Are Cards More Cost Effective For Merchants Than Cash?


Are Cards More Cost Effective For Merchants Than Cash?

A New Perspective on POS Transactions

A new study for cards vs cash financial analysts at the Aite Group says that handling both Debit and Credit Cards is more cost effective for merchants and retailers than handling cash.

According to details in the Credit Union Times, the report, “Tender Truths: The Real Cost of POS Transactions in the U.S., found debit cards the least expensive method of payment for merchants, costing significantly less per transaction than cash or cards.

Comparing Costs Across Retail Sectors

It broke down the costs of different payment types across three broad retail sectors: specialty retailers, quick service restaurants, and convenience stores. The costs weren’t the same at each type of store, though the disparity between costs was most pronounced for convenience stores, who tend to deal in more cash transactions. At such stores, the cost per transaction was $0.43 for debit cards, $0.67 for credit, and $1.06 for each cash purchase. This meant, in percentage terms, that a cash transaction chewed up 7.86 percent, compared to 2.56 for debit cards.

Uncovering Hidden Costs of Cash Transactions

According to a senior analyst for Alite, “A surprising number of retailers have never really looked into what it costs them each year to accept payments in cash.” Their report looked to quantify such costs, including “armored car services, cash registers not balancing and cash lost to employee theft.”

Discrepancies in Transaction Costs

The numbers weren’t the same for every kind of merchant. For example, with specialty retailers “transactions on credit cards carrying a major brand will cost 2.48% of the average transaction’s value, the report said. However, if the customer pays in cash, that only costs the retailer 1.88% of the average transaction.” Retailers with their own credit cards will find a per-transaction cost of only 0.60% of the average transaction. Even so, debit cards are still “cheaper than cash,” costing “only 0.58% of the average transaction using a debit card with a PIN,” even at speciality shops.

Reactions to the Report

In seeking reaction to the report, the article found support for the findings among those involved with payments: “Merchants have always tried to avoid the topic of the value of card acceptance in their lobbying efforts, because they know it hurts their push for government price controls,” according to one spokesman for the Electronic Payments Coalition. Conversely, a counsel for the National Retail Federation, “suggested the only reason the study found debit cheaper than cash was because debit is used more often in some venues and so would have a less expensive per-transaction cost.”

The Future of Payments

Maybe so, but with Visa announcing new mobile payment offerings the same week that Aite’s report came out — many of these coupled to an upcoming boom in “wearable” digital technology — it would seem like fewer and fewer of those transactions are going to be in cash.

Make sure you’re as debit-and-credit card ready as you can be, with the latest in mobile readers, secure payments, and more.

Ready for the Future?

The future’s unfolding as we speak — why not contact your AVPS rep before we’re too much farther into it?

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