Whilst visiting a friend in Leigh on Sea I saw a sign that showed cash is still king. A ‘10% discount for cash sales above £3’ was offered at a pharmacy. This was interesting because we have been seeing reports that cards are the most popular form of payment.
What this picture shows is that cash is still an important method of payment for retailers.
Why would a retailer want cash when it costs more than its value to bank and when it tends to go missing in stores?
May be it is because it is cheaper than cards for the retailer in terms of speed and service costs.
We were told that contactless payment cards will help displace more cash for low value payments, up to £30, but we can see that for this retailer, the costs for payment cards is still too high.
I believe that through sensible regulation small retailers could be provided payment services at lower cost to further reduce cash usage in the economy. For retailers it seems “Merchant fees are like the price of petrol? - The fees go up quickly and come
down very slowly.”
Merchant fees are paid by retailers to manage the payment transaction and flow of funds from a cardholders account to the retailers account. These organisations, for small retailers, extract other fees such as renting terminals and providing fraud protection
services. They also generate profits by holding the funds on behalf of retailers and only paying them after a delay in getting the funds from the cardholder.
Therefore, what type of regulation is needed?
I believe regulation around payment processors releasing funds to retailers promptly is key, as is knowing what the fixed interbank costs for transactions are. With this information retailers can see the difference and help evaluate potential competitors.
Also, I believe regulation is required to provide extra retailer protection from lost and stolen card transactions following settlement, as described here.
The goal for payments in an economy is for the payer to decide which method they want to pay with and the retailer to be happy to pay the costs without altering the price of the goods or service.