Contactless cards, online sales and self-service tills are contributing to a steady decline in the use of cash by UK consumers says the British Retail Consortium.
The cost of transaction is a misleading parameter to focus on. If it were important, all the merchants would still be forcing their customers to pay with cash.
Retailers do spend money on advertising/marketing without blinking, but I bet very few of them know how much it really costs to get
The important parameter should be: how can a (new) payment method help me make more money. Is serving one extra customer per hour by accepting mobile payments worth an extra 1% in transaction cost? If such mobile payments also include a loyalty programme,
how does that compares to 50% off promotion ("buy 1 get 1 free"), in terms of effectiveness?
Credit Cards may only acount for 9% of transactions but nearly half the cost, however the BRC's report shows that credit card volumes are moving in the right direction, with a 12% rise in the average transaction value. This means credit cards are still being
used for high value purchases and are not displacing debit cards at a high cost to the retailer. More fast, payment instruments for low value purchases will reduce cash in circulation and provide retailers with the fast liquidity they need.
The cost of debit card transactions is not high - it's the credit card fees at a percentage of the value that hurt.
As for DC txn cost, that depends on use case. Some small merchants are paying as much as 15-25p per txn. For a small-value purchase (say £3.00), that's well over 5%...
I would argue that the costs of handling cash for a retailer i.e. staff time to count it and to reconcile cash tills, staff time to deposit cash at a bank branch, associated bank fees for cash deposits levied by some institutions, lost cash interest on cash
float amounts equates to much more than the actual card processing costs.
I very much doubt whether the above costs are factored into any analysis conducted by any self-serving retailer group.
Your typical retail business owner isn't ignorant of the costs of different payment methods. But they don't turn away customers who've only cash in their pocket or only plastic. They'll deal with whatever costs and issues arise, with whatever payment methods
their customers want to use. It's natural they resent high transaction fees. Especially on low-margin sales.
Credit card charge-backs are another spanner in the works. Often the business wants to offer lower prices for website sales. That's ok for sales on-account where you build a relationship with the customer and trust them to pay later.
But for casual website sales both parties want instant gratification, payment right now. Not so easy when over the web you can only accept payment via credit card or PayPal and both are subject to charge-backs. How do you set prices when you can't predict
how often payments to you will get reversed, for no fault of your own ?
I agree, Russell, that retail businesses are mindful of costs, though a key challenge which we see in mid-sized retailers is accessing and interpreting the mix of transaction and card types from the data provided by acquirers.
Outside IC+ models there are so many variations which muddy the waters and make decisions on process change to avoid non-secure premium charges and comparison between acquirers very challenging.
Knowing that doesn't stop retailers feeling frustrated, in fact it's when people perceive they are facing barriers they can't overcome that they'll rail against a system.
Retailers bend over backwards for their customers, competition obliges them to. They look at the behaviour of Visa & MC and card-issuing banks and don't see a competitive payment industry bending over backwards for them. The banks make handsome profits
on these interchange fees. Such extraordinary profits you won't see in a healthy market.
For sure analysis of transaction data might help a retailer, not an easy task when the fee pricing is so complex and opaque. And there's Durbin et-al on the regulatory front. But that's just detail, the big picture is not healthy.
Competitive (including base, OTE, benefits)London, UK
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