A few years after consumers started shunning cash for everyday purchases to avoid spreading the coronavirus, fresh economic pressures are conspiring to bring cash back.
A smattering of retailers unhappy with recent
Certain independent restaurants and convenience stores are offering cash-paying customers discounts of 2% to 3% so they can avoid paying credit card interchange fees that average about 2.2% of the transaction.
While
One reason is that banks, merchants and card networks were so successful in driving mass adoption of contactless and mobile payments during the pandemic that fewer customers have cash in their pockets.
A Wayne, New Jersey-based restaurant called The Taphouse in April introduced a 3% discount on all tabs paid with cash, but only a fraction of consumers are taking advantage of the deal because most don’t carry enough cash, according to one of the restaurant’s managers.
During the course of the pandemic 39% of consumers adopted new payment habits, with 67% now routinely tapping to pay with a credit or debit card in stores, according to a survey payments processor Paysafe conducted among 2,000 U.S. consumers comparing their behavior in April 2022 with 2020.
Mobile wallet usage also jumped during the pandemic so that 37% of consumers are now comfortable paying with their phone or watch, up from less than 10% before the pandemic, the survey said. One in 10 consumers now use contactless technology for all their transactions, according to Paysafe’s survey data.
Reversing consumers' post-pandemic attachment to cards may be tough, but unbanked consumers who never stopped using cash are finding more ways to pay with greenbacks as the pandemic fades.
Lyft this week introduced a cash payment option for its ride-share service, enabling users to load up to $300 into the Lyft app at the checkout counters of 37,000 stores nationwide including Walmart, Walgreens, Kroger and other general-merchandise chains.
The ride-share company said in a blog post it's introducing the feature to improve convenience for millions of unbanked consumers and those who prefer to use cash. A spokesperson confirmed that Lyft offers no discount for rides paid with preloaded cash.
Uber four years ago introduced
Representatives of the retailer community will face off against payment card network and bank executives over credit and debit card interchange during a Wednesday hearing to be chaired by Sen. Dick Durbin.
Merchants began looking for new ways to cope with higher swipe-fee costs after Visa and Mastercard in April hiked credit card interchange rates. At a Senate U.S. Judiciary Committee
Visa and Mastercard set interchange rates, which mostly go toward card-network operations and card-issuing banks to cover the cost of card security. The Merchants Payments Coalition says U.S. merchants collectively pay more than $100 billion annually in card swipe fees based on some of the highest credit card interchange rates in the world.
Although the card networks actually
One payments processor that offers special tools for merchants to add surcharges to offset card-swipe fees sees growing demand for cash-payment options.
“Nearly one in five of our customers is moving in this direction,” said Sal Rehmetullah, president and cofounder of Stax, a Florida-based firm that offers payments acceptance services to 22,000 U.S. businesses. Stax last year acquired CardX, an automated payment card surcharging platform that creates a streamlined process for merchants to offset swipe-fee expenses by surcharging with appropriate signage and disclosures.
Convenience stores, independent shops and restaurants tend to lean toward cash discounts to avoid paying swipe fees, while larger enterprises often opt for surcharging, or tacking a separate fee onto credit card transactions over about $100 to offset swipe-fee expenses, Rehmetullah said.
“Cash discounting is more common on the lower-end ticket size at mom and pop stores, while professional services and law firms tend to opt for surcharging,” he said.
Between surcharging and cash discounts, merchants can expect to reduce their overall fee burden 3.5% to 4%, which can amount to a savings of thousands of dollars annually for each business, he said.
National retail and dining chains, grocery stores and big-box merchants in competitive niches typically don’t offer cash discounts or surcharges, said Steve Mott, principal with BetterBuyDesign, a payments and retail consulting firm.
“The biggest merchants tend to negotiate more favorable interchange rates with the card networks based on their volume, but smaller merchants have little to lose by asserting their payments independence,” Mott said.
If more merchants join the movement to encourage cash over cards with discounts and surcharges, it could empower retailers in their negotiations with the card networks, Mott says.
“The rise of peer-to-peer payments and the potential for other account-to-account payments to migrate to purchases could foster the erosion of card payments, if merchants can mobilize the wherewithal to push back on card fees,” Mott said.
