Service of Cash or Credit

December 8th, 2014

Categories: Cash, Credit Card, Money

Credit cards

I used to pay cash for most things when someone pointed out that the most accurate way to track monthly expenses is to pay with credit cards. It’s all on the bill: Food, gas, clothing or gifts. Spend cash and it’s too easy to forget small and scattered purchases.

I’ve only been sorry when a retail operation I frequented was hacked.

I never thought of cash vs. credit/debit cards from a businesses’ point of view and was fascinated to read **Vipal Monga’s story, “Reports of Cash’s Death Are Premature,” in The Wall Street Journal. **The online version of this story is credited to Bruno Mallart, but for the purposes of this article I will quote Monga as I read the newspaper version first.

What was amazing to me was how much it costs a business that deals with the public to get their money no matter how customers choose to pay.

control spendingMonga wrote that customers who prefer cash do so because of convenience, avoidance of cyber hackers and to control spending. I would add that some are paid under the table and would rather not alert the IRS by depositing cash in a bank.

Monga continued: “Paper bills and coins remain the No.1 choice for payments, used in 40% of all transactions in October 2012, according to the most recent study by Federal Reserve banks in Boston, Richmond and San Francisco. Debit cards were used in a quarter of all transactions and credit cards in 17%. Checks and all other electronic-payment techniques made up the rest.” If they spend more than $21–the average cash transaction–most opt to use checks or electronic payments.

CashIt costs $millions for a company to handle cash or credit. Where cash is concerned, costly challenges range “from transportation and storage to theft and loss.” According to a Tufts University 2013 study about companies, they “pay about $55 billion a year to manage currency….Most of it–$40 billion—was due to theft and loss.”

Some banks no longer maintain vaults for cash, wrote Monga, and they “outsource cash storage and use technology to count cash and credit their accounts.”

Pilot Flying JMore than half of the $2.5 billion the 500 Pilot Flying J truck stops pull in is in cash. It costs the company $20 million to manage the cash vs. $100 million for credit card fees that average 2 percent of each transaction. Costs to handle cash includes “the time employees spend reconciling accounts, depositing the money, and performing tasks such as getting change from the in-store safe. The company also pays fees to banks and armored-car companies,” wrote Monga.

Do you prefer to pay by credit or debit card, check or cash? Did you realize how expensive it is for a business to be paid for goods and services?

Pay cash

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12 Responses to “Service of Cash or Credit”

  1. Kathleen Said:

    Usually I pay by credit card. The pluses for me are that I don’t have to carry a lot of cash and that I gain “points” for gifts or travel. We have friends who pay for their trip on the Auto Train to FL each year with the points on their credit card and another one who just got a computer through points (and there wasn’t any sales tax!) Granted those who can’t control spending with credit cards are better off paying cash, but for those who can budget their money, credit cards are the way to go.

  2. Jeanne Byington Said:

    Kathleen,

    I take cash for my points…I don’t collect it often but when I do I am thrilled. It’s smart on the part of the credit card co. as I bend over backwards to use only that card and the only reason I don’t is when at the cash register or gas station I suddenly can’t find it because I’ve tucked it somewhere it shouldn’t be.

    I don’t know which would be more lucrative. I usually don’t want to own what they are selling with points so cash, applied to my credit card bill, seems the way to go.

  3. Martha Takayama Said:

    I really have not given much thought to the expenses incurred by business in accepting cash or handling it in general. I had no idea that despite vigorous campaigns for bankcards, credit cards and even bitcoin that cash was considered on the verge of being declared moribund or obsolete. I believe that customs with regard to carrying and paying in cash often vary from country to country or culture to culture. I suppose it is foolish to not have given thought to the expenses as well as risks involved in transporting cash by armored trucks and the cost of security needed to guard all manner of transportation of cash. There is of course the added cost of potential loss of human life. I, however never imagined not all banks maintained vaults for cash.

    I am not comfortable carrying any significant amount of cash on my person. I find it more comfortable, secure and more efficient as a consumer to use credit cards for most purchases. The easily accessible records are a boon for me.

    As a small business owner, my experience has been that the acceptance of credit cards for payment has facilitated purchasing and ease of payment. The efficiency of their use outweighs the charges.

    The most surprising aspect of this post is the revelation that the administration of handling of money and payment is so costly in proportion to profit.

  4. Jeremiah Said:

    From my many years in banking, I can confirm that it is far less expensive to make payments electronically than in cash, especially if the amounts involved are large. However, somewhere along the line someone, a human being, must enter data into the computer. Mistakes, sometimes very big ones, will be made. Our error rate in money transfers used to be shockingly high and expensive. Although not talked about, I suspect that has not changed. Even so, it is still much to the banks'(and the government’s)advantage to move money electronically especially because of the vast amount of information such transfers disclose about both senders and receivers.

    While I am increasingly frightened by privacy and security issues and wonder who is looking each time I use a credit card, and whether they will use what they learn to control me, but I haven’t stopped using them. I do resist, though, when it comes to permitting automatic payments to be made from my various accounts. There is an inevitability about this whole business, which leads me to take perverse comfort in Newton’s third law. The day will come when technological advances will outstrip mankind’s capacity to master them. The machines will just shut down, and we will be free again.

  5. Lucrezia Said:

    Avoidance of credit cards for small purchases: groceries, restaurants, hairdresser, works well for me, since there’s no bill for items that have been enjoyed or eaten by the time the bill arrives. Some small businesses appear to think the same way, and request a minimum for charges. Even more have signs refusing to accept American Express, reason being the high costs of dealing with them.

    The cash customer seems to be favored, or at least according to my experience. It also costs less. Some credit institutions permit no interest purchases w/the agreement one pays off the debt by a certain time. One can save thousands in interest by going that route. Credit cards are following suit, and strict adherence to their rules saves even more.

  6. Jeanne Byington Said:

    Martha,

    Whether it costs a business a 2 percent fee to a credit card company or whatever to protect and count the cash, the expense is clearly passed on to us, the consumers.

    I, too, don’t carry much cash though the night I was semi-held up, I was glad to have $5 in my pocket so I could hand it over without opening my wallet. He wanted $10…

  7. Jeanne Byington Said:

    Jeremiah,

    As fast as I can touch type without looking, I never got the numbers on the keyboard and must look for and strike each one so I could never enter numbers/data into a computer. It would take me hours. But I bet I’d make fewer mistakes than those that I’ve seen and admired who can tap out numbers with one hand at an alarming speed.

    I imagine that with large money transfers a bank would ask for a better than 2 percent fee that retailers and restaurants must pay. As I noted in my comment to Martha, we all pay in the end–the consumers.

  8. Jeanne Byington Said:

    Lucrezia,

    I gave up the concept that the food is eaten and gift given or shampoo used by the time the bill comes forcing me to pay cash in favor of the convenience of having a clear record of what is spent. One way or the other, the money is gone.

    We have bought cars with interest free loans….interest free is great for us and the car co. makes its quota of monthly sales so that it is paid a huge bonus by they manufacturer: A win-win for all.

  9. RCF Said:

    I prefer to pay with a credit card. I know it costs the business when I use the credit card, but then, they are getting my business because, in part, they accept credit cards. I do not usually have much cash with me. And I would like to know why it costs a business so much to collect cash, except that the whole business of keeping track of what is sold and how much was gained from the sale takes manpower, computer power, time and energy of all kinds. However, that is the cost of doing business, no? It has to be built into the budget. If we worried about the cost of businesses collecting our money for the goods and services we procure, and we stop buying, then everybody is in trouble!

  10. Jeanne Byington Said:

    RCF,

    Whether a business loses money to theft or must pay credit card fees, the cost is passed on to the customer so we can’t feel too badly for big business that deals with the public.

    The small business that Lucrezia references that requests its customers buy a minimum or they can’t use a credit card is clearly the loser. Folks like us who want to use a credit card won’t buy from them and if they pass along the costs to their customers, making what they sell cost much more than the competition, customers will go elsehwere.

  11. Judy Schuster Said:

    I use credit cards for all, but the very smallest purchases, and I pay each card up each month, because that saves me significant money. If I don’t have the money in my account, I have the bank automatically add money to my account at a very low interest rate. Because we used to travel frequently, I set up most of my accounts so that they automatically delete the money they are owed out of my bank account. It also saves me time, since I have several charge accounts and better things to do than write out checks. I do see bills each month, so I can check the charges to make sure they are all mine. (I caught a charge for more than $1,000 recently.) I use cash for tips frequently, but not for much else.

  12. Jeanne Byington Said:

    Judy,

    WOW: $1,000+ surprise on a bill? I wonder if someone hacked an account and got your credit card number or perhaps it was just a mistake by the bank. I hope it was the latter so it doesn’t happen again although it took me months to unravel an encryption error by my bank. It’s too long a story for here but it turned out that the person that Jeremiah mentioned in his comment who was inputting the amounts of each check subtracted $6,128 from my account instead of the actual amount of my check–$61.28. What complicated matters: I wrote the check to a Canadian crafts person so it involved an “international” transaction. This was years ago and the bank could have cared less.

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