingly. And, you know, we've seen over the last couple of years, you know, um, especially, you know, like I say, COVID accelerated more people to do adding a fee, you know, right? And now besides adding the fee, a lot of— we're also seeing a lot of tipflation, you know, which we talk about a few times on the podcast where people are, you know, you go to a retail store and they have like, oh, would you like to leave a tip? 10%, 15%, 20%, you know. And if you opt out, maybe you get the stink eye from the cashier, you know. And, you know, and the IRS has even announced on that, that they're— that, that they're now going to investigate all these places taking tips to see that they're actually paying the tips to the employees.

Waste of time.

Well, we agree on that. I mean, hopefully the 87,000 new IRS agents don't get, don't get, uh, funded, because I don't think, you know, that's strictly to go after small businesses, right? And I'm totally against that. I mean, the policies going against small businesses and also like all this surcharging and everything is kind of an attack on small business anyway, because here we have the Senator Durbin trying to bring up, you know, Durbin here. He has this thing now with this Durbin 2.0. He has 2.0 and 3.0. So 2.0 is part of the first Durbin Amendment where he wants to have this secondary debit network that it's going to cost less than the current debit networks. But the problem with that is no one can implement it because that network doesn't exist, right? So I don't know why, you know, they go and they pass things like that, and they go, then they have a hearing and they say, hey, Justin from Visa, where is this, uh, lower cost network? And Justin said, the guy, the guys from Visa and MasterCard go Well, you know, you want it, so you have to go find somebody to make that. Nobody's going and making it right. And then the same thing with Durbin 3.0. He— they want to crack down on Visa to lower the, lower the fees that merchants pay, lower interchange fees. And at the same time, they're asking about, you know, another network to process the credit cards on. Which doesn't exist. And it would just cause— it would actually, you know, cause rates to go up, not down. And then businesses, or businesses would say, well, we don't want to opt to do that because— and consumers wouldn't want to opt to do it either because it would do away with like chargeback rights.

Hmm.

I mean, don't you think that's important from a consumer? What do you think consumers like better, Justin, to get rewards and cash back Or they would care less, they could care less about it.

Well, I mean, of course they want rewards, right?

That's what I mean. So that's, they want to do away with the, you know, do like lowering the fees and everything and having a secondary network that would get rid of all the rewards and the cash back.

Durbin wouldn't want that either once he figures that out.

Yeah, well, I don't think that he's informed enough or his colleagues are informed enough to— obviously not about it, because otherwise they would call people in front of Congress to testify and say, hey, explain how this works, right? And why it's, you know, what would be good about it and what would be bad about it. You know, when I look at these things like surcharge program and the dual pricing program, And I look at it and I say, oh, from a business standpoint, is it a good program? Sure, because businesses can save money and not pay, you know, the fee. And is it bad for consumers? Are consumers going to be upset because they have to pay the fee? I think consumers look at it and they go, well, I want my miles and I want my points, or I want my cash back. And they'll say, well, I'll pay a little extra just to get that because the benefit outweighs the, you know, outweighs me carrying around cash with me all the time. I don't want to carry cash.

Okay.

So it outweighs— so I'll pay a little bit extra and not deal with it. But I think when you, you know, combine that with like all the extra tipping that's going on, I think it really kind of—

I can't afford to like always do that. So I have to definitely be— I always, at the restaurant that I do go to, the, the Jamaican place I talk about, yeah, I always take cash because I can't afford the fees. I pay cash everywhere. I pay my, I pay my FPL so I don't have to pay fees.

Well, they charge a fee for FPL if you go somewhere to pay it.

Yeah, FPL plays— when you pay it online, you're paying a fee.

Yeah, I know. I had to— I went on like the automated—

got to be careful, man, when you're out here struggling. You got to make sure you're not paying fees.

Yeah, well, that's the thing is with the inflation going on, they shouldn't be— you know, they should be coming up with ways— Visa and the other card brands should be coming up with ways for businesses to save money on fees and not, um, come up with ways how to disrupt everything and force businesses into these programs. I mean, part of it is just, I think, the adoption of people adding the fionn, even though like Durban happened quite a few years ago, right? People weren't really doing the really, you know, taking on the program by leaps and bounds. It was maybe 10 or 20% of customers would literally ask us for it.

You know, I don't want it.

1 or 2 out of 10. Okay, now it's probably 5 out of 10.

Nice, that's good.

Yeah, they ask for it, so they want the program. They're tired of paying the fees, um, they don't want to do it. And it works in some businesses, and some businesses it doesn't work in. Like, you're not supposed to do it in a doctor's office because people have an agreed-to copay that they're paying. And they can't— they're not supposed to charge a fee on top of that copay. Oh, so, you know, there's different businesses where, like, it's not suggested to do it, you know, and some businesses are smart and they go—

not suggested or illegal, is it?

Well, I would say that they could get slapped around by the insurance company if somebody complained. I don't think it's against the visa rules. But it's against the— probably the rules that they agreed to with the insurance company. They agreed to accept $20 or $30 for the copay, and then they're going to put a fee on top of it. If somebody complains, the insurance company probably gonna have something to say. I mean, I heard one doctor tell me that they tried the program and somebody complained to an insurance company, and they got a letter telling them to stop doing it. So I think that it works in some businesses and it doesn't work in other businesses. The employees need to be trained correctly. They need to put signs up that say, if you pay with credit, it's this price. If you pay with cash, you get a discount, you know, so the customers know exactly what's going on. Just like, I don't like it when I go to a restaurant and they sneakily put the tip on the bill and then they put a tip. Yeah, the gratuity. They put it on there and then they also put a tip line. And then it doesn't say additional tip, it just says tip.

Right.

I think that's like a little bit sneaky. That happened to me recently and I was about to write the tip in and then I looked and I was like, wow, they already included the gratuity. And then I called the person over to the table and I said, what's up with that? And they go, oh, it's included. So I just cross— put zeros everywhere and crossed it out, you know. Yeah, but you got to be careful with, with, with all of that. So, you know, I don't want to drag out the whole podcast of going crazy about this whole thing. Be aware, if you're running a surcharge program, that your limit is 3% starting April 15th. And if you're paying— if you, if you think that your fees exceed 3%, you know, let's say you're, you know, your fees might exceed 3%, and maybe that's not going to work for you anymore, and you're going to— you need to talk to whoever provides your processing or find a new company that can help you figure out how to properly run the right type of program for your business, or you're going to need to change from surcharging over to dual pricing. And that way you have a credit price and a cash price, and you do it all correctly. So that's, that's, you know, the, you know, the thing I think businesses don't really know that this is going on because on the news all they're talking about is, oh, the surcharge has to be 3%, the surcharge has to be 3%, right? On the— you know, that's what the news is telling everybody. But the news is not explaining about that the dual pricing program, right, is still valid and good. And you can run the dual pricing program and charge up to 4%. I don't usually suggest businesses go that high. You know, I say charge a reasonable fee, and then that way, and then also, you know, we don't need, we don't want to be gouging everybody, you know what I mean? So you got to come up with, you know, we try to use like a formula, look at their current statements, how much they're spending, what are they spending on interchange today. What is it, you know, what are their other fees that are involved with their particular business, you know what I mean? Software fees, this and that. And then we try to come up with the right type of fee that's going to work for their, their type of business. And, you know, and then, you know, work with them so that they understand, like, because once we do that, then we don't, you know, usually the program works, there's like a small monthly fee And then, and then there's, and then there's the fee that gets passed to the customers, and then all the other like monthly fees that, that usually get charged, like statement fees, PCI compliance, and any other type of monthly fees, all get like absorbed into the whole, into the whole process to make it a more simplified type of processing statement. So you just have one monthly fee Then you don't have all these other fees, and then everything is just absorbed in there. So, you know, but businesses, I think, need to think about that when they're putting these programs in place and come up with as fair a fee as they can for the customer. Mm-hmm. Keep their customers happy, keep them happy so that they're not paying for credit card fees. Listen, that can hurt some businesses. You know, their rent is going up. Utilities is going up, the cost of goods is going up, right? And, and all of that. And then, you know, asking for tips is also, you know, they're asking people to pay a tip sometimes on top of that. So it can get a little bit cumbersome and, and start to keep people out of the, you know, from coming into their business. So they need to think about how they're running these programs And, you know, like, even like I was talking to somebody that was doing it, was they never took credit cards in their business and they're a wholesaler. And so I said, why do you guys all of a sudden want to take credit cards? And they go, well, we don't want to extend terms out to our customers.

What does that mean?

So like, let's say you buy something from me and it's $20 grand and I say, hey Justin, you have 30 days to pay the bill. Okay, right. And then 30 days turns into 45 days or 60 days before you pay the bill. So they don't want to do that. They don't want to float all this, all their customers. So they would just want to let them put it on the credit card, and then the customers don't— they said that they don't think the customers are going to care. They started doing the program a couple weeks ago and it's working. They pass like 2%, or they do pay by ACH. And then that way it's a fair deal to the customer. But because if you're charging people now and then you don't have a secondary form of payment, maybe you get a violation from the card companies. So you got to have a secondary form of payment. You can't say, oh, we only take credit cards and charge a fee, but we don't take cash.

Got it.

You gotta, you know, you gotta have a or you don't take an e-check or whatever it is. I mean, you could say, oh, check, put a check in the mail to us, I guess. But you have to offer a secondary form of payment.

Good enough.

And with the surcharge, the secondary form of payment is, oh, you don't pay with credit, pay with PIN debit or your debit card or prepaid card. And then those cards are not charged. But you have to make sure your terminals are programmed properly, or your gateway, or whatever software you're using is programmed properly to handle that. So that's today's podcast. We're talking about the new rules being put in Visa for April 15th. If you have any questions about that, hit Allen up. Yeah, go to b2bvault.info. Fill out the form.

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Peace.

Peace out.