By Patti Murphy
I once had a teacher who was fond of saying "cash has no enemies." It's true. Cash is an equal opportunity payment instrument: everyone can access and use it regardless of age, credit standing or access to bank accounts. So it's curious that some business owners are turning their backs on cash-paying customers. And these businesses coexist with a growing number of others who offer discounts to customers who pay by cash instead of using credit and debit cards.
The anti-cash movement seems to be most pronounced in urban areas. And the backlash has been fierce. In February 2018, activists marched on an Amazon bookstore in mid-town Manhattan during the evening rush hour to protest the store's policy of only accepting electronic payments.
Lawmakers in several jurisdictions, including New York City, have introduced bills to ban retailers from refusing cash payments. The rationale is that despite the proliferation of electronic ways to pay, a sizeable number of Americans can't readily access these new payment options because they're unbanked.
The Federal Deposit Insurance Corp. reported that 8.4 million or 6.5 percent of U.S. households were unbanked in 2017. Those households comprised 14.1 million adults and 6.4 million children, the FDIC said. A 2015 report by the Urban Institute painted an even bleaker picture among New Yorkers, revealing that 11.7 percent of households in the Big Apple didn't have bank accounts.
While nonbank-issued prepaid cards are an option for the unbanked, these can be out of reach for many, as the fees assessed for loading cash and performing other routines combine to often rival monthly bank account maintenance fees.
But it's not just the unbanked who need or want cash payment options. Data from the Federal Reserve's 2016 Diary of Consumer Payment Choice showed cash to be the most frequently used payment instrument, accounting for 31 percent of all consumer transactions in the United States.
"Cash is held and used by a large majority of consumers," the Fed wrote. Unsurprisingly, most consumer cash payments are for small-dollar purchases: nearly 60 percent of in-person transactions under $10 were made with cash in 2016, the Fed said.
More recently, a study of cash payments conducted by the research firm Edelman Intelligence for ATM deployer Cartronics found cash to be Americans' second most preferred payment method, behind debit cards. Twenty-eight percent of consumers told Edelman they most preferred cash; 37 percent said debit cards. Credit cards were the preferred method for 20 percent of Americans surveyed, digital payments ranked fourth with 13 percent, and just 2 percent said they prefer to pay with checks. What's more, 73 percent of consumers told Edelman they regularly pay with cash despite having other payment options available to them.
I get it. I'm one of those consumers. I'm a big impulse purchaser. Holding myself to spending only what I can pay for with cash on hand is one of the ways I keep my spendthrift inclinations in check.
Which brings me to my next point: cash discounting is not a fad. I believe it's a trend that will continue to gain merchant converts. And I suspect efforts by the card brands to curb the practice will fall flat.
It's not just because consumers want the option of paying with cash. Merchants want choices, too, like options for managing costs.
The cost of card acceptance has gone from being a relatively unknown topic reserved for industry publications and obscure federal lawsuits, to being a topic that just about everybody knows something about.
As I've opined in the past, retailers and their trade group contributed hugely to this change when they coined the phrase "swipe fees" to describe interchange. And they've done a bang-up job arguing that lower interchange translates to lower consumer prices. (This despite the fact that several studies indicate most retailers failed to lower prices following the Durbin Amendment to the Dodd-Frank Act, which slashed allowable interchange on debit card payments.)
I was reminded of this in February when various national publications, led by the Wall Street Journal, began reporting that Visa and Mastercard were preparing to raise some interchange fees beginning in April. Now anyone who has history accepting credit and debit cards, or selling card acceptance services, knows that Visa and Mastercard publish new interchange rates every April.
Some years rates increase for certain types of transactions (for example, card-not-present) or certain types of cards (for example, platinum rewards). Sometimes rates are reduced, as when the card brands want to encourage acceptance by certain categories of merchants. But every April new interchange rates are published. That interchange adjustments are now the stuff of mainstream media reports demonstrates just how big an issue this is for merchants and their customers. It also explains why cash discounting has staying power. I've heard from countless ISOs and MLSs that cash discounting is a cash cow, and an easy sell.
With a 2018 bulletin asserting that many cash discount programs may run afoul of its rules, Visa signaled it is likely to crack down on noncompliant cash discounting programs. But I believe, as do many others, that Visa's assertions rest on shaky legal ground, since the Durbin Amendment clearly authorizes discounts for cash or other merchant-preferred methods of payment. "A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash, checks, debit cards or credit card," the law states. There are conditions, such as conspicuous disclosures and compliance with state laws, but otherwise discounts for cash payments are protected under federal law.
My friend James Shepherd, of CC Sales Pro and co-host of the Merchant Sales Podcast, made the point in a recent blog post. "Visa is certainly entitled to their opinion," he wrote. "All evidence at this time is that they aren't taking action. When they do, and when they prove in court that these cash discounting programs are not protected by the Durbin Amendment, then I'll start selling different. But right now I love selling cash discounting because it is simple, and it is a win for everybody."
That's what gives it staying power.
Patti Murphy is senior editor at The Green Sheet and president of ProScribes Inc. Follow her on Twitter @GS_PayMaven.
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