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The way to a mans heart

By Dave Birch posted Sep 22 2009 at 10:48 PM

[Dave Birch] One of the most basic dynamics in the retail electronic payments world is the cost of transactions and the comparison of costs from the retailers perspective. If we assume honest retailers (ie, they are accounting all cash transactions and not using them to avoid taxes, enable money laundering and so on) then what is the real picture? It's honestly hard to say, clearly one factor is that type of retailer and their average transaction size. Another is whether we account the retailers private costs or the total social costs. I think it's a mistake for regulators to account for the retailers private costs only, especially given my pro-electronic payments perspective! If we only account those private costs then for many retailers, electronic payments will always seem more expensive and therefore it appears that (for example) card users are getting a good deal.

This is clearly unfair to consumers who use cash. They face a higher cost for goods or services through no fault of their own. In a user-pays society, those using a service should expect to pay its full cost.

[From Editorial: User-pays for credit cards fairer for all - Personal Finance - NZ Herald News]

Indeed. I don't use cash except when I am forced to. So I don't want to pay for ATMs, police escorts to ATMs, security vans, police escorts, tax evasion and all the rest of it. Surely merchants accepting cash should be required to pay a special tax that goes to the police, the revenue and the customs?

OK, perhaps not. But retailers do complain about the cost of electronic payments, claiming that cash is less expensive. There are, however, businesses that have started to refuse cash. One New York restaurant "Commerce" has looked at the bigger picture and come down firmly on the e- side. The owner Tony Zazula, hereby declared a Hero of the Order of Digital Money (my newly-created elite secret society), takes a robust line. Has has stopped accepting cash altogether and is clear about his strategy.

"If you don't have a credit card, you can use a debit card," said the restaurant's co-owner, Tony Zazula. "If you don't have a debit card, you probably don't have a checking account. And if you don't have a checking account, you probably shouldn't be eating at Commerce to begin with."

[From New York Restaurant Loses Its Appetite for Cash - WSJ.com]

Now that's what I call KYC (Knowing Your Customer). And the abandoning of cash helps with Anti-Money Laundering (AML) as well I should imagine. While Tony's firm line on the folding stuff may inconvenience the occasional drug dealer or corrupt politician (which might be a reasonable fraction of the customer base in that area!!) it seems to me that both the restaurant and society benefit: the private and social costs fall together.

How are the private costs reduced? More to the point, how are the private costs reduced when there is a cost to accepting cards. Well, back to Tony.

he said the convenience and security afforded by going cashless are well worth the added cost. Gone is the age-old restaurateur's fear of getting robbed, either by outsiders or his own employees. "No more armored trucks," he says.

[From New York Restaurant Loses Its Appetite for Cash - WSJ.com]

If a business is already 90% non-cash then taking the final step is easy, because the cost of the cash-handling infrastructure -- everything from the tills to -- is distrbuted over a very small number of transactions and therefore the per transaction cost is high. Other businesses, though, with a much higher proportion of cash transactions, benefit from the cross-subsidisation of cash (its cost is artificially low) and invest in the automation of cash handling instead. In the UK, where there is a fair amount of counterfeit cash, this means some expenditure but it may still be worthwhile.

Just how popular cash remains was highlighted at a meeting I had with Argos managing director Sara Weller last week. She informed me that only 50 per cent of [£4.2 billion annual] sales at the company are card-based. Such is the attraction of cash to Argos’ millions of customers that it has started to install cash-taking kiosks into its stores to enable shoppers to pay for goods using cash. They sit alongside the card-accepting equivalents that are being introduced to replace the traditional tills.

[From Untitled]

I haven't been in Argos for a while but I'm curious to go and try out one of these machines so I'll investigate and report back. I won't buy anything in cash, naturally, because you'd have to be crazy to do that. I will use my splendid new Amex BA card, so that I will get air miles and protection under the law, neither of which features are available to people who pay in cash. Nevertheless, I will buy something from the current catalogue and then give it away on this blog.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


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