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From time to time, we see articles that we feel should be brought to the attention of our clients.
Reprinted in part, The Green Sheet Online
Edition, August 11, 2014.
For years, retailers and their associations have
argued that the costs of offering bankcard payments to their customers
have been too high. Their efforts to shape public opinion resulted in
In Tender Truths: The Real Cost of POS Transactions in the
In Aite’s model, the variables of total sales; losses by theft, fraud
and chargebacks; expenses; total number of transactions; and average
ticket size are all broken down by tender type. For the case of the
average QSR, Aufseeser found that the cost per transaction for debit and
credit cards was $0.23 and $0.27, respectively, while the cash
equivalent stood at $0.37. The percentage cost per transaction was
therefore 2.83 percent and 3.02 percent for debit and credit cards,
respectively, but 4.82 percent for cash.
The disparity is even greater for convenience stores. Aite found that
the cost per transaction at c-stores was $0.43 for debit, $0.67 for
credit and $1.06 for cash, which worked out to a percentage cost per
transaction of 2.56 percent, 3.61
percent and 7.86 percent, respectively.
“The tender type comparison shows that the true cost of accepting cash
is 45 percent higher than the credit card transaction at the
equivalent dollar amount,” Aufseeser wrote. A large part of that cash
expense is tied to what Aufseeser called the c-store’s “dirty little
secret” — susceptibility to theft.
Meanwhile, in the brick-and-mortar specialty retailer category, the
numbers were partially flipped, but to a lesser degree. In this
category, where credit card use dominates, credit costs $3.19 per
transaction, compared with $0.52 for debit and $0.74 for cash, which
leads to a percent cost per transaction of 2.48 percent for credit, 1.88
percent for cash, and with debit in between.
Cash not king?
Aite’s research was based on over 40 interviews with merchant
business owners/operators conducted between March and May 2013, as well
as data provided by merchants and publicly available information.
Aufseeser concluded merchants should be more detailed in how they arrive
at acceptance costs per tender type, and include all cash handling
expenses in the equation, before they argue about the high cost of
plastic.
“One of the big findings, quite frankly, is that the merchants have been
coalescing and coalitioning together for a long time against the
quote-unquote high price of cards,” Aufseeser told The Green Sheet. “And
now they’ve lasered in on credit [interchange legislation]. But high
cost compared to what?”
Aufseeser noted that merchants have not made legitimate apples-to-apples
cost comparisons because it isn’t a priority for them. “So they don’t
necessarily get into the weeds on how to look at some of this stuff,
which I think is part of the point [of the report],” she said.
Aufseeser singled out the National Association of Convenience Stores as
being the “loudest criers” of the high cost of electronic transactions
for their constituents, and yet the association apparently hasn’t done
the necessary research to arrive at its conclusion. According to the
report, the NACS website cited electronic transaction costs as being the
second highest operating expense for c-stores after the cost of labor
“However, they have not quantified and aggregated all the different
theft and shrinkage expenses,” the report stated. “That may be partially
because those numbers are difficult to derive and capture. Store owners
and operators do not always know how much and what is being stolen.”
When NACS leaves out the various cost factors that go into the handling
of cash, it is “only looking at half the equation,” Aufseeser said. The
result is an incomplete picture when the full picture makes the case for
c-stores to increase plastic payments and reduce cash transactions,
according to Aufseeser. “The less cash you handle, less is likely to
fly out the door mysteriously,” she said.
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