Professor Steve Worthington said it costs businesses “significant” costs to handle cash. (Source: YouTube/Facebook)
New report highlights ‘hidden’ costs for businesses handling cash payments compared to card payments. Much has been said about card surcharges and the impact they have on small businesses and customers.
But Professor Steve Worthington told Yahoo Finance that while handling cash can have “significant” costs, it’s typically just “written off as a cost of doing business,” including counting the cash, paying for services that provide it, and taking the cash to the bank.
Mastercard commissioned the Boston Consulting Group (BCG) to investigate how much this would actually cost businesses and consumers.
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BCG research finds that there are “hidden” direct, indirect, and back-office impacts associated with physical money.
Direct: This includes the cost of collecting or providing funds via a cash transporter such as Armaguard.
Indirect: This relates to equipment needed for physical money, such as cash registers, and issues related to transactions (e.g., employee theft, mishandling of cash, fraud, and other input errors during the checkout process).
Back office: Arises from the work required to reconcile payments (reconciling invoices, preparing the cash register, depositing money in the bank, etc.).
When it comes to cash, back-office costs were found to be the largest of the three as they are the most labour-intensive. Dr Angel Zhong, Associate Professor of Finance at RMIT, told Yahoo Finance that it can take SMEs up to 29 days a year to handle cash.
Taking all three costs into account, the BCG report estimates that the cost per transaction for cash transactions at a company’s point of sale (POS) is 3.9%, compared with just 1.8% for card payments and 5.3% for postpaid services.
The story continues
Small businesses can spend a lot of time on back-office tasks like counting money and taking it to the bank. (Source: Facebook)
The data also revealed that cash payments cost consumers about 0.4%, while card payments cost 1%.
“Cash receipts are more costly than most electronic payment methods,” the report said.
It added: “Survey participants confirmed their preference for accepting electronic payments, with almost 80% saying they would like to use electronic payment methods more or to the same extent than they do now.”
“Furthermore, 44% of Australian merchants said they would like to further reduce the proportion of cash used in payments.”
While electronic payments may be preferred, business owners noted that “speed” is key with cash, which guarantees “instant settlement,” whereas card payments can take hours or even days for the cash to reach a business account.
Commonwealth Bank’s view on cash
Commonwealth Bank CEO Matt Kamin was grilled by a parliamentary inquiry into card fees, asking why buying a cup of coffee with cash costs $5 but using a credit or debit card costs $5.08.
But he reiterated that cash costs are typically hidden from consumers.
“This is not an apples-to-apples comparison,” Comyn said. “Cost [are] It’s built into cash but not into digital. [of] The overall structure of electronic payments both domestically and globally.
“Let’s say you’re in a store that only accepts cash, and your coffee will probably cost you $5.20 because the markup reflects a 4 percent increase in the cost of the coffee.”
So why does Australia charge a surcharge for digital payments? Surcharges are banned in the UK and Europe, but it’s not an embedded cost. Kamin said it’s an “acceptance cost”.
Previously, consumers accepted an additional fee when they tapped to pay.
CommBank recently revealed that it cost it $350 million in one year to provide cash services to Australia.
In its FY24 investor presentation, CBA noted that average monthly withdrawals from ATMs have plummeted 51% since 2019, while digital payments have surged 85%. The bank also argued that the cost of providing cash has risen 50% and remains a “challenging commercial model” for its business.
But a spokesperson told Yahoo Finance that cash “is and will remain an important part of the economy.”
“CBA is committed to making sure cash gets to those who need it and continues to distribute around $4 billion in cash each month through Australia’s largest branch and ATM network,” a spokesman said.
Even though it costs more, cash is still far better than cards
While paying with cash may cost more than paying by card, South Australian small business owners say they find it much more reliable.
Stephen, who owns Zeppole & Co ice cream shop, told Yahoo Finance that he had suffered an EFTPOS outage for eight weeks and feared he would have to close his shop permanently.
“Just in the last month, our point-of-sale systems have stopped accepting payments,” he said.
“So if you make $500 in sales in one night, only $35 is recorded. The rest of the money shows up as going through, but it’s gone.”
He tried changing systems and banks multiple times but kept running into the same problems, and the unpaid bills waiting to be deposited in his account totaled $10,000.
Stephen eventually did away with EFTPOS terminals altogether and is now an entirely cash-only business.
But he’s not the only one who still has a strong attachment to cash.
Businesses across Australia are encouraging customers to pay with cash and offering discounts for doing so. (Source: Facebook)
Richie Marchandise, owner of Melbourne’s Mimolette Cafe, also introduced a 10 percent discount for cash customers after experiencing frequent issues with his card payment system.
“EFTPOS doesn’t work as well as they claim. When the system goes down people get frustrated and sales are constantly lost. In 11 years, I’ve changed EFTPOS providers five times,” he told Yahoo Finance.
Before the 10% discount was introduced, Marchandise estimated that about 5% of sales were made in cash; now that number has jumped to 20%.
According to him, this is a great help to him because his suppliers also prefer to be paid in cash, making the business flow on that front much faster and easier.
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