Walk around London and it’s hard to miss the Maestro “Cash Is Dead” advertising campaign. You’d never believe this in many small bricks and mortar retailers; try to purchase something with a card for say £7.99, pull out the plastic and the shop keeper shakes his head and points to the sign – “no card payments for under £10”. What sort of madness is this that retailers refuse to accept money because it is the wrong sort of money?
OK, so there are interchange fees; a card payment is probably going to incur a charge of around 2% of the transaction. For the retailer there is therefore an incentive to prefer cash. But at what cost? (Perversely for the banks they penalise against not using cash, despite the handling for cash being so much more than an electronic transaction).
Let’s say I am buying something for £7.99. Let’s say the cost price for the item is £3.50. That’s £4.49 gross profit. Obviously this doesn’t all go into the retailers pocket; the tax man takes his share in VAT and there are the operating costs. I’m no retailer, but let’s assume that a whopping 90% of the gross pocket is swallowed up in costs, leaving the retailer 45 pence net profit. Now of this, the bank is going to take 15 pence from the retailer for me using my card. Which the retailer is not happy about.
And this is the mad part; for the sake of 15p the retailer is willing to loose the sale (OK, that is 36% of his net profit – and that is a lot, but isn’t cash flow king?). He has given me a shocking customer experience, not allowing me to buy from him this time (and I’ve got a memory – not going there again). I’ll go down the road to the supermarket where they will not only accept my card – but give me cashback as well!
There is of course, an alternative. Give the customer an option of using the card, passing on the card fee. For most customers, the opportunity cost of paying slightly more but getting instant gratification is probably more acceptable than either driving several miles out to the supermarket, or having to find a local ATM.