How Dual Pricing Works
Dual pricing is a strategy used by businesses to eliminate their
credit card processing fees (charged by Visa, Mastercard,
American Express and Discover) by offering two different pricing
structures: a cash discount price and a higher price for credit card
transactions. This approach is designed to shift the cost of credit
card processing fees from the business owner to the consumer.
When a customer pays with a credit card, a 3% surcharge is added
to the sale. This surcharge pays for the processing fees
commonly known as “Interchange.”
Core Benefits
By implementing a dual pricing model, business owners can offset or eliminate the impact of credit card processing fees on their profit margins. This can result in significant cost savings, especially for businesses with high transaction volumes.
Dual pricing allows for transparent communication with customers. The cash discount price reflects the actual cost of the product or service, while the credit card price clearly indicates that a premium is added to cover processing fees. This transparency can foster trust and understanding with customers.
For customers who choose to pay with a credit card, the business adds a 3% surcharge to the sale. This higher price covers the credit card processing fees imposed by the payment card networks (e.g., Visa, MasterCard, American Express and Discover) and the merchant service provider. The business effectively passes on the cost of processing credit card transactions to customers who use this payment method.
Chargebacks occur when customers dispute credit card charges, often leading to financial losses for businesses. Since cash payments are not subject to chargebacks, implementing a dual pricing program reduces the risk of these disputes and potential losses.