Dual Pricing Programs (cash discounting) are legal in all 50 states and involve offering lower prices for cash payments. In contrast, surcharges add fees to credit card transactions and are prohibited in Connecticut, Massachusetts, and Maine as of 2025. For most merchants, offering cash discounts provides a better customer perception and fewer compliance headaches.

Every swipe of a credit card costs your business money. U.S. businesses are spending $111.2 billion in swipe fees to Visa and Mastercard, a 10% increase over 2023, and this trend is likely to continue.

The two most popular solutions—dual pricing and surcharges—may sound similar, but they work in completely different ways. Get this distinction wrong, and it could cost you thousands in compliance violations, upset customers, or even land you in legal trouble.

The Fundamental Difference That Changes Everything

Here’s what trips up most merchants: dual pricing and surcharges are pricing opposites, not variations of the same thing.

Cash Discounts: The Customer-Friendly Approach

With dual pricing, a cash discount is when you post credit card prices and offer a discount on that price for customers who pay with cash. Think of it like a gas station model—the posted price is the credit card price, but cash customers get a break.

Example: Your menu shows a burger for $12.00. A cash customer pays $11.64 (getting a 3% discount), while a credit card customer pays the full $12.00.

Surcharges: The Direct Cost-Passing Method

A surcharge is when you post cash prices and charge an additional fee on top of that price for customers who pay with a card.  Typically, this fee appears at the end of the transaction and often comes as a surprise to the customer. In several states, they label surcharge fees as surprise fees.

Example: Your menu shows a burger for $11.64. A cash customer pays exactly that, but a credit card customer pays $12.00 ($11.64 + 36¢ surcharge).

Why State Laws Matter More Than Ever

The legal landscape has shifted dramatically. As of 2025, credit card surcharging is illegal in Connecticut, Massachusetts, Maine, and California. Meanwhile, dual pricing is legal in all states, including those where surcharging may be restricted.

States Where Surcharging Is Completely Prohibited:

• Connecticut: Businesses in violation of Connecticut surcharging laws can be fined $500 per violation

• Massachusetts: Complete ban on credit card surcharges

• Maine: Surcharging is explicitly banned under the Maine Consumer Credit Code (Title 9-A, Section 8-509), with fines for violations and very narrow exceptions for government entities

• California: Effective July 1, 2024, surcharging is prohibited under Senate Bill 478

States With Surcharge Restrictions:

• Colorado: Permits surcharges up to 2% of the transaction amount

• New York: As of February 11, 2024, it is illegal for New York merchants to separately list the pre-surcharge subtotal or even the separate line item surcharge amount

• Minnesota: As of January 1, 2025, Credit card surcharging is legal in Minnesota if the fee can be reasonably avoided by the customer

The Hidden Compliance Trap That Catches Most Merchants

Many payment processors are marketing “cash discount programs” that are actually disguised surcharge programs. Essentially, they changed the name of the program from “surcharge” to “cash discount” and added a fee, only to remove it. These programs are not compliant and could put your business at risk.

Here are some red flags of non-compliant programs to watch for:

• Programs that require a 30-day advance notice to card networks (that’s a surcharge requirement)

• Systems that add fees first, then remove them for cash

• Providers who can’t clearly explain the pricing structure

• 4% cap references, which is the maximum Visa and Mastercard allow for surcharges

Card Network Rules You Can’t Ignore

Visa’s 2025 Updates: Visa has reduced the surcharge cap to 3%, effective April 15, 2023, down from the previous 4%. Surcharges cannot be added to Visa debit cards and are limited only to credit card transactions.

Mastercard Maintains 4% Cap: MasterCard remains at 4% in 2025, but remember that many companies have an interchange rate of less than 3.5%, which is a violation of card acceptance rules. A business cannot charge more than the cost to process a transaction and is subject to a penalty.

The Debit Card Trap

It is vital to become more familiar with monthly statements—particularly potential hidden or junk fees—and use these data points to negotiate lower fees. More thorough auditing on your company’s part or working with an expert who can help decipher these confusing statements. Many merchants don’t realize that, PIN or not, a debit card is any card that takes money directly from a consumer’s bank account. Debit transactions account for approximately 50% of all transactions, and surcharging debit cards is prohibited by federal law.

Which Program Actually Saves You More Money?

The math might surprise you. Let’s break down a real scenario:

Your current interchange rate is: 2.5% on $50,000 monthly volume = $1,250/month in interchange fees

Cash Discount Scenario

• Raise all prices by 2.5%

• Offer 2.5% cash discount

• If 30% of customers switch to cash, Save $375/month on processing fees

• Net savings: $375/month

Surcharge Scenario

• Add 2.5% to credit card transactions

• If 20% of customers switch to cash/debit: Save $250/month

• Risk factor: Compliance violations, customer complaints, state law changes

• Net savings: $250/month (with significantly higher risk)

POS System Requirements Most Merchants Miss

Implementing either program correctly requires specific POS capabilities that many merchants overlook.

For Cash Discounts:

• Your POS system should also be configured so that it shows a line item explicitly stating that the discount is for cash payment only, and also specifies the discount percentage

• By default, merchants do not need software or reprogrammed payment terminals to implement a dual pricing program. However, the simple but numerous tasks required to offer cash discounting are highly susceptible to mistakes

For Surcharges:

• Must distinguish debit from credit cards automatically

• Work with your merchant account provider or payment processor to notify card networks and acquirers 30 days before you start adding surcharges

• Real-time calculation of precise surcharge amounts

Customer Psychology: Why Perception Matters More Than Math

Customers who want to avoid the surcharge may also opt to use debit or prepaid cards, which still incur processing fees for merchants. Even worse, many customers may react negatively to what they perceive as an additional fee for using their preferred payment method.  Keep in mind, more and more customers are using premium rewards cards for the cash back and other perks. Your business pays higher interchange costs, often higher than the quoted or advertised rate their processor sold them.  The real reason for the pushback.

Recent national surveys in 2025 indicate that roughly 59% to 66% of consumers will simply pay the surcharge rather than switch payment methods or walk away, though a significant minority (41%) will actively try to avoid surcharges by paying cash, using debit, or shopping elsewhere.

Dual pricing flips this psychology. Consumers tend to perceive it more positively because it’s framed as an opportunity for savings rather than a penalty.

The Signage Requirements That Can Make or Break You

Dual Pricing Signage Must Show:

• Clearly advertise your cash discount at the entrance and checkout area of your store. Offer a fixed discount for cash payments. Display the cash discount on customer receipts.  We recommend you check your state laws for more specific requirements.

Surcharge Signage Requirements:

• These companies require a written notice stating that your payment processor can handle the transaction. Analyze your business data to understand what type of surcharging works for you and the surcharge rate you should apply.  Consult with legal and financial counsel before proceeding with surcharging.

Industry-Specific Considerations

High-Volume, Low-Margin Businesses

• Cash discount programs are ideal for grocery and convenience stores, which may have a higher volume of low-value payment card transactions

B2B Companies

• The legislative intent in many states was to protect consumers, and not to restrict B2B surcharging; therefore, B2B companies may have exceptions

Service-Based Businesses

• For businesses where credit cards are truly a convenience (like paying bills by phone), surcharging might be more acceptable to customers.

When Neither Program Makes Sense

Sometimes the best choice is neither option. If you just raise your prices by 1.5% to 2% you can offset the fees that you pay to your processor. In a case like this, it makes more sense to raise your prices slightly rather than passing a 4% surcharge on to your customers.

Consider simply raising prices when:

• Your effective rate is under 2%

• Customers are highly price-sensitive

• You’re in a competitive market where transparency matters

• Administrative overhead isn’t worth the savings

Frequently Asked Questions

Q: Do I need to notify credit card companies before starting a cash discount program?
A: No, legitimate cash discount programs don’t require advance notification to card networks. If your processor says you need to give 30-day notice, you’re actually implementing a surcharge program.

Q: What’s the maximum percentage I can charge?
A: For cash discounts, there’s no legal maximum, but 3-5% is typical. For surcharges, Visa has reduced the surcharge cap to 3%, effective April 15, 2023 while MasterCard remains at 4% in 2025.

Q: Can I implement both programs simultaneously?
A: No, you must choose one approach. Running both would create confusing dual pricing structures and potential compliance violations.

Q: How do I handle returns and refunds?
A: Cash discount returns should refund the discounted amount paid, while surcharge refunds should include the surcharge fee that was charged.

Q: What happens if I get the implementation wrong?
A: Non-compliant merchants could face fines ranging from $50,000 to $1 million, according to a memo from a credit card processor to merchants, 12/2023.

Q: Are there tax implications?
A: In accounting terms, a cash discount is an expense. A cash discount should have a separate entry as an expense in a business’s accounts. Consult your accountant for proper categorization.

Q: Can I change my mind after implementing one program?
A: Yes, but ask about any fees involved. Contract terms are also relevant here. If you find that your current merchant account or payment processing services provider is charging too much or does not provide the support you need, feel free to check out competitors.

The Verdict: Which Should You Choose?

For most merchants in 2025, cash discounts offer the winning combination of:

• Legal compliance in all 50 states

• Better customer perception

• Simpler implementation

• Lower compliance risk

Choose surcharging only if:

• You’re in a B2B environment where customers expect line-item fees

• You’re in a state where it’s clearly legal and well-regulated

• Your customers view credit cards as a true convenience service

• You have the systems and staff to handle complex compliance requirements

The payment processing landscape will continue evolving, but one thing remains constant: transparency with customers and compliance with regulations should always be your top priorities. Choose the approach that aligns with your business model, customer expectations, and risk tolerance—not just the one that promises the highest savings on paper.

Looking to implement a dual pricing or surcharge program? Make sure your payment processor can clearly explain the difference and provide compliant solutions that protect your business while improving your bottom line.

About IntelliPay

We help merchants optimize their payment processing through transparent interchange-plus pricing, no hidden fees, expert guidance, and reliable technology solutions. Our team combines deep industry knowledge with personalized service to ensure every client gets the best possible payment processing solution for their business.

The information provided on this page is for educational and informational purposes only. We make no representations or warranties regarding the completeness, accuracy, or security of this content, and all advice is provided “as is.” The content does not constitute legal, financial, or professional advice, and readers act on it at their own risk