What Merchants Need to Know About Offering Cash Back on Debit Card Purchases
For those interested in offering this service, it’s important to understand the card networks’ regulations and potential financial drawbacks for the merchant.
What Does it Mean to Provide Cash Back?
The major card networks advertise the practice of providing cash back on qualifying purchases as a way to enhance the customer experience. Customers appreciate the convenience of withdrawing cash from their account when they use a debit card to make an in-store purchase (cash back is not available for a credit card sale).
The option to receive cash back is built into the checkout process when cardholders swipe or dip their card at an electronic cash register.
Today, receiving cash back is a common practice at grocery stores, gas stations, pharmacies and many other retail stores.
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The Pros of Offering Cash Back
There are definite benefits of offering cash back for debit card purchases, advantages for both consumers and merchants.
Benefits for Merchants
The practice of offering cash back originated in the 1980s with the British retail chain, Tesco. The store first offered cash back for their own gain.
Tesco realized that enabling consumers to make a withdrawal from their account during a debit card transaction allows the business to convert their own cash into electronic sales. This reduces the amount of cash kept on hand and the funds that will need to be transported and banked with a financial institution.
Plus, customers really appreciated it. Providing a cash back service to consumers can increase loyalty and sales.
Due to the increasing popularity of ATM fees among issuing banks, many consumers will make a small purchase with a merchant for the sole purpose of receiving cash back. This helps the consumer avoid unwanted fees and provides additional revenue for the business.
Benefits for Consumers
Consumers are always on the lookout for ways to make life simpler. Receiving cash back on a debit card transaction is one such example.
The benefits are obvious.
- Cash is received instantly.
- Consumers don’t need to worry about locating an ATM or trekking to the bank.
- No fees are assessed, and the process is wholly without negative side effects.
The Cons of Offering Cash Back
Merchants’ participation in a cash back program is elective, and some merchants do decline the opportunity.
The main reason why merchants would choose not to offer cash back is because of the cost. Even though the merchant isn’t earning a profit on the cash back portion of the transaction, the acquirer may still hold the merchant responsible for the interchange fee.
Which Purchases Qualify for Cash Back?
Consumers cannot receive cash back for all purchases; some don’t qualify.
Each card network has its own regulations regarding what qualifies for cash back. For example, Visa shares the following guidelines.
- Consumers will only be allowed to receive cash back if the issuing bank permits it.
- Cash back should only be provided if an electronic terminal is used to process the transaction. Any transaction made with a manual imprint machine doesn't qualify for cash back.
- A purchase must be made to receive cash back.
- Only debit cards qualify; consumers cannot receive cash back with a credit card.
What are the Cash Back Minimums and Maximums?
The card networks (Visa and MasterCard) don’t specify a minimum amount that merchants must offer to those who are interested in receiving cash back. Merchants can use their own discretion. However, there is a maximum amount for cash back.
Each card network and each geographical region has its own maximums. For example, transactions are limited by Visa’s Core Rules to no more than $200 in cash back in most parts of the world.
How Cash Back Amounts Impact ChargebacksAnother concern which may influence merchants’ decision regarding cash back is the prospect of fraud. For example, a merchant might ask:
“What if I provide cash back to a customer, and then the cardholder later files a chargeback? Do I lose the cash I provided as well?”
Fortunately, when it comes to chargebacks, merchants have nothing to fear from offering cash back to their customers. Both Visa and MasterCard specify in their regulations that chargebacks cannot be used for the cash back portion of a transaction.
On the other hand, there are other transaction processing issues that brick-and-mortar merchants should be worried about. Merchants without a proactive risk mitigation plan could find themselves with an influx of EMV chargebacks.
If you’d like help managing chargebacks or any other responsibility related to processing payment cards, contact Chargebacks911® today.
Happy Customers, Decreased Risk, and Increased Sales
For most, offering cash back on a debit card transaction is a win-win situation for everyone involved. Customers are satisfied, risk is minimized, and earning potential is enhanced.
Do you provide cash back for debit card transactions? Or do you think the rewords aren’t worth the effort? Sound off in the comment section below!