Sep 21, 2006

Waking up to the fact that merchants truly believe cash is cheaper than plastic

The belief that cash is cheaper for merchants than plastic is deeply ingrained in many people’s minds, in spite of efforts by banks and payment associations to convince them otherwise. Here is just another example, from a recent article from the ConsumerAffaires.com website. The article instructs consumers on how to get the most value out of all the various payment methods available. Here is what it says about cash:

“Pay for everyday items with cash or checks. Using cash not only reduces your risk, but it costs retailers less to process, and it forces you to stay within limitations of the budget you set for yourself.”

The payment industry has already tried hard to convince people that this is not true, but has not really succeeded. Lots of people still believe cash is cheaper. Except for people in our industry of course, who have developed anti-cash (and pro-card) arguments which only satisfy themselves. Outside our industry, people are clearly not buying the story. It really is time that the payment industry put some serious effort into making plastic much more valuable to merchants than cash, as opposed to pretending that that’s already the case.

5 comments:

Anonymous said...

Yes, cash costs a lot to the merchant: time spent checking amounts, bringing and taking back coins and notes to the register from the back office, time spent asking a colleague for some change, transportation to and from the bank, physical security, thefts, mistakes, vaults, pouches, insurance, dedicated accounting and verifications, training, etc... One could look also at the time spent on a cash transaction as compared to cards (difference varies with the cards and the systems). But surely a large part of those expenses is fixed, linked to some basic costs of security and handling, just because there is at least some cash. Thus the real question is, as long as a merchant does have to go on accepting cash and thus incur these basic costs, whether an extra sale in cash with no apparent linked extra expense will in fact cost more or less than the same sale done with a card which involves a visible fee. In other words, take a merchant where 30 % of sales is in cash. If this goes down to 15 %, the other half being thereafter through an increase of the card sales, will the total expenses of the merchant be higher than before, or lower? Maybe it depends on a number of factors, the size and type of the business, the exact level of the interchange fee, etc..., but are there studies showing that usually if card usage increases somewhat, merchant costs go down in parallel?

Aneace Haddad said...

Thank you "anonymous" :) for an excellent comment. People rarely talk about the fixed costs of accepting cash. It's one of the things that always made the e-purse value proposition seem empty. So what if e-purse helps bring down cash by a certain percentage? The merchant still has to put up with the same fixed costs if any cash at all is accepted.

Nico13 said...

A bank in South Africa with +250 branches is experiencing a cost of 78 million rands (+8M Euros) per year for managing cash. This is not trivial! In order to avoid cash, they prefer not to charge anything to the cardholder when using his debit card.

Nico said...

A bank in South Africa with +250 branches is experiencing an annual cost of 78M rands for managing cash (+8M Euros). This is not trivial! In order to reduce cash transactions at POS they prefer discounting the transaction fee to cardholder: free of charge for cardholder!

Dave Birch said...

I think it's wrong to say that only payments industry people think that cash isn't free. Economists know that cash is a drag on the economy. The question is, what should we do about? Which gives me an idea for a blog...

By the way, you're absolutely right about the purse. If 90% of a merchants transactions are non-cash, he still needs a cash register and still needs to go to the bank. It doesn't save much money until there's no cash -- which is some way off!