The cost of handling cash, buying change, even adding in writing and depositing checks don’t come anywhere near the what.
I’m not at work right now so I can’t see my books, but just going from memory, I’d say my credit card processor charges about 10 times what my bank does (for everything not related to credit cards).
Looking at it that way, if you spend $100 and give the merchant cash, it’s 30¢, if you pull out a credit card, it’s closer to $3.00. That’s a huge difference. It’s not that we’re talking about a few cents.
The reduced costs thing, I understand what you mean, but telling a merchant you’re actually saving them money by using a credit card because you reduced their [baked in] charge by 10 cents, would get you an eye roll. It’s like the customer that says ‘I spend thousands of dollars a month here’ when I’ve got their account pulled up and can see that they haven’t spent that much in 5 years.
OTOH, paying with cash instead of a credit card makes for some actual savings.
Regarding item 3. Costs go up, it’s a simple fact of life. I call once or twice a year for a rate review. Many of my charges are reduced (are brought back down to where they started), but multiple times a year I get letters from my processor about increases in certain charges that end with, more or less ‘don’t call us, we can’t change this’. Interchange fees, PCI-DSS fees etc.
I’m also not sure how they’re incentivized to reduce fees. I don’t want to say they have a monopoly because that wouldn’t be the correct term, But they all charge pretty close to the same thing. It’s not that this company is 3% and that one is 8% etc. Unless there’s a law keeping the fees (discount, actually, would be the correct term) in check, I assume the only thing keeping them in lockstep is making sure everyone doesn’t flee from one company to another overnight and making sure it somewhat reflects their real world costs.
In Australia, credit card surcharges are legal, within limitations* The hotel I work at charges a 1.5% surcharge on credit transactions; we are charged 2.85% by the processors. We do not charge the surcharge on debit transactions (where the money is being taken directly out of a savings or cheque account). I have no idea what the costs are involved in cash transactions; at minimum, though, it’d be my time to walk the cash to the bank and come back - about twenty minutes.
In reception, at least, cash is uncommon for payment for accommodation, but somewhat more so for food, drink, incidentals. I think, overall, people pay more by card than by cash, in the hotel part, restaurants, and bars.
*IIRC, it can be up to not-quite what the business is being charged. For example, we cannot charge 2.85% as a surcharge; it has to be less than that.
You have to take account of more than just the measurable financial charges deducted by the bank. There’s a time-value to the time spent by you or an employee in making runs to the bank, for instance. There’s a time-value to the work of reconciling the till each evening. Your insurance costs are raised because you keep cash on the premises. and/or because you’re using a work vehicle for transporting cash. Plus there’s the cost of the actual journey. Handle enough cash, and you’re paying for security guards and other anti-theft measures. There’s an opportunity cost in maintaining your cash float. Etc, etc.
Obviously, you know your business better that I do, and the relative costs of cash and e-payments may vary from business to business. But, basically, physically shifting around little tokens in paper and metal and accounting for their movement doesn’t look like the most obviously efficient way of transferring value from person to person, and it seems plausible that markets in which transactions are settled electronically may have lower settlement costs than those in which they are settled in cash. The fact that, for historical reasons, the cash settlement costs are so deeply embedded into the system that you may not even identify them as settlement costs doesn’t change the fact that they are real costs.
I covered most of what you said, I assume you’re not reading what I wrote, so I’ll just finish this up with saying that I pay the bank about $2000-$3000* a year in fees and I pay my processor about $30,000 a year. Yes, there is a cost in handling cash, there’s no question. But is so much less, it’s almost negligible.
The extra costs mentioned don’t make up that $27000 spread. You’d have to have to have a business doing something like a few hundred dollars a week to start getting to the point where it was cheaper to take credit cards than drive the cash portion to the bank.
*that covers cash deposits, fees for buying change and depositing and writing checks
Again, you seem to not be reading my posts. I’ve mentioned that they are real costs. I’ve even posted what they cost me (off the top of my head, I don’t have books in front of me at home). Also, I get an actual bill each month from the bank, detailing all my activity and what they’re charging me for it (and even if I didn’t I’d still see it when I reconcile the books). The charges for this are just as real as the charges for handing credit/debit transactions.
But this thread is about credit card charges which are astronomically higher than cash handling charges. Don’t try to convince me that you’re saving me money by offering me plastic. If credit cards were cheaper, store owners would be offering discounts for taking them, not forcing surcharges on customers.
And yet, where I live, while store owners don’t offer discounts for electronic transactions, they also rarely impose surcharges, even though they would be permitted to by law.
If you find that electronic transaction costs where you live are so exorbitant that you have no choice but to pass them on to the customers, while swallowing the cash transaction costs in your margin, it doesn’t have to be so, as the evidence from other countries suggests. And it need not be so in the EU.
Contactless can be credit or debit; I’ve got both types but I understand the bank tells external systems they’re all debit and treats the debit/credit internally. I’ve also got cards from a different bank which still needs to get on with the century: they have the chips but inactive, you have to insert the card. The cards may also have additional security measures depending on the expense level, such as requiring PIN or sending you a SMS.
Rental car companies refusing payment by debit. Why would they do that, no idea.
If it wasn’t for that requirement I wouldn’t bother have a “Visa Credit”, since my Electron and my Maestro can be used as debit or credit; I can change the settings to define which amount triggers the credit beforehand, I can do it via my cellphone, I can use the same app to flag an expense as “send this one to pay in 3 chunks without interest” or as “send this one to pay in 6 chunks with interest”. But some rental car companies refuse Visa Electron and Maestro, it’s got to be Visa Credit or Mastercard, and they don’t usually warn you before doing the reservation.
True, the main reason I have a credit card is because I need to rent a car occasionaly. The insurance through the cc is a reason to stick with it even if they would change that.
There are also some online shops and hotels that seem to require creditcards for confirmation.
I don’t have a credit card and have tried to rent cars with a debit card but have been rejected. I was told the reason is that having a credit card implies a certain line of credit available to you should you need to pay large expenses to the rental agency (for example if you stole the car).
The U.S. has a credit card model of charging merchants a large percentage and then rebating some or even most of the charge to the cardholder. I get 2% back on all transactions now. When you think about it, it’s slightly odd. Credit card charges merchant 3%, so merchant raises prices 3%; consumer pays 3% more, but gets 2% back from the credit card company. That 2% is just flowing in a circle. But it sort of keeps you locked into using the credit card to pay, because you won’t get a reduced price if you pay cash.
Credit cards also give you a higher level of purchase protection than you usually get with a debit card. If you authorize a vendor to take money from your bank account with a debit card, it’s not conditional on the vendor supplying the goods or service in the same way as a credit card transaction.
This discussion is rather odd. Isn’t the individual merchant best placed to know his own costs for handling cash vs debit card vs credit card? If a merchant gives a cash discount when he would be better off giving the discount for cards, won’t the magic of the free market address this?
The huge amounts of “green stamps” or whatever they’re called given to card users should suggest that the fees charged are in excess of what is “necessary.” As a cash customer, shouldn’t I be allowed to bypass the green-stamp shenanigans and just get a rebate, merchant willing?
I personally have almost never purchased anything with a debit or credit card during my entire life! Except where cash doesn’t work: Staying at a hotel for a long indeterminate period, a credit card avoids the need to update a cash deposit. Cash is impossible for many Internet transactions, or, often, to book airplane tickets. Or …
… especially when you don’t take the extra insurance! The companies don’t like it when you damage their car unless they have your signature on a CREDIT slip! Fortunately, there are some debit cards which appear to be credit cards when a rental car company does its check — I don’t know what these “special(?)” cards are called.
By coincidence, just a few hours ago I bought a delicious Western-style lunch for about $3. (It was so filling I have no room for supper.) The cashier asked me how I was paying — “Always by cash, Ma’am” — and she informed me there would have been a 3% surcharge if I paid by debit card! This is the first time I’ve heard such a thing in Thailand! (Though, as I say, we’ve never paid by card.)
IIRC, credit card surcharges used not to be seen here, but now they are. I don’t know whether that change is due to a change in laws or simply bank customs.
On the other hand, the “credit versus cash” dispute is kind of beside the point here, since bank-issued credit cards can *also *be used as debit cards. So if you don’t want to pay the credit surcharge at a POS machine, you can simply tell it to take the money straight out of your bank account, and there you go - no surcharge. That’s assuming you have the money in your account in the first place, of course, but if you don’t … well, you’re getting your money’s worth out of a 1% surcharge anyway.
So … all this discussion about whether the rule change is fair to different kinds of customers is probably missing the main issue though. The question to ask is - why has the EU adopted this rule? What policy objective are they pursuing? It’s probably not “be nicer to credit card payers because we want to be nice to them”. It might be “remove psychological barriers to using credit cards, so that people will use credit cards more often than cash.” That could potentially shrink the cash economy in general, and I imagine that shrinking the cash economy is the sort of thing governments are in favour of, since cash is good for fun things like ‘avoiding paying your taxes’
I think we should let individual buyers and sellers decide what kind of payment to accept, and what prices to set for each type of payment.
As long as the terms are clear and no one is being tricked, why should we have to legislate this?
Forcing businesses to accept credit cards without any additional costs is a major support to Visa and Mastercard, giving them legal enforcement for their rentier status. I don’t think that’s a good thing.
Sure, of course for you the costs are higher. But if all your business was in cash instead? How much is a armored truck daily pick up? How much does you bank charge for cash deposits? How much extra would your hold up insurance be? A extra hour or two a day to count, recount and deposit that cash? How much?
I saw a analysis once and yes, it did show cash was, net- a little cheaper. But only a little.
Well, maybe, but you see, you actually see and can check your credit card fees.
With cash, not so much. To do the count, recount and deposit= A extra hour a day for two employees, one of whom is a manager- that adds up. Extra hold up insurance. The cost of being held up. The cost of employees stealing.
European credit cards don’t come with points programs?
Mine does. Every time I use by debit card instead of my credit card for a purchase I’m burning money. Using my debit card makes no sense at all except, specifically, to get cash.
So, related to this, I have a Target Red Card debit card. If I use this when making purchases at Target, they give me a 5% discount off the bill. If I use my regular bank-issued debit card, I pay the posted price (no surcharges or cash discounts).
It is important to note that Target does not actually hold my money in an account. My money is still held by my local bank that I have always used. The Red Card just accesses the account holding the money.
So, I assumed that Target did this to save on processing fees. Therefore, their processing fees must be greater than 5% when I use my bank-issued debit card. I assume they also get some market-research value out of the transaction, though I don’t see why they couldn’t get the same data from my regular debit card transactions.
Maybe European debit cards come with points programs. The points program at my US bank is linked to all my accounts- credit, checking, savings, home equity, etc and I get points for using my debit card ( more points for signing than for using a PIN, which I assume means that merchants pay a higher fee if I sign than they would if I used my PIN)