Why Are We Still Using Cash ?

[Bonam]

6 hours ago, BC_chick said:

ETA - I've personally seen many businesses, (especially in residential trades), put off accepting credit-cards because of the fees only to see their sales increase significantly when they finally join the 21st century.

Credit-cards bring a lot of value to the table for a company.

 

Indeed. Also, when analyzing the costs of using credit cards and comparing to cash, one can't make the assumption that handling cash is free. Consider that businesses that use credit cards have much less physical cash flowing through the premises and stored there, while businesses that only take cash will have a lot of it on hand. Having a lot of cash on hand means security issues, which cost money. Do you take your cash to the bank in an armored truck; how much does that cost? Do you have procedures in place to make sure your employees don't steal thousands of dollars out of the till; how much do these procedures cost? When you analyze these costs, it quickly becomes clear that a 2-3% cc fee is a lot cheaper for a business than the cost of handling lots of cash. 

Edited October 13, 2016 by Bonam

[msj]

Agreed Bonam. 

The real reason to be a cash only business is to reduce taxes through tax evasion. 

That is a significant enough savings to warrant extra security/procedures and lost business from CC customers like me who generally avoid such places unless they serve up an excellent bowl of pho with tripe. 

[Michael Hardner]

That is what the podcast is about.  Cash is used by crooks, mostly.

[bush_cheney2004]

1 hour ago, Michael Hardner said:

That is what the podcast is about.  Cash is used by crooks, mostly.

 

Nonsense...cash is also used by everyday people for everyday things. 

 

Canadians Love Cash

Edited October 13, 2016 by bush_cheney2004
edit

[Michael Hardner]

Yes, you are right.  But crooks *really* need it.

[BC_chick]

15 hours ago, Bonam said:

Indeed. Also, when analyzing the costs of using credit cards and comparing to cash, one can't make the assumption that handling cash is free. Consider that businesses that use credit cards have much less physical cash flowing through the premises and stored there, while businesses that only take cash will have a lot of it on hand. Having a lot of cash on hand means security issues, which cost money. Do you take your cash to the bank in an armored truck; how much does that cost? Do you have procedures in place to make sure your employees don't steal thousands of dollars out of the till; how much do these procedures cost? When you analyze these costs, it quickly becomes clear that a 2-3% cc fee is a lot cheaper for a business than the cost of handling lots of cash. 

Great point. I was only considering the intangible but you're right there are tangible benefits as well. 

 

Edited October 13, 2016 by BC_chick

[overthere]

On 10/12/2016 at 0:19 PM, BC_chick said:

Credit-card fees are not material, labour and premises are much higher cost for retailers.  Credit-cards also increase revenue for a retailer given that people prefer to purchase on plastic, especially with anything over $100.  

Are you actually seriously under the impression that consumer costs would drop substantially if credit-cards fees were eliminated tomorrow?  

ETA - I've personally seen many businesses, (especially in residential trades), put off accepting credit-cards because of the fees only to see their sales increase significantly when they finally join the 21st century.

Credit-cards bring a lot of value to the table for a company.

 

They are most definitely  material, from 2 to 4.5% of every transaction.  Some businesses are harder hit than others, mainlythose with high volume low margins like Gasoline sales, groceries, liquor and many others.  And credit card costs are dead costs for retailers, unlike labour.

 

Yes, of course retail costs would drop if there no credit card fees.  In the uS, many gas stations offer lower costs if you pay by cash and not coincidentally the discount is equal to the fat fee they pay credit card companies.

 

And no, you have not seen retail businesses that don't accept cards for about a generation.  Unless you are talking about Aunt Mary selling macrame at the local craft fair.

Retailers do not have the option of refusing your Super Platinum Master Card that costs them 5% in additional fees because of all the 'free bonus miles' that you get for using it.  Their agreement with MC or VISA forces them to accept any and all branded cards or their access to electronic  pay systems is terminated.

 

Now it is spreading to debit cards, and yes every cent and per cent of that profit center for banks and MC/VISA will be paid by you and me at the till.

 

 

Edited October 14, 2016 by overthere

[BC_chick]

I don't dispute that the costs of credit-cards play some role in pricing given that the company considers its overall expenditure (fixed and variable) as well as profit targets to come up with the markup on inventory.  However, I strongly dispute that they will have any material impact given that fees average around 2-3% of gross credit-card sales (anyone paying 4-5% needs to renegotiate their contract or find a different company to work with).  

Also, as it was pointed out to you, cards do bring a lot of value.  As Bonam pointed out, there are direct costs involved in safeguarding cash.  Cash is easily stolen by staff even for companies with the strictest of internal controls in place.  That puts a strain on the company's overall expenditure and you're not arguing in good faith in you dispute that.

As I also pointed out earlier, there are intangible values such as increased revenue when offering credit-card sales.  It's well known consumer fact that people spend more on credit, and also, cards are easier to carry around than large sums of cash.  So consider a company with little change in its fixed costs and how much they would benefit from increased revenue.  From a managerial accounting perspective, increased sales translates directly to more competitive pricing.

Economies of scale.

Edited October 14, 2016 by BC_chick

[?Impact]

10 minutes ago, BC_chick said:

anyone paying 4-5% needs to renegotiate their contract or find a different company to work with

Fee's are not that simple. There are often setup/termination fees, monthly minimums, terminal rental, etc. As you say "Economies of scale", don't always work out for the mom&pop shop. There are also seasonal businesses, or event based operations that don't fit the usual retail mode. That is where the speciality payment processors like PayPal, Square, Stripe, etc. come into play.

[TimG]

26 minutes ago, BC_chick said:

Also, as it was pointed out to you, cards do bring a lot of value.  As Bonam pointed out, there are direct costs involved in safeguarding cash.  Cash is easily stolen by staff even for companies with the strictest of internal controls in place.  That puts a strain on the company's overall expenditure and you're not arguing in good faith in you dispute that.

Debit cards cards charge flat fees instead of a percentage. They have all of the advantages of credit cards at a lower cost. 

[BC_chick]

 

57 minutes ago, ?Impact said:

Fee's are not that simple. There are often setup/termination fees, monthly minimums, terminal rental, etc. As you say "Economies of scale", don't always work out for the mom&pop shop. There are also seasonal businesses, or event based operations that don't fit the usual retail mode. That is where the speciality payment processors like PayPal, Square, Stripe, etc. come into play.

You're misusing my use of the economies of scale.  I was saying that increased revenue plays a role in keeping prices competitive which is the concept behind economies of scale, not that all stores are functioning on economies of scale.  

Think of it this way, we've established that cash comes at a cost to companies and given our inevitable cashless society, that same mom and pop shop who has to pay all those fees is still benefiting from the customers it would otherwise lose by not offering credit cards.

As for things like Square, they work out to roughly 2% average and you'll find more and more mom and pop shops using them (though I think their software still needs a lot of tweaking).

Edited October 14, 2016 by BC_chick

[overthere]

19 hours ago, BC_chick said:

I don't dispute that the costs of credit-cards play some role in pricing given that the company considers its overall expenditure (fixed and variable) as well as profit targets to come up with the markup on inventory.  However, I strongly dispute that they will have any material impact given that fees average around 2-3% of gross credit-card sales (anyone paying 4-5% needs to renegotiate their contract or find a different company to work with).  

Also, as it was pointed out to you, cards do bring a lot of value.  As Bonam pointed out, there are direct costs involved in safeguarding cash.  Cash is easily stolen by staff even for companies with the strictest of internal controls in place.  That puts a strain on the company's overall expenditure and you're not arguing in good faith in you dispute that.

As I also pointed out earlier, there are intangible values such as increased revenue when offering credit-card sales.  It's well known consumer fact that people spend more on credit, and also, cards are easier to carry around than large sums of cash.  So consider a company with little change in its fixed costs and how much they would benefit from increased revenue.  From a managerial accounting perspective, increased sales translates directly to more competitive pricing.

Economies of scale.

There are essentially two "different company": VISA and Mastercard.  They don't negotiate unless your first name is Amazon or Walmart.  And fees of 4% and 5% on the premium cards that give you lots of loyalty goodies are entirely common.

You are looking at this situation from the point of view that it benefits you overall.  Your premise that a business having credit card services for customers might have made sense in 1978, but today it is nearly universal.  There is no 'increased revenue' when every competitor offers the same way of paying.  In fact, in Canada , the opposite is true.   As  a retailer you simply cannot offer a deal to anybody for using cash, nor can you turn down transactions using that Ultra Platinum crd becuase you know the fees are very high.  If you attempt to do these things, VISA/MC will withdraw their POS terminals and customers will have no option to use debit or credit.

 

They have tied it all up in a neat bow, and that noose in Canada is getting tighter with the introduction of VISA/MC branded debiot cards.  Interac (a very consumer friendly, efficient and cheap system)never used to advertise, now they do it heavily and are fighting for their very survival.  For the sake of my wallet, I hope they somehow survive.  There is no free lunch: you pay for every AirMile purported 'reward'  or 'gift' or 'benefit'  in full.  I'm a bit shocked that any adult did not know this fact.

[msj]

5 minutes ago, overthere said:

 There is no free lunch: you pay for every AirMile purported 'reward'  or 'gift' or 'benefit'  in full.  I'm a bit shocked that any adult did not know this fact.

Which is why I use my credit card for anything and everything I pay for. 

Since the cost is embedded in the price anyway I am better off getting my travel rewards to partially offset the cost I would have paid if paying with cash or debit. 

It's a vicious circle. 

[TimG]

1 hour ago, overthere said:

As  a retailer you simply cannot offer a deal to anybody for using cash, nor can you turn down transactions using that Ultra Platinum crd becuase you know the fees are very high.  If you attempt to do these things, VISA/MC will withdraw their POS terminals and customers will have no option to use debit or credit.

We need a regulation that prohibits credit card companies from requiring retailers to accepting high fee cards at the same price or charging credit surcharges. Many retailers would not change their policy if this restriction was removed but they should have the choice. I see this practice as denying consumers information that they have a right to know (i.e. the amount the price of their goods is raised to collect those credit card rewards).

[BC_chick]

On October 15, 2016 at 10:14 AM, overthere said:

There are essentially two "different company": VISA and Mastercard.  They don't negotiate unless your first name is Amazon or Walmart.  And fees of 4% and 5% on the premium cards that give you lots of loyalty goodies are entirely common.

You are looking at this situation from the point of view that it benefits you overall.  Your premise that a business having credit card services for customers might have made sense in 1978, but today it is nearly universal.  There is no 'increased revenue' when every competitor offers the same way of paying.  In fact, in Canada , the opposite is true.   As  a retailer you simply cannot offer a deal to anybody for using cash, nor can you turn down transactions using that Ultra Platinum crd becuase you know the fees are very high.  If you attempt to do these things, VISA/MC will withdraw their POS terminals and customers will have no option to use debit or credit.

 

They have tied it all up in a neat bow, and that noose in Canada is getting tighter with the introduction of VISA/MC branded debiot cards.  Interac (a very consumer friendly, efficient and cheap system)never used to advertise, now they do it heavily and are fighting for their very survival.  For the sake of my wallet, I hope they somehow survive.  There is no free lunch: you pay for every AirMile purported 'reward'  or 'gift' or 'benefit'  in full.  I'm a bit shocked that any adult did not know this fact.

 

Normally when you claim something and someone counters that claim, you're supposed address the counter-claim, not repeat yourself.  

Maybe you just don't understand the concept behind cost-benefit (don't worry, a lot of people don't), but I'm only going to counter your claim one more time.  If you want to keep repeating yourself again, I'm not going to respond ok?

Yes, CC fees play a role in determining price and/or markup of a product and yes, some cards charge 4-5% in fees, however:

1) Since nobody knows what card a customer will pull out, markups on determined on *average fees* which is around 2-3%.

2) Credit Cards increase revenue.  Since they are a variable cost and overhead is mostly fixed, the increased revenue = more profit.

3) Price determination is NOT cost alone, profit targets are also a consideration.  Whatever losses are incurred by CC fees, is offset by the increase they bring to the table in profit (see point 2).

In conclusion, credit-cards have a tremendous cost benefit and whatever cost they have on the bottom line is offset by the increase in revenue and thereby profits.  

Their overall impact on price is therefore not material.

[msj]

15 minutes ago, BC_chick said:

 

Their overall impact on price is therefore not material.

 

Agreed.  Though I think customers likely pay more of the fees than the sellers in the end the amount is so small as to make the point irrelevant. 

 

[Michael Hardner]

I am glad that this kicked off a related (if not exactly on topic) discussion of credit card fees.

 

Did anybody listen to the part about the post-money economy ?

[bush_cheney2004]

Cash means more than just currency and notes.   Cash also includes liquid assets in bank accounts, retirement funds, brokerage accounts, etc.  

 

[BC_chick]

1 hour ago, Michael Hardner said:

I am glad that this kicked off a related (if not exactly on topic) discussion of credit card fees.

 

Did anybody listen to the part about the post-money economy ?

You have such a diplomatic tone in your moderating.

Thread drift noted.  

[overthere]

This is the relative cost of using various means of payment, using a median transaction of $36.50.  This article is old and the costs will have shifted upwards since 2009 for both credit and debit, though likely not for cash:

Quote

So what does it cost to process a transaction? The Bank of Canada survey looked at the estimated cost of processing a $36.50 transaction, which was the median cash transaction in its survey. Costs broke down like this:

• Debit card: 19 cents.
• Cash: 25 cents.
• Credit card: 82 cents.

source

 

And why have costs increased sustantially for debit and credit card transactions in the last several years?  First, the charges on the (in Canada) VISA/MC branded debit cards are much higher than on Interac cards.  At least one bank, TD, no longer offers solely Interac branded cards .  Why? Because Interac makes next to nothing for banks.  Visa/MC Debit makes plenty for the banks and for VISA/MC, all of which is passed to all consumers at the retail level no matter what method you use to pay.

 Second, all CDN banks and VISA/MC have pushed very hard for several years to get consumers to dump their low cost, low interest, and low merchant fee VISA/MC credit cards in favour of the Gold/Platinum/Free Lunch cards..  Why?  Because not only are merchant fees much higher on premium cards which insure fatter returns to VISA and every bank, it is all gravy for them- they don't give a rats ass if retailers have to continually jack up  prices to cover bank/VISA fat profits.  And nobody seems to point the finger at banks.  Customers of banks howl when their deposit interest rates drop, or when their bank jacks up srvcie charges, yet not a peep when they collectively screw us via merchant fees.

 

I'll be following the fight between Walmart and VISA closely, since Walmart in some places refuses to take VISA in a scrap over CC fees.  Walmart is widely hated by the latte class, but they are the only retailer that is fighting these assholes.

 

 

[bush_cheney2004]

14 minutes ago, overthere said:

...I'll be following the fight between Walmart and VISA closely, since Walmart in some places refuses to take VISA in a scrap over CC fees.  Walmart is widely hated by the latte class, but they are the only retailer that is fighting these assholes.

 

Excellent observation, regardless of Walmart's motive(s).

[msj]

10 hours ago, Michael Hardner said:

I am glad that this kicked off a related (if not exactly on topic) discussion of credit card fees.

 

Did anybody listen to the part about the post-money economy ?

Sorry haven't listened yet. 

But you should follow Ken Rogoff on twitter and read this blog post: https://medium.com/@krogoff/a-world-of-difference-between-less-cash-and-cashless-88e102e034ae#.793fxii1m

I think he is right that we should always have small bills. Sounds like he wants the US to go down to having the $10 as its largest bill (which would imply $20 in Canada). 

It's harder to commit certain criminal acts and evade taxes when you have to carry a stack of tens/twenties! 

[dre]

We barely use cash at all. Coins and bills make up less than 5% of the money supply. But it will never completely go away.

There are literally billions of transactions between people that aren't electronically driven. And there's demand for private transactions as well.

And since the demand is there it will be met. Even if the government stopped issuing physical currency, some other private company would do it. People would swap their electronic money with "google bucks" and use them to buy stuff if they need to (dope, crack, guns, blow jobs, turnips from a desk at some). The government does not want privately issued currency to flourish because they would lose partial control of the money supply.

Also minted and printed money is nice because its interest free. Virtual money cant be created without someone going into debt. I actually think the government should mint a lot more money and pay some of their employees in cash... as long as inflation is low. It would reduce our deficits.

 

Edited October 18, 2016 by dre

[?Impact]

16 minutes ago, dre said:

I actually think the government should mint a lot more money and pay some of their employees in cash... as long as inflation is low. It would reduce our deficits.

It would affect the foreign exchange rate, but that is not necessarily a bad thing.

[dre]

On 10/12/2016 at 5:33 PM, Bonam said:

Indeed. Also, when analyzing the costs of using credit cards and comparing to cash, one can't make the assumption that handling cash is free. Consider that businesses that use credit cards have much less physical cash flowing through the premises and stored there, while businesses that only take cash will have a lot of it on hand. Having a lot of cash on hand means security issues, which cost money. Do you take your cash to the bank in an armored truck; how much does that cost? Do you have procedures in place to make sure your employees don't steal thousands of dollars out of the till; how much do these procedures cost? When you analyze these costs, it quickly becomes clear that a 2-3% cc fee is a lot cheaper for a business than the cost of handling lots of cash. 

Sure but there's a macro economic consequence. Credit cards encourage short term spending at the expense of long term spending and overall they are a drain on the economy.

The average American Family carries almost 15 thousand dollars in credit card debt. A whopping 40% of consumers roll over a balance from month to month. That's millions of people paying thousands of dollars per year in interest at rates of 10-30%. So you need to balance the convenience credit cards provide to buyers and sellers with the fact they reduce overall consumer spending.

Much like commercial banking a lot of these financial services are a parasitic layer that sits on top of the economy and tries to suck it dry. They never make a single real widget, they just create debt, and shuffle paper.

If we are going to replace currency it should be with a system of interest free self issued credit. The government would increase the money supply based on economic growth, and the new money created would be issued to citizens based on their reputation and balance of trade (productive people get to log into the system and issue themselves credit, unproductive people don't). A computer program could basically run the whole thing. Commercial banking would go away (as it should), but Investment Banking would remain (as it should)