NACS Refutes Claim That Debit Is Cheaper Than Cash

Aité Group report fails to take a comprehensive view, say retailer groups.

July 22, 2014

NEW YORK – According to an article in the Credit Union Times, a new report from Aité Group argued that cash actually is more expensive than cards for retailers, a conclusion that drew fire and praise from foes in the battle over interchange fees.

The group’s “Tender Truths: The Real Cost of POS Transactions in the U.S.,” found debit cards to be the least expensive method of payment for merchants, costing significantly less per transaction than cash or cards. It broke down the costs of different payment types across three broad retail sectors: specialty retailers, quick service restaurants and convenience stores. In each case, according to Aité Group Senior Analyst Madeline Aufseeser, debit interchange capped by regulation offered the least expensive form of payment.

Aufseeser said the study was aimed at evaluating payment types across a variety of retailers in ways analysts and economists can use to make valid comparisons. Aufseeser said she considered it especially important to collect data on handling cash since so little data on this cost element exists. “A surprising number of retailers have never really looked into what it costs them each year to accept payments in cash,” she said.

According to the CU Times, Aufseeser found that in convenience stores, on average, cash costs almost three times what debit cards cost and even two-thirds more than credit cards, the highest cost payment method in the two other retails sectors. She attributed the difference to both the much higher average ticket size when consumers use credit or debit cards and the percentage of cash transactions in convenience stores that pay for very small ticket items such as gum, candy and packaged beverages.

On average, Aufseeser found debit transactions cost convenience stores $0.43 per transaction, credit cards cost $0.67 per transaction, and cash cost $1.06.

The research looked at the costs of debit interchange after the Durbin Amendment capped debit interchange for issuers of more than $10 billion in assets. Retailers lost the most recent round in their legal battle to force the Federal Reserve to re-issue its regulation mandating a lower debit interchange cap, but have appealed to the Supreme Court.

The different sides of the debit interchange fight had their own reactions to the report. The National Retail Federation and NACS have criticized the report for its scope and missing the point.

“There's less to this study than meets the eye,” Mallory Duncan, general counsel for the NRF, told the CU Times. “It only looks at three narrow slices of the retail industry rather than taking a comprehensive approach. This is really just another example of card-focused individuals trying to convince merchants and consumers to give up cold, hard cash in favor of the illusory benefits of plastic.”

Lyle Beckwith, NACS senior vice president of government relations, told the CU Times: “Even if card usage saved some cash-handling expenses, that does not mean price-fixing on card swipe fees should be allowed. Buying that argument would be akin to saying phone companies should be able to price-fix because using phones saves us all money on building our own carrier-pigeon networks.”

Advertisement
Advertisement
Advertisement