Cash still king for customers
24 October 2007 | 7844 views | 0
The British Retail Consortium (BRC) says customers still prefer to use cash when paying for purchases in stores despite moves by banks to boost revenues from fees through increased card spending.
Note and coin payments accounted for more than half (54%) of all transactions last year, with £32 of every £100 spent in shops being in cash, according to a BRC survey which includes results from 10,000 shops responsible for over a third of total UK retail sales.
But the retailers' organisation is accusing card companies of exaggerating the extent to which cards have replaced cash, while pushing cashless payment methods as a way of boosting their own revenue.
On average a £20 cash transaction costs a retailer less than four pence while a £20 credit card transaction costs at least 17 pence, says the BRC.
The BRC says, in making moves to replace cash, card schemes and banks must acknowledge the very low costs they actually incur and reduce charges for processing these card payments to below those for handling cash.
Collecting all payments, including cash, cards and cheques, cost retailers £317 million last year, says the BRC. Processing of credit card payments made up 51% of that even though they represent only 22% of sales turnover and 12% of transactions.
Kevin Hawkins, director general of the BRC, claims that banks have long abused their position by imposing much higher charges on retailers for processing card payments than cash.
"Clearly the banks have spotted that replacing cash with cards would mean a further boost to their profits," says Hawkins. "There should be a lower, fixed fee per transaction which actually reflects the costs of processing. Cash still dominates and will continue to do so while the high costs of the alternatives put retailers off adopting them."
Peter Robinson, chairman of the BRC's payments working group, says cash is still king for customers and despite the costs of transporting and banking cash, it is also the cheapest means of payment for most retailers.
"If the banks are serious about getting customers and retailers to switch from cash the alternatives need to be cheaper and widely accepted. Contactless cards, which banks are calling the 'new alternative to cash', do not yet meet these requirements," adds Robinson.
The UK's Office of Fair Trading (OFT) is currently investigating both MasterCard and Visa's current UK interchange fee arrangements relating to consumer and commercial credit cards, charge cards and deferred debit cards.
At the same time the European Commission is examining cross-border interchange fees charged by the card companies.
Last week the EC ordered French credit card operator Groupement des Cartes Bancaires (CB) to drop a fee tariff that illegally restricted competition by introducing different tariffs for participating banks.
CB - which is owned by a group of the biggest French banks including Credit Agricole, BNP Paribas, Natexis Banques Populaires and Société Générale - used a pricing system that discouraged smaller member banks from issuing more cards at lower rates.
The EC says the pricing scheme hinders the "issuing of cards in France at competitive rates by certain member banks, thereby keeping the price of payment cards artificially high to the benefit of the major French banks".
"Consumers are the victims of this illegal practice, which deprives them of cheaper cards and a more diversified product offering," said the EC in a statement.
The banks were ordered to drop the scheme immediately.
Competition Commissioner Neelie Kroes said the decision underlines the fact that, to ensure the greatest possible benefit to consumers, the single euro payments area must be an area of competition: "The Commission cannot tolerate behaviour that goes against the objectives of Sepa by seeking to partition a national market."