April 28, 2008
Customers Cashing In
By Bernice Hurst, Managing Partner, Fine Food Network
The British Retail Consortium (BRC) has reported that cash is now used for 60 percent of all transactions, up from 54 percent last year. Measured by value, cash is used for 34 percent of retail spending compared with 32 percent a year ago.
Results of its Cost of Collection survey came from 17,000 shops, large and small, multiples and independents, with a sales turnover of £131bn a year, over half of total UK retail sales. The survey shows cash is the most cost effective way for retailers to accept payments and highlights the huge extra costs card companies impose on retailers for processing card transactions.
Credit card interchange fees, imposed by MasterCard and Visa, have been under investigation by the Office of Fair Trading (OFT) since 2000. MasterCard’s cross-border fees have already been deemed as illegal by the European Commission. In making moves to replace cash, the BRC believes card issuers and banks should acknowledge the very low costs they actually incur and reduce charges for processing these card payments.
Director General Stephen Robertson said, “The BRC has consistently said these unjustifiable charges cost customers because they are so high retailers are forced to pass them on. Banks should not be exploiting new payment systems as a way of taking extra money from shoppers.”
Mr. Robertson added, “Reports of the death of cash are premature. Cash is not only alive, it’s thriving. Hard up customers are increasingly reluctant to spend money they haven’t actually got in their hands.”
Nor does he believe that customers understand just how much card payments cost to process. On average, a retailer is charged two pence for processing a cash transaction while the charge for a credit card is 34 pence and, for a debit card, eight pence. These costs are too high for retailers to absorb and are inevitably passed on to customers in the form of higher prices.
Other implications of using cash, however, include concerns about theft if there is a lot of it about, the need to have sufficient cash to make change and whether or not (and how much) banks charge for counting it when deposits are made.
Discussion questions: Do you see cash making a comeback in the U.S.? What impact would it have on retailers? Would this be a positive or negative development?
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The cash trend is interesting. (The interchange fee discussion is somewhat off-topic, as it has nothing to do with the British consumer trend being discussed.)
The BRC is arguing that the trend is a responsible consumer spending trend–just as Max said. Sadly, I don’t see credit-happy Americans doing it. Indeed, as times get tight, I imagine credit (as opposed to debit) will sharply increase. There’s also the convenience aspect and the fear of Americans carrying too much cash on them. Then there’s the impulse buy, which is not cash friendly.
This trend also has CRM implications, for those naughty retailers that use credit cards as customer identification methods for customers who won’t use loyalty cards. Even in the retailers covered in the British study, loyalty card usage was still seen as increasing.
David may be totally correct, but my vibes are headed in a different direction. If the economy continues downhill, expect cash to become more prevalent. When one uses a credit card, it doesn’t deeply register the extent of the financial commitment; using cash does. With rising prices for food and gas, I see cash returning, at least to some extent, to the checkout lanes.
The big credit card companies have been silently upping the percentage they impose for credit over the past few months. Most often the customers getting hit with higher rates on their existing accounts have good credit, pay on time, and there is no apparent reason the rates are being raised (other than beefing up the company’s bottom line.) Consumer websites are filled with such stories.
For those of us who pay the credit card bill in full each month a higher rate doesn’t cause any financial impact, but it is as annoying as heck to see it printed on the bottom of the statement, never the less. For those who carry balances, a higher monthly finance charge is just one more way people are feeling the pinch in their pocketbook and feeling screwed. Very probably some of the increase in cash sales are a reaction by people not wishing to add any more to their balances because they are not sure what their rate will be next week or next month, and they no longer trust their credit card company to treat them fairly.
Shoppers want free travel, free merchandise, and rebates. Credit cards give them those perks. Retailers get hurt paying increased interchange rates that subsidize the perks. Some retailers also get hurt because credit and debit card transactions are easily auditable by tax authorities.
Let’s add in that using cash at the checkout makes it tough for anyone to steal your credit card number. And, with the movement toward organics and locally grown foods taking hold, to Mr. Raftery’s point, consumers will need to pay cash for those items.
While it may not mean a spike in cash transactions, it does mean cash can’t disappear. At least for a while.
I have to disagree with David. As the economy cools, consumers carry cash to avoid overspending. Cash sets a real limit on how much can be spent. Yes, the credit card companies do add cost to the retailers which are passed on to consumers, and the convenience of paying with plastic is great, but we will not become a cashless society any time soon.
No doubt the economy is driving more cash as a way to monitor spending, but I doubt that is going to be a major factor here. Privacy concerns will also drive cash usage, and that may be a factor in the UK, where–despite strict EU laws on how personal info is stored and used–cameras line the roads and street corners. Convenience may be another. The promise of quick card transactions seems to always be just around the corner. New touchscreen swipe terminals that record the signatures help, but very few retail locations (at least near me) let you simply swipe and go for transactions under $50. In a hectic world, cash is faster and easier than waiting for the receipt, finding that pen dangling somewhere nearby, and dealing with the little slips of paper. Silly perhaps, but on a shopping trip with 4 or 5 stops, the annoyance rises with every checkout.
Consumers spend more when they use plastic than when using cash. My guess is, aside from some Moms & Pops, that most retailers are hoping that cash doesn’t make a comeback.
I’m with Gene and Max on this one. Credit cards are poised to become the common person’s rehab habit of choice. Unlike credit card usage, cash spending can be controlled and budgeted. Ever hear of people putting money in envelopes, each dedicated to a specific expense? Do you think garage sales and farmers markets take plastic? Why do you suppose the Treasury still prints so much and has gone to the added expense of complex graphics? And why can’t we get rid of the penny?
The Generation X-ers and Y-ers that I know carry money clips, not wallets. Contrary to what the Visa TV commercials show, I see cash transactions as still the fastest, unless the cashier can’t count.
I don’t see it here. No one likes to carry cash. Credit card companies pay rebates of 1% to 5% back. It just makes no sense to use cash when credit is cheaper. Unless you don’t pay off your cards each month.
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The cash trend is interesting. (The interchange fee discussion is somewhat off-topic, as it has nothing to do with the British consumer trend being discussed.)
The BRC is arguing that the trend is a responsible consumer spending trend–just as Max said. Sadly, I don’t see credit-happy Americans doing it. Indeed, as times get tight, I imagine credit (as opposed to debit) will sharply increase. There’s also the convenience aspect and the fear of Americans carrying too much cash on them. Then there’s the impulse buy, which is not cash friendly.
This trend also has CRM implications, for those naughty retailers that use credit cards as customer identification methods for customers who won’t use loyalty cards. Even in the retailers covered in the British study, loyalty card usage was still seen as increasing.
David may be totally correct, but my vibes are headed in a different direction. If the economy continues downhill, expect cash to become more prevalent. When one uses a credit card, it doesn’t deeply register the extent of the financial commitment; using cash does. With rising prices for food and gas, I see cash returning, at least to some extent, to the checkout lanes.
The big credit card companies have been silently upping the percentage they impose for credit over the past few months. Most often the customers getting hit with higher rates on their existing accounts have good credit, pay on time, and there is no apparent reason the rates are being raised (other than beefing up the company’s bottom line.) Consumer websites are filled with such stories.
For those of us who pay the credit card bill in full each month a higher rate doesn’t cause any financial impact, but it is as annoying as heck to see it printed on the bottom of the statement, never the less. For those who carry balances, a higher monthly finance charge is just one more way people are feeling the pinch in their pocketbook and feeling screwed. Very probably some of the increase in cash sales are a reaction by people not wishing to add any more to their balances because they are not sure what their rate will be next week or next month, and they no longer trust their credit card company to treat them fairly.
Shoppers want free travel, free merchandise, and rebates. Credit cards give them those perks. Retailers get hurt paying increased interchange rates that subsidize the perks. Some retailers also get hurt because credit and debit card transactions are easily auditable by tax authorities.
Let’s add in that using cash at the checkout makes it tough for anyone to steal your credit card number. And, with the movement toward organics and locally grown foods taking hold, to Mr. Raftery’s point, consumers will need to pay cash for those items.
While it may not mean a spike in cash transactions, it does mean cash can’t disappear. At least for a while.
I have to disagree with David. As the economy cools, consumers carry cash to avoid overspending. Cash sets a real limit on how much can be spent. Yes, the credit card companies do add cost to the retailers which are passed on to consumers, and the convenience of paying with plastic is great, but we will not become a cashless society any time soon.
No doubt the economy is driving more cash as a way to monitor spending, but I doubt that is going to be a major factor here. Privacy concerns will also drive cash usage, and that may be a factor in the UK, where–despite strict EU laws on how personal info is stored and used–cameras line the roads and street corners. Convenience may be another. The promise of quick card transactions seems to always be just around the corner. New touchscreen swipe terminals that record the signatures help, but very few retail locations (at least near me) let you simply swipe and go for transactions under $50. In a hectic world, cash is faster and easier than waiting for the receipt, finding that pen dangling somewhere nearby, and dealing with the little slips of paper. Silly perhaps, but on a shopping trip with 4 or 5 stops, the annoyance rises with every checkout.
Consumers spend more when they use plastic than when using cash. My guess is, aside from some Moms & Pops, that most retailers are hoping that cash doesn’t make a comeback.
I’m with Gene and Max on this one. Credit cards are poised to become the common person’s rehab habit of choice. Unlike credit card usage, cash spending can be controlled and budgeted. Ever hear of people putting money in envelopes, each dedicated to a specific expense? Do you think garage sales and farmers markets take plastic? Why do you suppose the Treasury still prints so much and has gone to the added expense of complex graphics? And why can’t we get rid of the penny?
The Generation X-ers and Y-ers that I know carry money clips, not wallets. Contrary to what the Visa TV commercials show, I see cash transactions as still the fastest, unless the cashier can’t count.
I don’t see it here. No one likes to carry cash. Credit card companies pay rebates of 1% to 5% back. It just makes no sense to use cash when credit is cheaper. Unless you don’t pay off your cards each month.