Are Discounts Coming for Paying in Cash?

A couple of weeks ago, J.D. highlighted research that showed that rewards cards cost the poor (in higher prices overall) and benefit the rich (who are more likely to use the cards). But what if retailers offered you a discount if you paid in cash?

It might not be so far-fetched. In Will Financial Reform Kill the Rewards Card?, Brett Arends writes that a provision in the financial reform act allows for such a discount.

If competition works its magic, that discount should end up worth as much, or more, as the points you get from a card. We may end up saying goodbye to the rewards card, and go back to old-fashioned money.

The new cash is, er, cash…According to both the Public Interest Research Group and the National Retail Federation, when you pay for a purchase by credit card, it costs the retailer about 2% in transaction fees. So, logically, that's about how much they can afford to discount if you pay cash instead.

Arends points out that the value of your rewards can be difficult to determine, especially with points for purchasing items or airline miles.

…experts explained that the average card user is doing really well if they get back about 1½ cents on the dollar. That's why cash-back cards paying 2% seemed like the best deal for most people.

But why wait to get 2% back if you can never part with it in the first place?

Getting More for Your Money
Paying with cash could yield even bigger discounts, since the new law allows retailers to offer other benefits, like vouchers and gifts, in lieu of cash back.

Stores, naturally, sell products at a profit. So they may be able to offer you $2.50 worth of goods, say, as a bonus for settling your $100 bill in cash. You effectively get rewards worth 2.5%. But it may only cost them 1.8%. (At a high-margin retailer like Tiffany, the deal could be even better. Tiffany's gross markup was about 75% last year. So the company could give you, in theory, gift vouchers worth $35 in return for settling a $1,000 bill in cash.)

Coming Soon to a Store Near You?
It'll probably take time before cash discounts are offered by retailers and restaurants, but there's interest. Before, it was difficult to implement such an offer since the law was unclear and credit card companies employed lawyers to make it harder.

But does this mean rewards might be a thing of the past if the rewards lose their allure?

Store Discounts Could Cost You
Arends is decisively anti-credit card, and that's not a viewpoint I share for those who use them responsibly. Personally, I haven't paid interest on a credit card purchase in years, nor have I paid late fees. I have, however, racked up some serious rewards.

For me, it's worthwhile. But I had to ask myself, given the opportunity to get an instant discount, would I take it? Maybe. But only if I actually got cash back. With vouchers and discounts, it's easy to feel like you're getting a good deal, when really you're just spending more money. In Learning to Discount All Those Juicy Discount Offers, Karen Blumenthal reports that stores that offer discounts through loyalty programs count on people not redeeming their rewards:

…we are likely to spend more to qualify for a coupon or earn cash back—and then forget to spend it. All loyalty programs count on a certain percentage of consumers not redeeming,' Prof. Nunes notes. In addition, he says, ‘once you get closer and closer to a reward, you want it more and more' and may spend more to get it.

Second, vouchers are a bigger win for the merchant, or else the programs wouldn't exist. Take the example of Tiffany's that Arends gives to show how higher markups can mean bigger rewards. How many things can you buy in Tiffany's with a $35 voucher? Not much. The cheapest thing I could find on their website was a sterling silver ring for $100. You're still shelling out $65 to use your voucher. If you were going to buy the item anyway, it might be a good deal. If the discount found you looking for something else to purchase, you aren't coming out ahead.

So readers, what do you think? If you use a rewards card, would you trade in the rewards for an instant discount? Would you trade them in for vouchers or gifts?

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Travis
Travis
9 years ago

I wouldn’t give up the convenience of having all my transactions recorded and categorized automatically for a measly cash discount. Until the treasury replaces old-and-busted paper money with its own form of electronic payment card, I’ll stick with my rewards card.

partgypsy
partgypsy
9 years ago

I primarily use credit cards to purchase off the web. Not sure how I could pay cash in that case, unless they allowed for paypal connected to checking or some variant.

Sara
Sara
9 years ago

The only way I would agree to use cash instead of my rewards card would be if I got the instant cash savings. In exchange for a voucher, etc.? No way. Plus, I prefer the the other benefits of having the card, such as keeping a record of my transactions, insurance, etc.

Nick
Nick
9 years ago

I would trade in rewards for instant discount, but not vouchers or gifts (unless it was for something I “need” or would buy anyhow – like diapers for my son… I’ll need more for sure and it would replace money I would spend later). I often negotiate cash prices for discount after shopping and coupons. It is only at payment that I consider the best payment method for me. I’ll ask for a cash discount on top of the coupons. Often the merchant is happy to not process the card (it’s often worth more than just the processing fee to… Read more »

Cath
Cath
9 years ago

If the discount or cash back was greater than my credit card reward (let’s just say 1%, although there’s the periodic “5% in these categories” nonsense) I would probably use cash. Unless it was something that would have added value from using a credit card–like a rental car, where the credit card would make purchasing additional insurance unnecessary. But if it’s just gifts or vouchers, I might not be so keen. And when we say “cash” do we mean actual currency, or does that include debit?

RampantRedsFan
RampantRedsFan
9 years ago

Many major retailers do not pay 2% or 2.5%. I think Walmart has been trying to work through deals where the credit cards pay them (although that may have just been roomers).

Hannah
Hannah
9 years ago

I can see how this change is good for the merchant, but it’s certainly not to my benefit. I use credit cards for every purchase I possibly can. I don’t feel secure carrying cash because once it’s lost or stolen, it can’t be recovered, and you have no record of where it was spent. The rewards are an added bonus. I will do my best not to patronize any businesses that begin implementing a cash discount or credit minimum. I suspect that big chains won’t change anything, because they have already implemented online shopping and other internal systems (like stored… Read more »

Melanie
Melanie
9 years ago

I’d definitely use cash for cash discounts and probably for rewards, as long as they were for gift cards or rewards that I would use. However, instead of offering a discount for cash, I think it’s probably more likely that prices for credit card use will be increased, while calling cash use a “discount.” The public transportation system here in Washington DC just hiked its fares, then hiked them again for those not using the paperless Smartrip card. They call the use of the card a “discount” even though the fare was hiked (just not as much as fares for… Read more »

Brent
Brent
9 years ago

I think that if cash discounts become that popular then the credit card networks would either reduce the costs or be stricter with the implementation of their merchant policies with less consumer protections. It will meet somewhere in the middle. I personally would be torn if the trend starts happening. Cards fit the way i buy and conduct my business a lot better.

Matt Jabs
Matt Jabs
9 years ago

Boy I sure hope so, my wife and I use cash envelopes so a lot of our spending is already done in cash. The rewards far outweigh cash-back credit card purchases because you spend less when you have a bottom limit (unless you give yourself categorized credit limits that you stick too – then it’s the same.)

I say let’s save some money, save our merchants some money, all while sticking it to the credit card banks.

Chris Caton
Chris Caton
9 years ago

An alternative future: credit card companies will dump the transaction fees. In a world that is becoming better-connected digitally, transaction fees are getting harder to justify. When you add market pressure in the form of cash incentives, you can bet that credit card companies will do whatever they can to induce merchants to use their services.

Andrew
Andrew
9 years ago

The problem with cash is that it’s valuable. If high volume merchants suddenly offered incentives for cash, then they will have alot more cash in the store which raises their risk levels. Business insurance could increase, new expenses like armored car services might be needed, not to mention all that expenses and labor related to sorting and counting and detecting counterfeits.

There’s also a higher probability that cash received not equal receipts and that money has to then be accounted for.

Credit Cards are convenient for both parties, merchants and sellers.

chacha1
chacha1
9 years ago

I have a rewards Capital One card. I let the points accumulate up to the point that I can deposit them back to the card as an extra “payment.” DH has a rewards American Express card. He hasn’t used any of the points for … ever? Because I always end up booking our travel. Hmmm. I’m about to get an Amazon rewards card. I know exactly where the points will go. 🙂 I don’t use cash for much besides walking-around money – coffee, lunch, parking. If I had a strong incentive to do so, I might – but maybe not.… Read more »

mapster
mapster
9 years ago

I rarely ever carry cash. It’s easier to lose and harder to track. Unless the discount is substantial and is an actual upfront discount or cash back (no gift cards, or rewards) it would not be worth it to me to have to carry cash around all the time.

Eric Curtis
Eric Curtis
9 years ago

Ikea already does this in a way. If you use a debit transaction instead of a credit card transaction they give you a 1% rebate.

Claudia M.
Claudia M.
9 years ago

I really don’t find a benefit to credit card rewards programs because I already save money from not using a card. Where I live, retailers are not discounting cash transactions, but are kindly not transfering the 2.5% Visa card fee on to their customers. For example, many locally owned and operated gas stations charge patrons an extra $0.05 a gallon when they use cards rather than paper money. The university I attend charges 2.5% extra to students who swipe a card rather than write a check or pony-up the cash for tuition. Either way one looks at it, any extra… Read more »

Rob Ward
Rob Ward
9 years ago

My habits will stay the same until it becomes cost prohibitive and also for the exact reason April mentioned – I forget to use rewards/coupons/vouchers. Also, I just plain hate to carry cash. I’m always worried about losing it and I forget what I spent it on.

Mary
Mary
9 years ago

Given the choice, its easier not to carry cash around–and it also makes keeping track of my spending (on Mint) super simple. The rewards for cash v. credit would have to be big to entice me. I also wonder about the cost for retailers–a manager has to count the drawers in and out every day, but nothing is done with credit cards. So that fee from the credit cards may be worth it if you’re talking a lot of cash. On a busy shopping day, it takes our manager over an hour to close out four registers, plus you have… Read more »

mr
mr
9 years ago

A local gas station just started added a four cents per gallon change if you pay by credit card.

I’m bak to cash on that one.

roger williams
roger williams
9 years ago

Due to pre existing conditions my wife and i have to pay as we go for medical (doctors, hospitals etc.) luckily if we pay in cash we get a 25% discount on the spot.

treousa
treousa
9 years ago

I’ve made it a point to this day to interrupt a transaction at the counter (if necessary, if it’s posted outside the store that don’t accept credit cards, I will not even go in) if the merchant does not accept my main card that I use (Amex). I’ve gotten into arguments with the store owner before (usually small independent stores) and I’ve done well at staying true to keep paying with my Amex card. I don’t carry cash, at best I might have $10 on me, and that’s very rare, the average cash contents of my wallet are below $1.… Read more »

Chickybeth
Chickybeth
9 years ago

The only “discounts” I’ve seen are at the gas stations in my small town. About a year ago, they all started charging one price for cash (Which is usually about 2 cents higher than the next town) and charging 10-15 cents more per gallon for credit. It’s sneaky and ridiculous and I won’t shop there.

I’m kind of confused why people think there will actually be discounts for cash instead of just raising prices for credit users. They already know you will pay the higher price, rewards or not.

50plusfinance
50plusfinance
9 years ago

In my area there is only one gas station that gives a discount for gas. I avoid it. I can go anywhere and get my gas cheaper, there not even the lowest gas price.

My Chase card gives cash rewards that I apply to my balance, which is paid off monthly. Eventually I’ll even quit that. The whole rewards programs are insulting. Its a such a small amount, its not worth it.

Seo Guru
Seo Guru
9 years ago

It will worth the wait for stores to offer discounts on cash purchases. I would prefer it over rewards or coupons. I have the free hand on what to do with my discount instead of getting it on the same store. But then again, plan your purchase and go straight to the store with your cash in hand.

S
S
9 years ago

Our credit union gives points on the our debit card usage! Only problem is the rewards are all ‘stuff’ = merchandise, no gas or gift cards.

Penny Frugalista
Penny Frugalista
9 years ago

I’ve been using this tactic for a few years now on larger purchases — many of our local businesses will give a discount if you pay in cash, rather than credit card. They’ll usually knock 2-3% off the bill, which means they’ve already upcharged in anticipation of all the credit card payments they receive.

Chett@5k5k.org
9 years ago

It looks like we’ve came full circle:

In the 1970s, when credit cards started becoming more popular, retailers wanted to charge customers who paid with credit more for purchases since they (the retailers) were being charged a small percentage of the overall cost. Credit card companies encouraged that retailers not advertise that customers would be paying more for credit purchases, rather the card companies said retailers should call the credit purchase the “regular” price, while cash purchases would be called the “discount” rate.

So, you see, it’s been a shell game all along.

chris s
chris s
9 years ago

I currently like to patronize business that offer cash discount. Lots of them already give them, but the credit card lovers of the world don’t know about them ;).

Smaller local business are the most likely to give the discount and I like to suport my local economy not just get a crummy rebate from a credit card company.

Debbie M
Debbie M
9 years ago

Specs already has a 5% cash discount – paying by check, with a debit card, or with cash reduces your actual price by 5%. I always pay with cash (or debit card) there. When I’m buying something expensive, I’ll always ask if there’s a discount for paying cash and if there is (and it’s the same or greater than my rewards) I take it. If the discount is received as store credit for a future purchase, I’d only take it if it were the same as or higher than my credit card reward and if it was a store I… Read more »

Arthur
Arthur
9 years ago

I don’t know about other areas but some places in my area Bonner Springs,KS charge 3% more for paying with a credit/debit card. The gas station right off the internet does this and the ones a block or 2 away charge their cash price for all methods of payment. Needless to say I will use the ones that don’t gouge the customers and make them come in to put up a cash deposit before pumping then go back in and get your change. I like paying at the pump then parking and going in and and get my coffee and… Read more »

Jordan Lyons
Jordan Lyons
9 years ago

I appreciate the mention of rewards programs relying on people not redeeming.

I’m always annoyed with my rewards, because my credit card makes a huge deal out of going green by receiving all electronic statements. As a somewhat environmentally conscientious person, I’m happy to do it.

Then when I get my reward (which is just an Amazon promotional code), it’s printed and mailed in 6-8 weeks. And they have the audacity to try to upsell you to $10.00 rush delivery…for an 8.5×11 sheet of paper with a code that could have been emailed.

Techbud
Techbud
9 years ago

I’ve seen a shift with a number of local gas station in the NY area charging the same for cash or credit.

I think the incentive for paying with cash would have to be equal to the credit card rewards or greater. No voucher or coupons.

I’m sticking with cash for the time being as I’ve cut the credit card cord.

Lisa
Lisa
9 years ago

I recently negotiated a significant discount on a major purchase by agreeing to pay in cash. I benefited, the merchant benefited, and the credit card company lost out. I’m afraid I am not at all sorry about that.

I expecially like paying cash at small, independent businesses. It is my way of helping them to stay in business.

Kate
Kate
9 years ago

As a dentist, I give a 5% discount if you pay with cash or check on the same day as service.

Money Reasons
Money Reasons
9 years ago

I’ve seen some gas stations have a cheaper “cash only” price vs the credit card price.

I think that’s kind of a shame though! I’d much rather carry around 1 thin credit card than have hundread of dollars in my wallet.

Cash is dirtier than credit cards, and if your cash get stolen, it’s gone! But with your credit cards, you just cancel the ones that the crooks have taken and get new ones re-issued.

Becky
Becky
9 years ago

They used to give cash discounts at gas stations all the time…but I’ve not lived in the states for years now. This isn’t anything new. They had a cash price and a credit price. Am I old or what? There is a major chain here in Poland that doesn’t accept credit cards. Their prices tend to be a bit cheaper than the other ones–on similar items. BUT not everything. And not everything in their store is of the quality that a person might want… I’d rather have an instant discount than a voucher for a future visit. The voucher requires… Read more »

ADoodle
ADoodle
9 years ago

Seattle-area businesses have long flouted the card companies’ requirement that cash and credit transactions be priced the same or not require a minimum purchase price. On the flip side of the argument, I currently volunteer at a non-profit retail business where cash transactions save us money, but the one time the store was robbed we were glad so many people pay with cards or there would have been a ton more cash in the register to steal.

Spedie
Spedie
9 years ago

I have been seeing more and more gas stations offer a 3 or 4 cent discount per gallon for gas in my area.

I have negotiated for a lower price at a doctors office for cash when I had no insurance.

That’s all I have successfully been able to do.

In my area, gas stations charge the same price for credit or debit cards. It is only with actual bills that the discount is applied.

JakeIL7
JakeIL7
9 years ago

Have the requirements from Visa and Mastercard that merchants not offer discounts for cash been removed by the latest legislation? This has been the main reason most companies don’t offer discounts but do offer vouchers; it goes against their merchant agreement.

Jason
Jason
9 years ago

We switched to using cash envelopes for some major spending categories a while ago. We make our monthly budget and take out the required amounts of cash we need for various categories — groceries, housewares, spending money and so on. We put things on the credit card that we don’t have problems overspending on — things like gas. We use the Amazon rewards to pay for things from Amazon. We have cut out our cable subscription and use the Amazon video on demand to get tv shows, which are paid for with the rewards certificates. So we end up not… Read more »

Steve
Steve
9 years ago

Part of the credit card agreement is that retailers are not allowed to charge extra for credit/debit transactions.

Gas stations get around it by inflating prices and then giving a discount for paying in cash. I expect other retailers to follow suit, although there are some industries that would actually prefer credit transactions because an electronic payment can’t slip into someone’s pocket.

Anthony @ DYL
Anthony @ DYL
9 years ago

I would trade my rewards credit card for instant discounts.

Thankfully, if you walk into Best Buy and would like to buy a TV. You can negotiate the price. If you tell them you’ll pay in cash, then they might make the deal even better for you!

mary b
mary b
9 years ago

I guess many readers are not old enough to remember when gas stations always had a cash discount. Back then having a credit card was definitely not the norm, so really it was a surcharge for the cardholders.

I’m fine with companies offering a cash discount, but I am not sure how much it will sway my purchase decisions either way. I suppose that would depend on the amount of the discount.

Beth
Beth
9 years ago

RE: “But what if retailers offered you a discount if you paid in cash? It might not be so far-fetched.”–Particularly since a lot of gas stations used to offer cash discounts.

LauraElle
LauraElle
9 years ago

I don’t use a rewards card. I had an air miles card but it got so difficult to use I donated the miles and canceled the card.

I pay cash [sometimes with cashy money, sometimes with a debit card] for 90% of my purchases. Things like travel or big purchases are made with a credit card.

I’m pretty vanilla when it comes to credit cards.

Dan
Dan
9 years ago

I am looking at purchasing a gun. one vendor said 3% discount for cash, one said 3% up charge for credit (price quoted was cash or debit price). The first vendor was about %10 higher tho, so…

one other place I’ve found discounts is in healthcare. Most doctors offices will give you a discount for cash and if they don’t have to file insurance (i’m currently self insured).

I usually ask if there’s a discount for cash. some will give it, but won’t if you don’t ask.

Mary
Mary
9 years ago

In the 70’s, in the town where I was living there was a group of small businesses that offered a discount to members who bought cash purchases from each other – KIB – Kash Is Best. Any business could join and they had KIB cards that were to be presented when a purchase was made, entitling the holder to a 5% discount. However, seems like there might have been some question about the legality of this.

Don
Don
9 years ago

Gun shops regularly advertise “All prices include 3% cash discount which does not apply to credit card purchases.”

Naturally on the price of a $500-$2000 gun, you’ll notice the difference. I would expect a lot of people choose to purchase with cash.

Patrick
Patrick
9 years ago

Always a responsible credit card user like my parents taught me to be, I was alarmed when I found out my parents were not using a credit card to purchase their fuel and thereby receive wonderful rewards. (They spend thousands on fuel.) Parent’s reply: The fuel station we frequent offers us a reduced price if we pay in cash. Reduced expenses for us and for the fuel station manager. Kind of like buying local, we’re supporting the community and by not swiping a card it helps his bottom line. Cash discounts are there – just not very prevalent, and sometimes… Read more »

Budgeting in the Fun Stuff
Budgeting in the Fun Stuff
9 years ago

I wouldn’t trade my credit rewards for vouchers, but I do use cash when I can get an instant discount (or when I buy something from a little mom and pop place since I don’t want credit card costs to eat their profit).

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