Is Cash Still King?

Have you read the article “Cash Not King For Merchant Balance Sheets, Aite Says?”

David Heun from Payments Source reviews a report by the Aite Group, a respected consulting firm out of Boston, comparing the cost of credit and debit card transactions to the cost of cash transactions.  According to the study, it costs merchants more to handle cash than it does to take card payments.  This is contrary to what most people think, so I’d really like to take a deeper look into it.

The Aite Group conducted more than 40 interviews, representing over 30 companies that are merchants or support merchant acceptance programs.   Their responses uncovered a general lack of understanding around the true cost of accepting cash payments.  While credit and debit cards do generate processing and interchange fees, researchers argued that the labor, security and transportation costs associated with cash far outweigh the costs associated with card payments.   

For more than a decade now, I’ve helped financial institutions and retailers solve problems associated with handling cash.  As a consultant in the payment industry, I’m anything but objective.  However, you may be surprised to find I agree completely with the Aite Group’s findings – managed the way it’s always been managed, cash is the most expensive form of payment for merchants. 

Fortunately, innovation in cash handling technology offers retailers the opportunity to lower the cost of managing cash payments in ways previously unavailable.  That’s great news for businesses across the country, after all, the FDIC reports up to one third (106 million) of the U.S. population is unbanked or under-banked meaning they are frequent users of cash-based payments.  Long story short, regardless of cost, cash is here to stay.

In a traditional environment, handling cash is labor-intensive requiring dual-control management of currency to ensure accuracy and accountability.  Additionally, transporting cash deposits poses a challenge for many businesses both from a security and productivity perspective.  Technology that accurately counts, sorts and records cash processing data helps retailers control cash movement while eliminating shrink – a problem the Aite Group study found can cost up to 4% of total sales for merchants.

Similarly, remote cash deposit solutions like intelligent safes or POS terminals help bring the bank to the retailer’s storefront allowing them to deposit money without ever leaving the business.  Finally, advancements in remote cash capture or provisional credit continue to empower merchants to control the cost of armored car services for secure cash transport. 

I agree completely with the Aite Group’s findings – done the old fashioned way, cash is the most expensive form of payment.  However, in as much as cash is more popular than ever, it is truly unavoidable.  The question remains, are you handling cash the same way you always have, or are you taking advantage of powerful new solutions?