Considerations for Accepting Cards and Cash Apps as a Small Business

Card and digital payments have become a very popular payment method, and even more so over the last two years due to the pandemic. Digital payments are my go-to method when it comes to paying for my purchases; however, I have very recently started carrying a little bit of cash with me if I know I’ll be shopping at any locally-owned shops or restaurants. Last year I found that a small mom-and-pop restaurant in my hometown started charging a 4% service fee if using a card to pay. I frequent this establishment to buy a Diet Coke® a few times a week and although 4% isn’t a lot, it can add up over a period of time and sometimes it’s worth paying in cash to avoid any extra cost.

For those new to the card processing world, merchants (restaurants, retailers, storefronts, etc.) who accept cards must pay fees for each transaction they process, plus additional monthly fees depending on their processor, such as Square or Clover. Those transaction fees are typically assigned by the card brand (Visa, MasterCard, American Express or Discover®) and then partially switched around and given to the cardholder for rewards such as miles, cashback and points. These fees eventually add up, and if you own and operate a small business it may not always make sense to offer a card payment option to your clients.

My cousin and sister are both in the cosmetology business and I found my cousin, who owns the salon, didn’t accept cards as a payment option until very recently. My sister has considered doing something to offset the cost of accepting cards as payment, but typically just increases her prices on an annual basis to offset any increase in general for service, product and card fees. She also accepts payment by Venmo, for now. Earlier this year a tax reporting requirement was put into place for businesses receiving more than $600 in payments for goods and services through payment networks such as Venmo, CashApp and PayPal.

With this change, she, along with other self-employed individuals, are considering the pros and cons of accepting payments via an app. So, what are some benefits to accepting cards or utilizing a payment app for your small business?

  • Increases Sales—Giving consumers another option to pay when they don’t have cash on hand allows your business to make a sale in situations where the client may have walked away if cards or payment apps were not accepted. Studies have shown cardholders tend to spend more when using plastic vs. cash.
  • Improves Cash Flow—Funds are usually automatically deposited into your checking account within 1–2 business days. Additionally, this eliminates the timeframe of waiting for checks to clear, as well as the risk and liability of cash being stolen in the store and/or on the trip to your financial institution.
  • Broadens Business Model—Adding the option of accepting card or payment apps could open the door for an online and social media presence offering goods and services for purchase through a website, resulting in more sales and income.
  • Convenience & Surcharge Fees— Although business owners need to be careful on how and why they are charging fees for card payments, there are a couple of options to add a convenience fee or surcharge fee. There are rules and restrictions in place by each state and card brand, so businesses are encouraged to conduct research and due diligence prior to incorporating these fees. Adding these fees could help offset some of the costs incurred for offering to accept cards by passing them along to the cardholder.
  • Cash Discount Models—For every transaction that is processed through the card network, there is a fee associated depending on the amount, card type, whether card is present, etc. This means if a debit card is used for an in-person transaction, the cost will be less than when a rewards business credit card is used online. For example, a debit card transaction may only cost 1.5% versus a rewards business credit card may cost 2.75%. Processors also have a way to implement a cash discount model for competitive pricing for card transactions. Therefore, it’s important to do your due diligence when it comes to picking your processor and provider for your credit card processing. Processors like Square or QuickBooks® will charge a flat rate no matter the amount or card type, plus a per-item transaction. Payment apps will charge fees based on if the transaction is marked as a personal or a business transaction. Your best bet is to reach out to your local financial institution, because they likely offer this cash discount model type and want your business to succeed.
  • Convenience—Most processors have made the set-up process very simple, enabling your business to begin accepting card payments within a short number of days. Payment apps have a similar simple setup and activation process. Once completed, you as the business owner and your clients will wonder why you hadn’t added this convenient option a long time ago! No matter what form of payments your business accepts, know there are always options to help reduce the cost of each payment method. Going through the pros and cons will help and if you still need guidance, don’t hesitate to reach out to your financial institution.

By Allison A. Bramblett, AAP, Treasury Management Operations & Product Manager, The Farmers Bank