Opinion: Canada slow to cash in on discount trend

Retailers complain vociferously about the high fees they must pay for accepting credit cards. So why don’t more of them offer a discount for customers who pay with cash?

The answer probably is this: If retailers offered a cash discount, they would alienate and perhaps lose customers who prefer to pay by credit card.

I got to thinking about this on a recent road trip in the United States, where I was pleasantly surprised to learn that some gas stations now offer two-tier prices – one price for payment with cash and a higher price for payment by credit card. The price differential was typically about 10 cents for a U.S. gallon, or about two cents a litre.

I wonder how many people would give up the convenience of paying by credit card to save two cents a litre every time they buy gas? Slightly to my surprise, I found that I am among them. My credit card stayed in my wallet whenever I found a gas station that offered a cash discount.

Gasoline may be unique in that we are almost all very price-conscious when it comes to buying it. No other product is priced so prominently on signs that we can see well before we reach the point of purchase.

Retailers in many parts of the world have been feuding for years with the credit card giants Visa and MasterCard. The retailers allege that the two companies impose excessive fees, which may amount to two per cent or even more of the cost of an item purchased by credit card.

A fee of two per cent explains why the cost of gas – which recently has been averaging about $1 per litre in Ottawa – could be lowered by two cents if a purchase was made with cash instead of by credit card.

Credit card companies in Canada strongly discourage or prohibit retailers from adding a surcharge to a payment by credit card. However, a retailer is free to offer a cash discount. There is a subtle difference there, though it escapes me.

MasterCard explains its resistance to surcharging this way: “Surcharging could mean higher prices for consumers. It could disadvantage consumers at the checkout counter. Discounting does not.”

Blue Line Taxi is one of very few Ottawa businesses that offer a cash discount. If you take one of its cabs, the fare is $1.50 less if you pay by cash rather than by credit card.

So why do so few retailers offer cash discounts? I put that question to Daniel Kelly, president of the Canadian Federation of Independent Business. His response: “Discounts are not widely viewed as effective. Retail margins are razor-thin … If a credit card charge is two per cent, would someone choose to switch their method of payment to save one per cent?” However, Mr. Kelly says “many” consumers voluntarily opt to pay cash, with no extra discount, because they know it helps the merchant.

One professional observer of the Ottawa retail scene says he’s never known a merchant at the Rideau Centre, Ottawa’s premier downtown mall, to offer a discount for payment by cash rather than credit card. This analyst told me: “Maybe the retailer doesn’t want to dissuade customers from using credit cards, fees notwithstanding, because a customer with a credit card is likely to spend more than one paying with cash. There might be some psychology at play.”

Yes, indeed.

So the lesson here for consumers is: If you are willing to pay cash – especially for high-cost items such as appliances, furniture or, above all, a car – ask for a cash discount. If you don’t ask for a discount, you are almost certainly not going to get one.


Michael Prentice is OBJ’s columnist on retail and consumer issues. He can be contacted at news@obj.ca.