Blog Will the Loss of the Penny Change Merchant Steering?

The end of penny production may reshape the way that stores try to manage their payments costs.
Here’s why.

Customers may find more stores offering discounts for cash if the rules around rounding at the point of sale change.
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Skeptics will argue that nothing will change, citing the “Merchant Steering of Consumer Payment Choice,” study released by the Federal Reserve Bank of Boston this month, that shows that even when merchants offer cash discounts, customers who prefer cards stick with cards.

But here’s the rub: places where people shop most frequently – grocery stores and convenience stores – aren’t allowed to offer cash discounts if they want to accept SNAP cards. The SNAP equal treatment provisions (7 CFR 278.2(b) and 7 CFR 274.7(f)) require that SNAP recipients cannot be treated differently than shoppers paying with cash or cards.

That means the merchants with the most transactions can’t steer at all. Meanwhile, the businesses that can offer cash discounts — gas stations, restaurants — are operating in a world where the biggest players don’t participate. If only one stop on a shopper’s list offers a cash discount, the convenience of sticking with one payment method usually outweighs the savings.

But the loss of the penny may change all of this. Grocery stores have been trying to collect pennies precisely because of the equal treatment provisions. (See my blog on Giant Eagle collecting pennies for more details.)
However, banking and retail trade groups have been pushing for the government to address the rounding issue.

If Congress or USDA ends up issuing legislation, regulations, or guidance that allows rounding and different treatment for cash customers, then the retailers who’ve been shut out of steering may suddenly have new tools to influence payment choice.

Merchants that want to steer payments are hampered by an ecosystem that prevents it. The disappearance of the penny might be the catalyst that changes everything.

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Ben Jackson is the Chief Operating Officer of the Innovative Payments Association, a leading trade association representing companies in payments. With over two decades of industry experience, Ben is dedicated to providing valuable information, advocacy, and support to help members improve financial outcomes for consumers, businesses, and government agencies.