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Abandon Credit Card Processing? Use Cash Only? Not!

The past decades of credit card processing growth were because it made it easier and quicker for us to purchase everyday items.  Going back to cash entirely disregards this value proposition, both for us and the businesses we shop at. 


In a recent March 16th Washington Post article by Michelle Singletary it was suggested that consumers respond to the Durbin Amendment in the Dodd-Frank Restoring American Financial Stability Act by “What if we just went back to using cash?  Better yet, let’s all begin to negotiate more for a lower price on our purchases if we pay in cash.”


On the surface this makes perfect sense.  Those horrible banks won’t be charging a penny for credit card processing interchange, the swipe fee on a merchant account.  So because the merchant won’t pay their merchant account services fees – voila, we the consumer can negotiate a lower price and reap the “benefit!”  Regretfully, nothing could be further from the truth.  The past decades of credit card processing growth were because it made it easier and quicker for us to purchase everyday items.  Going back to cash entirely disregards this value proposition, both for us and the businesses we shop at. 


Just think of our challenge today to obtain the cash.  How is that money going to leap into our wallet?  Certainly we can go into a branch, stand in line, and get cash from our accounts.  Of course that’s a time consuming and frustrating task, especially if God forbid, we take out a lot of money and have to complete the government forms because you know, we’re still in the middle of a fruitless 50-year war on drugs.  So no problem, I’ll just use the cash machine.  And I can, for small amounts, but many times with lines.  And I still need to drive to get to one.  God forbid if I use a convenient Out Of Network ATM Cash Machine!  Then poof, on average I’ve just spent about $7 to $8 to get my cash!  It’s not the desired outcome to pay more.  And what about my personal safety issue?  Won’t I be more exposed carrying larger amounts of cash?  So I just won’t carry a large amount, right?  Wrong!  I’m not going to accept NOT being able to purchase something because I don’t have enough cash on me.


Then there is the challenge to SPEND the cash.  How many times have you been at a store where they had posted NO ACCEPTANCE of hundred dollar bills, or even fifty dollar bills?  I have and I’ve complained about it every time.  But even if those bills are accepted, it routinely takes me longer to pay with cash, and receive change in cash, then swiping my cards.  And I always notice how the line behind me grows longer when I’m fiddling though my pockets to get the correct amount of change to pay the clerk, much like it does if I ever sit there at the checkout trying to write a check.  And recently when I bought a car it took me many minutes counting out the large sum of cash, and eyebrows were raised, like I was a drug dealer or some other criminal!


In a study done years ago by Ipsos Insight and Peppercoin, they determined that our desire to use credit card processing for small payments was growing and becoming a more common method of paying, especially for low priced goods and services. Not less. And only seven percent of their survey respondents who would not use credit card processing for small payments found it easier, or preferred to use cash, instead of processing a debit or credit card through a credit card machine. Ninety three percent preferred the faster, easier debit and credit card processing method. 


But enough about you and I, what about all of the merchant account “savings” the businesses will reap by not paying for the credit card processing fees?  True enough, if we pay with cash rather than a card, no merchant account service fees will be assessed.  But don’t ever think the merchant is getting a “free ride” by taking cash for payments instead of processing payments with a credit card machine!  The number one source of business losses has always been due to employee theft, over 50%.  Cash is easily stolen in many different ways, credit card processing revenue is not. 


And what happens to a business’s total daily sales when the line slows up?  I don’t know about you, but I routinely walk away from a store if there is a big line.  Fewer sales mean lower total profits for me to “negotiate” over.  And If I don’t have enough cash on me, I can’t even buy the things that I want to buy. Certainly that will LOWER a business’s profits, not increase them.  It is well proven that having credit card processing increases the average size of a purchase, compared to cash only, because of this very point.


But it doesn’t end there for the business.  Every day the business has to close out its till.  That means counting the money, listing the checks and credit cards processed, and writing up a deposit slip.  With a merchant account, the credit cards processed are totaled in a batch automatically through the credit card machine, and can be listed on the deposit in a few seconds.  Counting cash, especially if it doesn’t add up the first time, takes much, much longer, and time really is money.  And the cost of taking cash doesn’t stop there.  As the amount of cash on hand grows, so does the security risk for all of us, often times with deadly consequences.  Which then raises the issues of implementing security measures such as drop safes, secure enclosures, guards and surveillance systems, the list of cash related expenses goes on and on.


And the Dodd-Frank Restoring American Financial Stability Act now allows businesses to decline accepting credit and debit cards for purchase amounts of their choosing, below $10.00.  So now a business can stop losing money by taking a debit card to pay for a pack of gum and having all of the profit eaten up by the merchant account services fees.


Consumers will not benefit by using cash only. Consumers and merchants alike will be disappointed to regress to “cash only.”  This wild and wacky idea of eliminating credit card processing is totally a mistake.


Gino Kauzlarich is the author of this article on Credit Card Processing.
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