| There’s a reason that so many merchants and retailers promote private-label credit cards, and it’s not just branding.
A new study from the Aite Group, “Tender Truths: The Real Cost of POS Transactions in the United States,” explores the cost of debit, credit and cash transactions in selected case studies of large and/or specialty retailers, quick-service restaurants and convenience stores.
Results varied across these categories, but the common thread among all of them were that cash transactions accounted for a lower dollar volume in terms of purchases, but higher cost per transaction. The higher costs resulted from the need to count cash both at the point of sale and at the end of the work shift or business day, the vulnerability of the enterprise to cash register theft (and for some, the security measures put in place to deter it), and finally, the need for either armored car pickups or employees making night deposits.
The first category studied was specialty retailers, both in-store and online. Online shopping, while it generates higher dollar volume than in-store shopping, carries additional risk because the card is not present at the merchant’s place of business. But consumers spent more in online purchases than they did in-store.
Aite also studied quick-serve restaurants. Cash transaction costs were 40 percent greater than credit transaction costs in the cases studied, and 50 percent greater than debit based on the average purchase price. The transaction cost difference was more marked because the dollar volume didn’t vary much, regardless of the payment method used.
The third group studied was convenience stores, which are prone to theft and shrinkage, with hard data difficult to quantify. The minimum shrinkage figure cited was 3 percent, but it’s expected that for most, the figure was higher. The group studied consisted of private and franchised name-brand convenience stores that also sell fuel. They reported a high volume of cash transactions through lottery ticket sales and small-ticket items such as soda. But while cash transactions represented 32 percent of the transaction volume, they were also only 27 percent of dollar volume; in short, it took 1.37 cash transactions or 1.11 debit transactions to equal one credit card transaction, according to Aite’s calculations.
So, what will this mean for bank-issued credit/debit cards? Senior Analyst Madeline Aufseeser, the study’s author, says that while Aite Group is predicting a continued increase of consumer use of cards, it would not be able to discern how much increased use results from merchants promoting the use of cards instead of cash.
Aufseeser also notes that the study’s findings alone would not necessarily drive a significant increased consumer use of private-labeled cards, absent new incentives to create more cardholders. However, she says she would expect to see more transaction volumes from existing cardholders as merchants offer more incentives.
Email: coneill@thewarrengroup.com
