Sounds like you know quite a bit about the industry here, and I don’t. But even without being gouged, there’s room for the marginal cost of handling cash to be lower than the marginal cost of another credit card transaction, so a cash discount that pushes some people to use cash is a good idea.
Yes, but at this point the value to the merchant (which is what the payments industry calls them, not vendors, not that there’s anything wrong with “vendor”) to be able to take cards is much higher than the loss of a merchant–even a chain–to the card brand. Remember that the interchange fees are a mixture between the processor, the brand, and the issuer.
Also note that this is the same as the PCI DSS (Payments Card Industry Data Security Standard) stick: “Comply or you can’t use cards”. And it works.
30 years ago? Not so much, even had PCI DSS existed. Mom & pop stores were fine only accepting cash back then.
And yes, there have been a number of court decisions that have slightly weakened the power of the brands: allowing cash discounting and credit card minimums come to mind.
OK, that’s interesting. I am NOT arguing with you, but I’ve seen 1-3% as the claimed margin for decades, which is why I wondered how grocery stores had started to afford to take cards. That happened pretty quietly in (I think) the 80s. I had even been told (by someone who claimed to know) that it would “never happen” because of those small margins.
Now, you did say “GROSS margins”. So that means that the bag o’ donuts that you paid $4 for cost the store ~$3, and out of that buck gross profit they pay interchange fees, rent, power, staff, etc.
So my question remains (not for you necessarily, but maybe you know) whether they made up for the interchange fees via other efficiencies (self-checkout!) or what, since that 1-3% claim continues? Or is it bogus?
And since grocery stores are never (in my experience) offering cash discounts, doesn’t that make the cash-paying customer the sucker, essentially ovepaying compared to me, who always uses credit (and, yes, pays off the card every month, so no interest)?
Indeed, the cost of Credit is generally more than cash. Until you add in the extra business they generate.
My guess is that since supermarkets have begun taking cards they are not accepting/cashing nearly as many checks as they used to . It used to be very common to cash payroll checks at the supermarket or to write a personal check to pay for your purchases ( in which case you could even get “cash back”)- now, even in stores that accept checks it is not so common. And if the store is dealing with fewer checks, that almost certainly means fewer losses due to bad checks which will make up for at least some of the credit card fees.
Hmm. That might be how it worked out, but I’d be surprised if, back in the day, stores said “OK, if we start taking cards, we’ll lose a few points on those transactions BUT we’ll make it up in reduced losses from checks”. In fact, the opposite is probably true: the remaining check transactions likely have a higher rate of fraud than before the shift. Mind you, there are still fewer of them, but that doesn’t seem like a bet a retailer would have made. I think there was some other factor involved. Easy today to say “Sure, everybody wants to use cards” but that simply wasn’t true 30 years ago.
Check verification and insurance services made the cost of taking checks much more predictable.
Our registers have an internet connection to some sort of network that verifies whether or not someone is either a known good check writer or a known fraud. You get one of three results from attempting to use a check:
- The check is accepted
- A bunch of information is required prior to accepting the check (presumably, this is a person not in the system and how they get into it, I only see it once or twice a year)
- The check is rejected.
We very seldom get checks returned. We get more fraud in regards to misuse of credit cards or counterfeit currency than bad checks at the store I work at. Check fraud still happens, but it’s not our major concern. Now, if a business can’t hook into the check verification system they may well get a significant amount of check fraud, but I assume there is a fee for being in the system. This might be why quite a few small businesses just don’t accept checks anymore, it doesn’t make sense for them.
We bleed a bit of money every day - cashier errors, mis-ringing on self serve (both intentional and accidental), forcing through a coupon that later proves to be bogus, all sorts of little things. It’s one of the reasons grocery stores have such low margins of profit, along with problems like, say, a semi-trailer of avocados spontaneously liquefying on their way to the store (that was a really nasty event).
I am not sure how the calculations on what is and isn’t acceptable are done at the corporate offices, but it’s very clear that they’re happy to accept plastic of all sorts (WIC, EBT/SNAP/food stamps, credit, debit, gift cards, etc). Losses to fees must be lower than whatever benefit they get from accepting these forms of payment. And there are losses from credit, debit, and gift card fraud. I’ve seen such losses go into the five digits per week at my store when we’re targeted by an organized group. (Other weeks we get little to none) Plastic is neither cost free nor fraud free.
My employer is still happy to handle cash. Thanks to automating part of the process this no longer takes 4-6 people, one person can (if everything goes well) do the cash handling bits for a big box store and gas station combined in 3-4 hours (if things don’t go well it might take longer). As a result, cash office personnel also do things like handle the lottery inventory, track employee locker assignments, empty vending machines, run the lost and found and other bits and pieces, in between being asked to relieve cashiers for breaks and, if they finish before then end of their shift, to move to a checkout lane for the rest of the day. So they aren’t paying for a full time wage to handle the cash. Armored car pick-ups are not daily, they’re currently 1-3 days per week.
The exception is during December, at the height of the holiday season where basic cash office functions might, in fact, take a full shift. But then, everyone is doing overtime in December in our industry. On the other hand, I’ve seen such days when a quarter million dollars are processed by one person (having been that person) through the office with a manager coming in for 15 minutes at the end to sign off on the work. Any questions about the employee doing that work? We have four cameras on us at all times while in that office, and our work gets random, unannounced audits. The benefits of still accepting cash far outweigh the cost of what is, essentially, a part-time job. For a day like that my wage is about 0.05% of the money brought in, about a half a penny per dollar processing cost. That’s less than the cost of processing that plastic transaction networks charge. On a lower grossing day my math works out that the cost of cash office labors is about 0.6% of the money processed, which is still lower than the credit processing fees.
Sure, there are other costs associated with handling cash than just my wages for doing it - keeping a secure area, maintaining security systems, the monitoring of the office and staff done by “asset protection”, and the armored car services - but I suspect they aren’t as large as commonly assumed. Some of them are sunk costs - I don’t know how old our safes are, but it’s measured in decades. Buy a good one and you won’t need to replace it for a very long time.
Undoubtedly, the cost of the armored car is a big chunk of recurring costs, but our company has a contract with a major provider of such services that is probably cheaper than just randomly calling for a pick up. Some random googling leads me to guess that the cost per pick up is running between 0.1% to 1% of the total amount of money they’re transporting. This only works if you’re bringing in a lot of cash, of course, which is probably why smaller businesses have the manager or owner do the bank run on their own. My store brings in a lot of cash, so the cost of all that in comparison to the amount transported isn’t prohibitive.
We also take ApplePay and GooglePay. That required infrastructure at the check lanes to accept it, and the IT needed to make it work. Presumably, the store feels it is worth the cost of supporting that means of payment, too.
What it comes down to is that a lot of people think they know all they need to know about how these cost/benefit calculations are made in the back offices/corporate headquarters, often basing those assumptions on how these things were done 20 or 50 years ago. Also, some things scale and some don’t. A large corporation like the one I work for benefits from volume and being able to negotiate contracts that smaller businesses can’t do simply because of their size. This leads to some people over-estimating the hassles and cost of cash handling. It can also lead to disbelief in regards to the low profit margins of the grocery industry but they’re wrong there, too - we lose a LOT of stock because that stock is perishable, and due to health and safety laws that require us to toss out food in many circumstances. Some of that is off-set by making donations to soup kitchens, food pantries, and deeply discounting items the last days we can sell them, but like the liquid avocados I mentioned earlier sometimes we lose a big pile of stuff because something bad happened in transit, or transit was delayed, or it was stolen en route, or other occurrence that is not under the control of the store or the corporation. Or just something like a clumsy employee spilling floor cleaner over a couple crates of produce (yes, that has happened). It all adds up.
How does this relate to gas stations? Similar problems, but on differing scales. If they have a store that sells food or other perishable goods they have problems with stuff happening in transit, or stock going bad. Aside from being robbed for cash, they can be robbed for cigarettes or lottery tickets if they sell those things. Go cashless? They’ll lose sales even if they save on other costs, but since I’ve yet to see a cashless gas station apparently that equation comes down on “accept cash” despite the associated costs. In fact, I’ve seen more “no plastic accepted” gas stations than the cashless variety.
If the vast majority of gas stations accept plastic then that must mean the profits they gain from using plastic outweighs any other associated costs. Whether or not the gas station is connected to larger corporation (either like the one at my store or as a franchise) might affected these decisions. If they offer discounts for cash over credit then, despite the folks saying cash is on the way out, it must be a circumstance where handling cash is cheaper than paying to handle credit transactions.
Either that, or the owner is making a bad decision and the business will go away in the near future.
Pretty sure that most places started taking cards to court a higher class of customer. Credit cards were initially a more upper-class business traveler kind of thing.
Not sure about gas stations, but presumably it really took off as a labor saving capital investment when the pumps themselves could run the transactions.
You know, my first reaction to that was “Oh, yes, of course!” – but then I thought “Wait, stations only had one dude on staff already for self-serve”, so maybe not.
I think mostly it comes down to " when it’s time to railroad, everybody railroads" – when it’s time to start taking cards, everybody starts taking cards. May not have been one thing in particular. Still surprised grocery stores made the transition after having been so adamant, but if the rest of the world was taking cards AND they were seeing various other small changes that enabled the slight hit to the bottom line, then it would have been time to railroad.
I also suspect (and maybe one of the other folks with direct grocery experience can verify) that grocery stores pay a flat percentage rather than a per-transaction plus a percentage. I’m told McDonald’s, for example, does this, which is why they can afford to take a card for a small coffee or a McApple pie.
Was that around the same time? I never used checks at grocery stores, and wasn’t paying close attention anyway back then, so I’m not sure of the order in which card acceptance/check verification occurred.
I think a lot of the “time to railroad” came from credit card terminals that could be swiped. Those can easily make credit card transactions faster than cash ones, which means you get improved labor productivity for your cashiers, which likely is more important than the actual cost of cash/credit.
The old duplicate carbon receipts and cachunkers were slow!
Can’t verify that, but given that at present plastic represents between 60-70% of our income right now we pretty much have to accept such transactions and their associated charges to stay in business. It’s too much money to leave on the table. Ditto for cash - sure, it’s now a minority of our income but it’s still too much to ignore.
Everybody shops for groceries, everyone puts gas in the car. The “attract upscale customer” might have been a factor for some businesses, but not for gas and groceries.
This is another bugaboo that “everybody knows” but based on experience… nope. I mean, sure, if the customer is absolutely ready and knows exactly what to do and nothing goes wrong… yes. Plastic is faster. But those conditions don’t always apply. I have a LOT of customers who fumble with their cards whether swiping, inserting, or tapping these days, the connection that allows the transaction to happen isn’t always working or working well… in contrast to some cash customers who ARE ready, have the money at hand, and don’t fumble their currency and coins. Likewise, I’m pretty damn fast at making change, not all cashiers are.
I suspect that the average time to complete payment for cash and plastic are similar just given the human factors involved.
Certainly not for groceries but possibly for gas. When I was first doing business travel and had a company credit card, I definitely preferred having the credit option and wouldn’t have gone to a cash only place given the option. An employee would be at the pumps with the old slide and carbon credit card reader. They also had a printed pamphlet with bad credit card numbers that they would check against.
Everybody doesn’t shop for groceries at the same stores. There are upscale and downscale grocery stores, and the upscale ones do a variety of things to attract customers with more money. I bet that in the 1970s there were boutique high end specialty grocery stores that started taking credit cards before the Piggly Wiggly did.
Less so gas stations, although there are more expensive gas stations that are generally in more expensive areas.
But to clarify: I wasn’t talking about the mass acceptance of credit cards. I meant when they first started being rolled out. High end restaurants and retailers started accepting credit cards before lower end ones, because they were courting wealthier customers.
There is a reason one of the first credit cards was called “Diners Club.”
I’m sure that major retailers did studies on this, but I have been unable to find any public ones.
This is also a factor. If it takes less training to get a cashier up to speed on credit cards and more to get them up to speed on cash, that’s also an additional labor cost of cash.
I’ve seen some blazing fast cashiers who I assume have been doing it for years. But the new ones are often pretty slow and error prone.
THE first credit card! Charge cards predated DC (and were in fact posited by Edward Bellamy in 1887), but DC was the first actual, revolving credit card, followed shortly by BankAmericard, which became Visa.
Diner’s Club claims an origin story about the guy who founded it getting the idea after being embarrassed because he forgot his wallet and gasp had to let his wife pay for a meal, but I question the veracity of that, because surely if credit cards had existed, his would have been home in his wallet with his cash!
Absolutely not for grocery stores, convenience stores or drug stores (all of whom I have experience with). The pricing schemes are very complicated, especially if you are using an intermediary that is routing different payments through different processors depending on the cost. e.g your POS system is sending non-branded debit cards (no visa or Mastercard logo) through one processor and branded ones through another and signature debit through yet another.
You can easily have three or four separate charges for a single transaction, including a penny or two for the “intelligence” to route the transactions through the least cost processor.
Most small businesses are thoroughly confused by what they are being charged and for what and just give up and accept that they are giving up 3-4% for the ability to take credit and debit.
Thanks! My payments experience is in security and processing the actual data, so I get glimpses into the other layers but don’t claim to grok. I’m glad to know this definitively.