Cash Only? But for How Long?

Transcription

1 A First Data White Paper

2 Contents Benefits of Cash Only Policies Risks Outweigh Benefits Small Businesses Take Heed The First Data Solution

3 01 Benefits of Cash Only Policies Significant advents in technology have ushered in an era where electronic payments for commercial transactions have become the norm. While manual, paper-based forms of payments via cash or cheques have conventionally served the needs of customers and businesses, in recent times, automated transactions powered by credit cards, debit cards and mobile devices have surged in popularity. However, despite this shift in tradition, for many small businesses, cash is (still) king. And for good reason: cash-only transactions are typically devoid of the complexities that sometimes plague electronic forms of payment. 1 In Canada, it is estimated cash accounts for over 50 percent of all transactions. This figure is particularly reflective of businesses in the retail and hospitality sectors 2 and small merchants who tend to process high volumes of low-value transactions. 3 Such businesses can count a number of advantages as reasons for opting for traditional forms of payment. Chief among these are cost-saving factors; for example, because cash is the simplest form of payment, it often requires less bookkeeping, and thus savings in the time and labour required when accounting for other methods of payment. 4 Furthermore, cash-only businesses are exempt from third-party transaction fees to card companies and banks which can range from 1 to 3 percent of a purchase. 5 Finally, there is limited risk and incidence of fraud associated with cash payments liabilities often attributed to businesses accepting electronic payments. 6 In addition to financial considerations, cash payments allow businesses to immediately receive funds for services rendered, eliminating the customary waiting period to process electronic transactions. 4 In Canada, it is estimated cash accounts for over 50% of all transactions Transaction fees to card companies and banks can range from 1% to 3% of a purchase.

4 02 It also pays for businesses to consider things from the consumer s perspective. According to a Bank of Canada study, some consumers may differ in the way they perceive cash attributes often opting for this payment method to avoid fraud and as a budgeting tool to control spending. For these patrons, cash-only policies align with their spending practices. purchases and may shop more frequently at locations where only cash is accepted. 5 Additionally, business owners may have to account for the demographic makeup of their consumer-base. This is particularly relevant for businesses serving lower-income or unbanked consumers, who tend not to have credit cards or bank accounts, as these individuals often make smaller-value The benefits highlighted above continue to provide some businesses with the incentive to maintain cash-only policies. And while a select number continue to flourish under these conditions, 7 are these reasons sufficient enough to shun a transition to more advanced methods of payment processing? Risks Outweigh Benefits Experts say no, as they argue business owners must ultimately ask themselves if they re hurting their bottom line by limiting payment options to manual transactions. 4 For all the advantages paper-based payment options offer, several key disadvantages threaten to obscure these benefits. One such drawback is the potential of alienating customers particularly new clientele. As electronic payments become increasingly commonplace, many consumers expect this to be an option when making purchases; when this is not the case, customers may feel inconvenienced, walk away from purchases and shop elsewhere 4. It is cautioned that small businesses with cash-only policies are exceedingly dependent on an incredibly loyal clientele to operate in this fashion. 7 Conversely, accepting other forms of payment encourages on-the-spot decisions which do not require customers to leave an establishment, giving them time to contemplate a purchase decision 8. Moreover, accepting electronic payments might encourage people to purchase higher volumes of products and services 5 : research shows that the average spend per transaction is 120 percent higher when customers pay with a credit card compared to cash. 9 Average spend per transaction is 120% higher when customers pay with a credit card

5 03 Another setback to restricting payments to cash-only options is the impact on efficiency such limitations impose. Business owners have reported time savings with electrical payments, with over 30 percent of those polled in a study stating manual payment processing takes longer to process compared to electrical payments, versus 9 percent who found the opposite to be true 1. Savings in time from fewer trips to financial institutions, simpler processing (e.g., counting cash at the point of sale or counting change for customers), and reconciliation tactics (e.g., counting cash in the register at the end of the day) 10 have all been cited as reasons for increases in efficiency and productivity afforded by electronic payment processing. 1 Security risks posed by keeping large sums of cash on-site present an additional challenge to cash-only businesses. 4 Unlike electronic payments, cash can be lost, stolen or destroyed. In order to mitigate these threats, many businesses invest large sums of money in security cameras, alarms and safes, but despite the implementation of these safeguards, it is impossible to eliminate the risks of theft, floods, fires, etc. entirely. 10 Research indicates that drastic changes in how Canadians make and accept payments for goods and services are inevitable. As clear indication of this progression, 11 one only needs to refer to data showing that the share of cash in Zoverall retail payments has steadily decreased over the past 20 years. 12 As mentioned above, a major driver of this trend are innovations that are changing the payments landscape, including contactless card payments, mobile-enabled debit and credit payments, and the growth of e-commerce. 13 The popularity of reward programs and protections afforded by debit and credit cards are also incentives for change, as consumers reap benefits that cash simply cannot provide. For many consumers, the promise of reward points is reason enough to make major purchases using a debit or credit card. Ultimately, these promotions are mutually beneficial for both consumers and businesses. 9 In light of highlighted disadvantages, and given the fact that 58 percent of small, cash-only businesses are regularly asked by their customers to accept card payments, 14 it would benefit business owners to evolve with the times in terms of expanding payment options for their patrons. Unlike electronic payments, cash can be lost, stolen or destroyed.

6 04 Small Businesses Take Heed A number of small business owners have weighed the risks and benefits, and have decided such an expansion is in their best interest. A major impetus for this transition is the potential to increase profits studies show businesses who begin accepting card payments often see a significant increase in sales, 10 explore marketing opportunities, 15 and boost their reputations 16. Moreover, many business owners have been enlightened, so to speak, finding that costs of accepting cash are often comparable to, and sometimes higher than, the costs of accepting credit and debit card payments. This is due to the hidden, yet substantial, costs of solely accepting cash. 10 Further sweetening the deal for small businesses is the fact credit card processing has become more affordable over the years with the introduction of lower transaction fees, promotional deals e.g., free installations, and reduced monthly rates. 17 Statistics show small businesses have transformed their practices to accommodate electronic payments: a 2013 study revealed 40 percent of these enterprises were currently using some sort of credit card reader attached to a smartphone or tablet to process payments, while another 16 percent planned to add this capability within 12 months. 18 The First Data Solution While some businesses have seamlessly integrated electronic payments into their commercial schemes, others have expressed difficulty in determining how best to incorporate these systems. 1 As a starting point, there are certain factors business owners must consider when looking at the payment options to offer their customers, including the strength of their brand and the average purchase size. 15 With a range of product offerings, First Data is well-equipped to expertly guide small business owners as they select payment models to suit their unique business needs. Key to this strategy is the ability to help these businesses tap into their customers spending power thereby increasing sales and profits, by delivering a simplified and integrated buying experience for today s consumer demand. What this means, is with a focus on choice, security, and flexibility, through solutions including innovative POS equipment, mobile payment applications, and ecommerce technology, small businesses are empowered to serve more customers and leverage more value from each transaction.

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