Would you get rid of credit cards if stores give more discounts to customers who pay cash ?

By Xin Lu. Last updated 16 May 2009. 29 comments

I am sure you have encountered a store or gas station that has a set of prices for cash customers and a different set of prices for credit card customers.  Usually the credit card customer has to pay a small surcharge.  Under a new measure being considered in the U.S. Senate, retailers may be given the go ahead to give more discounts to cash paying customers.  Would this encourage consumers to ditch the plastic? 

Currently, credit card networks levy a small fee on merchants for every transaction.  Usually the fee is around 1.5% to 2% of the transaction.  Some smaller retailers may have to pay more and each card network has its own rules.  The credit card industry has always tried to get retailers to charge the same price to cash customers and credit card users.  When everyone is charged the same, merchants earn a little more profit on cash payers.  Also, unscrupulous merchants who do not report all of their cash receipts to the IRS earn even more due to skipping taxes.  So there is definitely an incentive for merchants to want more cash sales.

I have found that I tend to go to merchants who accept credit cards without a surcharge for the convenience and also the rewards.  For example, there are two gas stations next to my house that are a block apart.  One of them always has a cash price that is about 2 to 5 cents cheaper per gallon than the other station.  However,  if you pay by credit card the two stations give approximately the same price.    I always go to the one that does not have a cash price because I get 5% back on gasoline purchases on my credit card, so it is not worthwhile to drive an extra block to the station with the cash price and pay cash. Another reason that I prefer merchants that take credit cards is that I just do not like to carry too much cash around.  If I lose my cash I simply lose it without recourse, but losing a credit card is not as bad since the card can be cancelled.

If this measure does pass, I do not think merchants will be giving discounts that are extremely spectacular to cash payers since their cost for credit card transactions are fairly small.  However, if the transaction amount is large enough it may be worthwhile for the consumer to pull out cash instead of plastic.  For example, if you are buying something that costs $2000 and the merchant is giving a 5% discount to cash payers and your rewards credit card only gives 1% cash back, then  it might be worthwhile to pull out the cash to save $80. 

What do you think?  Do you avoid stores that have different sets of prices for cash and card customers?  If you always pay cash do you think it is unfair that credit card accepting merchants are making a little more profit off of you?

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Guest's picture

Here in Atlanta the only time I've seen different prices for cash/debit vs. credit is at the liquor stores, and I will ALWAYS pay with my debit card. I would definitely use cash more if this were the case at other stores.

Thanks for the article!

Guest's picture

There is one problem with this. Most large retailers save more money with credit cards. It's very expensive to handle cash. You have registers, insurance, pick up from those big armored trucks and the cost of simply counting it. Credit cards save them a lot of money. I'm afraid only small businesses might benefit from a cash incentive program, and that won't be enough to have an impact. Not enough would participate.

Guest's picture
Peter T

I would not welcome a return to a cash economy - it involves inefficiencies for the customers and the stores, too. But if stores would give users of debit cards a discount, I would use a debit card instead of my credit card. Debit is like cash, just as electrons instead of paper.

Guest's picture

I'm willing to bet that although merchants are paying a fee to the credit card companies in order to process those transactions, many retailers are still making more - on the whole - from credit card purchases than from cash. When a consumer pays cash, it's a set, finite amount. If they don't have the cash in their wallet, they're not going to buy that extra $5 item in the checkout line. But when a consumer pulls out the plastic, that $10 extra something doesn't seem like so much, because they don't feel its impact so deeply.

So while some smaller retailers may offer those cash incentives, I doubt we'll see larger businesses giving up those extra profits.

Guest's picture

I've been using a debit card exclusively for about 10 years. Many card issuers offer buyer protection on purchases. This can be an invaluable benefit. Using cash to pay for big-ticket items can be risky. And consider how many retail chains have gone under recently, and continue to fail, often leaving buyers in the lurch.

Guest's picture

I still prefer credit cards for the protection they provide.

Guest's picture

Wouldn't ever happen. Stores brag that every customer who signs for a card brings in $300 over a cash shopper in a year. Interest aside, card shoppers are simply less careful where their money goes.

Guest's picture
Debbie M

There's one place near us with a cash discount, and by "cash" they mean cash or debit card. So you still get the convenience and get to keep your cash safely in the bank. I use cash or a debit card there.

It's true that although merchants lose more for a given purchase using credit, they tend to get more purchases when they take credit cards. And nowadays when everyone in generation Y uses credit cards for everything, everyone really has to keep taking credit cards. My local food coop wrote a long article explaining how it really doesn't make much difference to them which payment method you use, saying that checks and cash aren't as great as you might expect.

I currently use credit cards that give me 3% back on gas, groceries, drug stores and home improvement stores and 1% on everything else. A 3% reward is more than a 5-cent discount when gas is $2 per gallon, so I usually use credit. But if it cost the same or less to use cash, I would make the switch. Most credit card companies are slime, and I'd be happy not to give them 1-2% of my purchase price.

Guest's picture

Fine discussion if you have a choice, but what about us poor people? If we have a credit card at all, it's just for emergencies because it has a high interest rate and no rewards, so we do everything with cash already. A CASH DISCOUNT WOULD BE A GREAT HELP FOR THE POOR!

Guest's picture

Do you avoid stores that have different sets of prices for cash and card customers?

Guest's picture

Yes. If there was a choice to pick that or not

I could front up to $500 in cash to pay for something but anything higher and I feel uncomfortable carrying around that kind of money

For restaurants it's a good idea. I've seen that before

Guest's picture

Quote: " I always go to the one that does not have a cash price because I get 5% back on gasoline purchases on my credit card"

Hope you can tell me where you get that....I had one that gave 2.5% back, but then they changed it...just steer me in the right direction, maybe I'll find it...

Guest's picture

I am not the author but I do have a credit card that gives 5% back on gas purchases. It is a Platinum Visa with Pentagon Federal Credit Union.


Guest's picture

I create my own cash discounts routinely.
Small purchases automatically get paid in cash.
On medium sized purchases, knowing the retailer is paying a 2-3% credit card processing fee, and I have a 3% cashback card, I usually ask if they will give me a discount for cash. If they offer me 6% off or better, I dig out the greenbacks - If not, they get plastic.
I always use the credit cards for big purchase so that; a) I don’t need to carry huge amounts of cash, and b) I get the extra protection the credit card company adds to the sale.

Guest's picture

Some places give you a cash discount because they're dodging taxes. Others are laundering money, and don't accept credit at all.

Guest's picture

It depends on if the discounts/rewards were more than the 3% that my credit card currently gives.

Guest's picture

I would love to see people cut down on their use of credit cards enormously. They can certainly be useful from a cash flow perspective, but people charge everything and the credit card networks take 2.5% or more of the money from each transaction. It's sickening.

Yes, you can make out well with a rewards card but you're still pushing up prices for everyone by adding another middleman to the shopping process. Try to minimize daily use of credit cards and use them (if you must) for those larger purchases where the extra benefits are most important.

Guest's picture

Aldi, for a long time, only accepted cash, so I paid cash - it was well worth the "discount" of their prices on some items.

And I do a lot of garage-sale shopping as well, and small charity thrift stores that only take cash. If there were a cash discount, I'd use cash - if there were a debit card discount I'd do that.

The one thing I don't do is use a cash-back credit card, because I don't use the credit card unless I absolutely have to - i got into carrying a debt when I was in my early twenties, and got out of it by going cash-only.I'm not going back.

Guest's picture

I would far prefer to pay with a card because of the record of receipts the credit card company keeps automatically. I recently received a store credit on a watch which stopped working even after the warranty expired. I believe I received the credit because I was able to quickly find and bring in receipts from the last 3 years from this store that showed I was a repeat customer. I wouldn't have the accessible record of those purchases without my credit card... and a new watch would have cost me far more than these negligible savings.

Guest's picture

Other countries in the world give discounts for cash purchases so it would not be strange for the US to do so as well. I just wonder if Americans would get used to carrying cash again or if we are just too used to using credit cards.

Its an interesting idea.

Guest's picture

I spend cash or use my ATM card like a debit card when I shop. The credit cards stay at home and only come out for large planned purchases.

Why should I have to subsidize other people's decision to go into debt every time they make a purchase?

Guest's picture

I wouldn't shop at stores that give discounts for cash (same as I make a point of never buying gas at stations that provide a "cash discount") - it's just a tricky way of penalizing credit card use, and I make a point of not rewarding that type of practice.

Guest's picture

I ask for cash discounts all the time and I get them almost every time . . .

Guest's picture

One thing everyone is overlooking is that credit card companies are charging their percentage ON TOP OF THE TAXES! That makes a big difference here in Ontario where PST/GST is 12% of the purchase.

So if someone buys a $1000 item, they pay $1120 with $120 going to the government. The retailer is paying the credit card company 2.5 % of the total price ($1120), not the original price tag. (So the retailer pays the credit card company $28.00 in total). Of the total purchase, the retailer only gets to keep $972.00.

However, if the buyer pays cash or debit, and they get a corresponding 2.5% off, the discount comes off the purchase price before taxes are calculated. So in total the buyer pays $1092.00 that's $975 (item with discount) + $117 (the 12% tax).

Ultimately, the retailer gets to keep $3.00 more. As noted in the comments, most retailers offer a better discount than the fees they're paying, so they might not keep any extra at all. However, the cash discount is probably a better deal for the buyer than whatever rewards they get on their card.

Bottom line: The government and the credit card companies win when you use your credit card.

Guest's picture

signed by all merchants who take credit cards has a clause that states the merchant cannot give a discount for cash or charge a surcharge for taking credit cards.

Those who offer a discount for cash are violating the agreement unless its only on their own company issued cards...like an Exxon card used at an Exxon station.

All the merchants are salivating at the idea of being able to charge a surcharge for taking credit and debit cards....there won't be a discount for cash...it will be a surcharge for using a credit card.

No different than the fees you pay for using an Out-Of-Network ATM.

Bend Over.

Guest's picture
Peter T

> The Merchant Agreement signed by all merchants who take credit cards has a clause that states the merchant cannot give a discount for cash or charge a surcharge for taking credit cards.

And why can Vis and Masters force the merchants to sign such an agreement? Because they are two, and the merchants are thousands. It would welcome if the antitrust department of the government comes out of hibernation and slaps some fines on the big guys when they abuse their market power.


Guest's picture

Different gas prices depending on whether you pay cash or credit has not yet come to Canada. Credit cards offer many advantages such as free extended warranties on electronic goods, protection etc. but should be used appropriately. Have credit card with low monthly limit in order to avoid increased accumulation of debt.

Guest's picture

Yes...I would ditch the plastic for cash if the incentives were good enough.

Guest's picture
Smart Shopper

I would not patronize a store who has a credit card surcharge. The sooner we nip that entire concept in the bud the better.

Since the settlement did NOT apply to Discover, I will use a Discover card and if they attempt to surcharge it, I will point out the settlement does NOT apply to Discover cards.