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Getting Ahead: Cash or Card?

Posted Aug 02, 2023 9:27 AM
By Patricia Jones, Alliance Community Task Force: Creating Opportunity

Have you noticed that some stores in our area offer cash discounts? If we pay cash, we might get a certain percent off at some gas stations, restaurants, or other retailers. These businesses are tired of paying credit and debit card processing fees.

Credit card processing fees are the fees that a business must pay every time it accepts a credit card payment. Stores probably pay more than one fee. The swipe fee might mean 10¢ for processing a transaction. A payment processor fee might be a monthly fee for equipment and for paying the merchant and then collecting from the purchaser. Then there is the percentage fee. Stores pay anywhere from 1.5% – 4% of the total amount of the transaction to the credit card company. The fee is less if they are a high-volume business like a large chain store, higher for small-town merchants.

What about using your debit card? That’s cash transferred directly out of your checking account – right? Sort of. Businesses pay the same types of fees for those transactions. Debit card fees are close to the same as the credit card fees paid by merchants.

Sometimes we use apps like PayPal, Venmo, Cash, or Zelle? Yes, businesses pay swipe fees and percentage fees for each of these transactions as well.

Nationally, retailers figure that they lose 2% of their profits because they pay these credit and debit card fees. This means they raise their prices for all customers.

Why do stores accept these cards if they are so expensive? Because being a cash-only enterprise would cost a lot of business. People tend to spend more when they aren’t using cash. Stores get their money quickly, and they are protected from fraud, bad checks, and counterfeit currency. Many Americans don’t use cash at all, especially if they are younger. It’s just so much more convenient to use our phones or tap our cards to make our payments.

Legislation known as the Credit Card Competition Act, first introduced in Congress in 2022, is described by its sponsors as encouraging “competition in electronic credit transactions.” The legislation failed to pass in 2022, but its sponsors reintroduced it in June 2023.

Why hasn’t this legislation passed? Because there are lots of perks for customers who use credit cards, especially for those who have excellent credit scores. We get cash back on purchases. We get miles from airlines and hotels. We get to purchase gift cards at discounted rates with points we’ve earned. We get to buy goods online. We get to travel all over the world and use our cards to pay for our purchases. We get fraud protection that allows us to dispute bills. We even get to transfer balances between cards to get 0% loans and extra cash back bonuses.

Wealthy and middle-class Americans want to keep these rewards. They contact members of Congress and influence legislation. So do Visa and Mastercard, who handle 80% of credit card processing. They’ll work through lobbyists and campaign donations to protect their interests.

For lower-income people, it’s much more difficult to develop an excellent credit score, so rewards probably aren’t available. Bank accounts may be too expensive to maintain, so there may not be debit cards either. But they probably won’t contact Congress…

Meanwhile, if a business is offering you a cash discount, plan ahead. Have that money in your pocket. Then you’ll both benefit.