It’s happened to all of us. You go into a store and go to pay with your credit card, but just as you reach into your pocket, you notice the “Cash Only” sign by the register. While it may irk you at the time—especially if you don’t have cash on hand—there’s several good reasons behind these not-so-subtle requests from store owners. Credit card transaction fees, and tight profit margins.
For every credit card transaction, businesses are on the hook to pay a percentage, also known as credit card transaction fees. These fees can be around two to three percent of a purchase or more, and vary card by card used and business type. While this may not seem like much, for businesses with razor-thin margins, every bit counts. On top of transaction fees, there’s also monthly fees stores owe to keep their merchant accounts open.
So, business owners have a few choices: streamline payment options and go cash only, pass the cost of credit card acceptance on to customers by raising prices, or simply not making as much money. Some stores attempt to strike a compromise by accepting debit cards with fees that aren’t as painful, or imposing minimum transaction amounts to make fees worthwhile.
If you’re wondering why transacting with cards is so expensive—and complicated—consider the benefits you may receive. Those points that you rack up every month, someone must pay for them, and unfortunately, it’s typically store owners footing the bill.
Cash is a sure bet
Cash is easy and leaves no room for guessing. When purchases are paid for with cash, there’s no question about whether a transaction went through or any other complication.
Here’s the big challenge with plastic: not only can it take a few days for the money to be truly available in a store’s account, there’s always the risk that the charges could get reversed and funds taken away. For example, charges are reversed if a card was fraudulently used, or even if there’s a customer dispute about goods and services purchased.
The above reasons alone are often enough to scare many store owners away from credit cards. They choose to just not deal with it—why bother? For many, accepting credit cards is just another thing added to their to-do list, for very small benefit.
When stores or restaurants are fulfilling a niche market and they have a steady drumbeat of business, they may not feel like they need to expand their payment choices beyond cash. If what they are doing is working why change it?
Until the credit card brands make payment acceptance palatable for all merchants, large and small, cash only businesses will continue to thrive. And so, cash still prevails today, even in the growing world of plastic.