February 2, 2017

Battle the cost of noncash payments by understanding cost of cash



The payments landscape is ever-changing, but traditional payment types still rule. Noncash payments are up, and of course people still like to use cash. To offer great customer experience, you’ll have to accept a healthy mix of payment types — but you can only control the cost of one of them.


The Federal Reserve recently released its Federal Reserve Payment Study 2016, a report detailing the newest findings on the state of noncash payments through 2015. The results — while not surprising — lend an authority to the way retailers should prepare for the variety of payments coming through their stores and work to mitigate costs where they can.

The study focuses on five types of payments:

  • Debit cards, including prepaid and non-prepaid
  • Credit cards
  • Automated Clearing House (ACH) credit transfers
  • ACH debit transfers
  • Checks


Altogether, more than 144 billion payments were made using these methods in 2015, and their transactions accounted for almost $178 trillion of business. That’s an increase of close to 21 billion payments and $17 trillion since the 2012 study.  


The largest jump came from debit card payments, which numbered 13 billion more than in 2012. Chip card payments saw the biggest percentage increase, up 230 percent since 2012, but still only accounted for about 2 percent of 2015’s share of in-person noncash payments. The Federal Reserve believes this reflects “the early stages of a broad industry effort to roll out chip card technology,” which aligns with the research that the retail world still has a long way to go when it comes to EMV-enabled payments.


EMV implementation, for those who haven’t done so yet, represents just one of the mounting costs of accepting credit and debit and transactions. Since the number of credit and debit payments made continues to increase, so does the cost of accepting them. In addition to keeping in-store technology updated, the interchange rates assessed to merchants on credit and debit transactions continues to hold steady or increase in most cases, the Federal Reserve finds.


Despite the big business done via the payment methods analyzed in this study, the Federal Reserve’s Diary of Consumer Payment Choice 2015 shows cash, rather than any other form of payment, “is still the most popular payment method among people of all ages, across all types of transactions.”


While there’s little you can do to change the costs of accepting credit and debit card payments and, to a lesser extent, check payments, you can offset those costs by lowering the cost of accepting cash.


Cash comes with a host of “hidden” acceptance costs, many of which are easy to control if you are aware of them, put the right policies in place, and find the best tools to deal with them. Retailers are often surprised at how small inefficiencies add up to big losses because they’re relying on manual processes and dated technology. 2017 might be the year to take a hard look at your procedures and policies to see where you could save.




Image: iStock