And some businesses (that consumers want) just don't exist because they can't be made to fit the card pricing structure. Ex: journalism (subscriptions only)

It’s worse on business cards. I negotiated a bank contract for our corporate card program earlier this year and we get 3.5% cash back from purchases. It incentivizes us to pay every vendor invoice by card too as ACH / check actually cost us money.

if merchants pay anywhere between 2% to 3%, how is the bank able to pay 3.5% for purchases to your corp card customers? Simple math says the bank would lose money on this which of course won't be true. What am I missing?

Merchants pay what they’re charged on a transaction by transaction basis. That is unless they have some agreement with Stripe or similar that provides a fixed percentage.

If you get a full merchant account as a business, with IC+ billing or similar, your statement will itemize IC charges on every transaction and it’s based on the type of card the customer used.

If it’s Amex / Discover it might be 5% or more. This is why a lot of merchants are Visa and Mastercard only. If your customer has a cash back card, it will maybe be 4%. If your customer uses a no frills visa bank card, it might be 1.5%.

Across a large population of transactions it usually averages 2-3%. But if you have a B2B where all your transactions are from companies like mine, you’ll likely find it averages above 3%.

Businesses like stripe are betting that 2.9% is above the average they see across a very large population of transactions.

Handling cash costs more on average at least for smaller businesses than typical card fees.

It's typical to estimate the cost of handling cash anywhere from 4% to as high as 15% depending on takings and size of transactions.

As someone with little financial knowledge, I'm curious why that is the case and how those estimates are calculated. I've seen stores offering a discount on cash payments, citing card-related fees as the reason.

Here in Italy the answer would be that you cannot evade taxes if payments are tracked. I imagine that applies elsewhere too.

Cash can be misplaced. Stolen. Needs to be stored securely. Banks often charge fees for depositing large amounts. Security companies charge fees to transport said amounts. Counterfeit bills. Etc.

I kinda wondered about this forever as well. Then one day I was chilling in my local worker-owned cooperative bakery when the Brinks truck came by to do the bakery's cash pickup. Armed driver. Guard waiting next to the truck holding a long gun. Two guys (presumably armed) going into the business to get the cash and take it out to the truck. That's all pretty expensive!

Smaller family-owned businesses will just take cash to the bank - but it's super common for somebody to eventually surveil them long enough to rob them one day as they're transporting the cash to the bank.

It's pricey to handle cash!

Discount on cash IME is because they're not putting transactions through the till (POS) so they can commit [tax] fraud.

Ran a micro business in UK for 15 years, cash cost as much to deposit as card did - employee time (counting, reconciling, making deposit) and bank charges for cash deposits. It also slowed down transaction time (which was almost all IRL).

Fraud done by shop owners is one reason why they might still offer a discount, but also a lot of the time I simply think stores don't actually realise how much it is costing them.

E.g. they might not include staff time and incidental costs around cash transactions that aren't obvious because they're not linked to the individual transactions, such as reconciliation, time spent transporting the cash, costs of depositing the cash, insurance to cover storage of cash.

Also consider that it takes very little theft to tilt the balance, and even a tiny amount of theft by cashiers not putting through all cash transactions can make a big difference.

> they might not include staff time and incidental costs around cash transactions that aren't obvious because they're not linked to the individual transactions, such as reconciliation, time spent transporting the cash, costs of depositing the cash, insurance to cover storage of cash.

Yep. I worked as a supervisor in retail for a number of years and here's a list of cash handling costs that dont exist with card payments:

Making change on each transaction

Counting cash drawers in and out for each employee shift

Preparing daily bank deposits

Going to the bank to make deposits and get new change

Theft (by employees, external theft wasnt a problem for us)

Not sure how prevalent this is now, but a few years back I was seeing a lot of "cash price" advertised for stuff that was lower by whatever the merchant didn't have to pay in fees so sometimes cash may not be subsidizing the credit industry.

Handling cash costs money too. Sometimes more than handling cards. But a proportion of customers who like cash are very strongly convinced they are "subsidising" card payments, and might be attracted by pricing like that, so maybe it still ends up being a net gain.

From a percentage perspectice, handling huge amounts of cash should be far more expensive; I know one of the operators over here in my country: If you are a supermarket chain and have three locations in one large street, they charge you for every stop a minimum fee + additional handling costs.

When I suggested pricing like that might work, my point was not that it'd be cheaper. I 100% agree it'd be more expensive. But if it attracts a sufficient amount of additional business from people who want to pay cash it could still be a net gain (assuming those customers are still profitable).

In a lot of cases there are regulatory or contractual barriers to doing that.

The card issuers used to prohibit it, not been the case in a while though. They used to prohibit having a minimum transaction amount or charging transaction fees to your customer too. It never stopped small merchants though

In the US, not since 2011 since the Dodd Frank act required payment card networks to allow merchants to offer cash and debit card discounts.

https://www.ftc.gov/business-guidance/resources/new-rules-el...

There's no longer a blanket ban, but there are still obstacles:

* Mastercard and Visa don't allow debit card surcharges, even if the transaction is run as "credit".

* American Express only allows surcharges if they also apply to all other forms of card payment. This includes debit cards, which interacts problematically with the previous rule; if you want to do a card surcharge while accepting all three card brands and remaining compliant with all their rules, you have to apply it only to Mastercard and Visa and not American Express, even though American Express is the most expensive.

* Several states still don't allow card surcharges, and others don't allow merchants to profit from surcharging (which makes it hard to advertise a uniform surcharge) or have regulations about how prices have to be listed if a surcharge is going to apply.

Rules like these don't make it impossible to do surcharges while remaining compliant, but they make it significantly harder than it'd otherwise be. I think this is the primary reason why most merchants still don't do them. (Well, that and that their competitors don't, but that could explain either equilibrium.)

A cash and debit card discount is the same as a credit card surcharge, I fail to see how this qualifies as “significantly harder”.

Target, one of the largest retailers, offers a 5% discount for debit. Comcast, Tmobile, Verizon, ATT, Lumen, utilities, governments, and insurance companies also routinely charge extra for credit cards (or discounts for debit/cash).

Daycares charge more for credit card, as do doctors’ offices.

At least half the gas stations I see have long had higher credit cards prices.

Not to mention contractors for physical labor.

The change since 15 years ago is stark. If I wasn’t getting a minimum of 3.5% cash back on my purchases, I would use credit cards a lot less.

Huh, I didn't know that about Target (perhaps because I've lived for years in a state that doesn't allow this, so I can't get the discount where I live).

I did know that recurring utility-type payments, and payments of more than a couple thousand dollars, tend not to accept credit cards or to charge a lot extra for them, presumably because it's not as costly for them to make their users eat the inconvenience of setting up ACH payments. Most merchants can't get away with that. I've also seen it for gasoline but chalked this up to gasoline being an unusually fungible and high-demand commodity.

Do you know how they're handling the American Express problem? I don't think I've noticed a big contraction in how many merchants accept it.

> Huh, I didn't know that about Target (perhaps because I've lived for years in a state that doesn't allow this, so I can't get the discount where I live)

I linked to a website that shows the federal government specifically allowing it. You can definitely get a 5% discount in your states’ Targets for paying with a debit card:

https://www.target.com/circlecard

> Do you know how they're handling the American Express problem? I don't think I've noticed a big contraction in how many merchants accept it.

It’s not a problem. Refer back to the federal legislation that prohibits payment card networks from dictating cash and debit card discounts.

Oh, this is a specific co-branded card, that's a different thing and one I've seen a bunch of places.

It seems pretty uncontroversial on the internet that American Express has this policy, and I can't find anyone alleging that Dodd–Frank prohibits it. There is a class action lawsuit against American Express alleging that the policy is illegal (https://fingfx.thomsonreuters.com/gfx/legaldocs/zdvxngqeovx/...), but it makes its argument on antitrust grounds and does not cite Dodd–Frank—which it would surely do if there were a plausible argument that Dodd–Frank prohibits this. I don't know exactly how this squares with the text of the FTC's business-guidance page, but that page is a concise summary and doesn't get into all the details of the law, so my guess is that the situations it applies to are somehow different from what American Express is doing.

It’s not really a co branded card. They send you a Target Redcard you can ignore, but all it does is charge your debit card as usual. There is no credit check.

Your Amex lawsuit link is about Amex prohibiting different discounts based on payment card networks (see #4 at bottom of page 2).

Amex’s contract does not overrule the federal government’s rule that a merchant can offer a discount for debit and cash.

The Supreme Court upheld AmEx’s steering provisions in 2018.

https://en.wikipedia.org/wiki/Ohio_v._American_Express_Co.

Page 10: "Under Amex’s NDPs, the merchant...may not impose a 'parity surcharge' on credit card transactions, meaning a surcharge in which the merchant assesses the same surcharge amount on all credit card brands and does not surcharge debit cards at all."

That page is getting into the weeds, but none of that says a merchant cannot state that cash and debit cards receive an x% or $x discount.

The federal regulations specifically allow discounts, and presumably some lawyers will argue that a surcharge is different from a discount.

Amex is trying to do all it can, but still can’t tell a merchant they cannot advertise a discount for cash/debit.

Are you saying that even when I pay for something in cash or using debit, because of the possibility I'd use my credit-card the merchant had +3% their price?

Almost but not exactly, any rational merchant would estimate how much they pay monthly in credit card fees and find a way to add that back to their revenue. For most practical cases, the business is started already after the existence of credit cards, so when modeling revenue in your business plan this should already be baked in and the prices you come up with already cover it.

So it doesn't mean they increase the price of every product by 3%. One guy might charge more just for coffee, another do some other thing. But any extra cost you put on a seller of anything, the rational seller will make that back in sales somehow.

A rational merchant would know that they are also incurring costs for handling cash, and depending on the size of the business that cost can in fact be higher than the cost of handling cards.

In fact, the low end of cash handling costs for a business will almost always be higher than the card fees alone, but of course there are other costs in managing card payments too, so it's not quite that clear cut.

In particular, that is what happens when costs are imposed industry wide, as with credit card fees.

If the cost is only being paid by one vendor then that vendor can't raise prices or else customers would patronize one that had lower costs and passed on the savings. But if every vendor has to pay 3% then prices are going up 3%, because then the competition has no cost advantage they can pass on and people only stay in business if they're making enough to justify not doing something else. (3% is more than the entire net margin in many industries.)

the seller just charges whatever it get can get away with. 3% only has an impact when margins are closer to that percentage

Savvy/corporate sellers are typically concerned with margins so fees do play a role

Cash handling isn't free! You have to pay someone's time to count + reconcile + deposit it, or If you're dealing at any volume, you'll pay an armored car service to collect it. There's inevitably "shrinkage", or else business processes (more time and more overhead) to avoid it.

Cash is king for hiding transactions and avoiding taxes. If that's the situation then I won't say you don't deserve a cut, but for rules-following merchants taking cash isn't any cheaper than paying the credit card fees.

> but for rules-following merchants taking cash isn't any cheaper than paying the credit card fees.

That’s not true at all, particularly for large purchases.

If I go to an electronics and check out with $5000 in electronics, there’s no way that handling cash incurs the same expense to the store as the 3% fee ($150).

Maybe for nickel and dime purchases, but that’s rarely the case.

Even a $50 dinner doesn’t cost the restaurant $1.50 (plus the $0.30 transaction fee) just to handle cash.

Average cash handling cost is typically estimated in the range of 4%-15%. You're right that there might be individual differences in what it would cost to handle a single transaction, but a store isn't in a position to pick and choose - they handle an aggregate. If your electronics store only handles large transactions, maybe their percentage would be lower, but that's extremely rare. And even so, handling large cash amounts comes with its own costs around security.

> Average cash handling cost is typically estimated in the range of 4%-15%

I think the assumption is they declare only a portion of their cash receipts.

I think that is commonly the reason why some businesses do offer discounts, but note the person above replied to "but for rules-following merchants taking cash isn't any cheaper than paying the credit card fees" which seems to have specifically anticipated exactly that.

Yes, exactly. The business team at my (rules-following) company were ecstatic when municipalities around us began disallowing cash payments during COVID. Taking cash is, for us, directly 2-3% (and actually more, if you count labor, which is difficult to track) more costly than the vig on credit cards.

You're not factoring in "I won't go somewhere that doesn't take a credit card".

A store that sells $5k electronics is gonna lose a lot of sales if they attempt to save that $150 by only taking cash.

Which is why you take both but make the credit card customer eat the fees. Then many customers will save you (i.e. themselves) the money by paying cash and the ones that insist on using a credit card are free to pay what it actually costs.

Why do I almost never see a cash discount like this in practice? An I shopping in the wrong places? Or does something else prevent it?

In NY, I see it most frequently at gas stations.

Because that’s your subjective experience?

Canada has lots of stores that offer a discount if you pay cash. Many have a minimum purchase amount for credit cards.

The credit card companies hate it for the obvious reason and then the traditional reason was they would impose contractual requirements or get laws passed to prevent companies from offering a cash discount. People have posted here saying this has been reversed by federal rules, but then you're still left with two reasons.

One, inertia. Companies haven't realized they're allowed to do it now. That'll change over time.

Two, there are ways to transfer "cash" digitally without paying the credit card fees (i.e. ACH), and there are reasons to want to use digital payments -- making payments over the internet being a major one -- but ACH is ancient and it needs some kind of modern open standard in order to do things like make a payment request and determine in real-time whether the source account actually exists and has sufficient balance to make the payment. Various attempts to do that are constantly being made and constantly being fought against by Visa et al.

I've sometimes been able to get a cash discount by asking for it. This won't work with corporate places, obviously, but sole-proprietor sorts of shops - like my local car mechanic, and a print shop I used to use occasionally - have been receptive. I think they discounted by ~5% in each case. Did I suspect they're keeping the cash off-book? Of course. Did I care? Not at all. I don't expect their big-business competitors are paying tax, either.

Business banking != consumer banking. The bank will charge ~$0.10-$0.50 for that $50 deposit + the wages of the person who goes to the bank to pay it in (minimum $7.25 per hour).

I promise you someone making minimum wage will not be trusted to make deposits! Ask me how I know....

This is a huge pile of uncosted assumptions.

If you take cash it means you have to hold it on site. To be insured you have to demonstrate secure handling for the insurer, which would include security systems and limiting the amount in the safe and register. Which means routine trips to the bank, which also incurs costs.

Like...that could all be true, but the rate merchants tried to ditch ever handling physical money rather suggests the fees were worth it (not to mention all the risk mitigation doesn't cover the increased danger to ones personal safety - walking $5000 to the bank is no fun at all).

Handling cash is obviously cheaper in Germany because merchants discourage customers from using their credit cards every time they can.

Still, most consumers don’t care or notice it (we are not most consumers), so this doesn’t refute the original argument.

If I take your money without you noticing it won't affect your immediate behavior, but later on you'll buy less stuff, specially if I keep doing it. If nothing else because you don't have it anymore.