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Are we all subsidizing people who use cash? Keeping large drawers full of valuable paper isn’t cheap, nor is insuring it against theft, hiring armored cars to m

Are we all subsidizing people who use cash? Keeping large drawers full of valuable paper isn’t cheap, nor is insuring it against theft, hiring armored cars to move it around, etc. There’s a lot of hand wringing about credit card users being subsidized by other customers. If it were that significant, we’d expect to see a lot of stores only accept cash and compete with other stores by offering lower prices. In my experience, cash-only stores are extremely rare.

CompelTechnic 8y ago
the nash equilibrium is weird. Customers are incentivized to carry credit cards because of cash back rewards, need for a short term loan, convenience of not having to carry cash, and fraud protection. Merchants are incentivized to accept credit cards because many potential customers carry little cash because it is inconvenient. And in all this, we are implicitly paying a 2-3% tax for everything we buy that goes straight to the credit card companies.
- scott_s 8y ago
  mikeash makes a different point, one I often make: accepting cash is not free. It's a physical item that can get lost or stolen, which means it needs significant physical security when storing or transporting. There are card-only stores, and I imagine the reason is how much is simplifies their physical logistics. (No need for cashing out drawers at the end of shifts, no need for safes on site, no need to pay a company to transport cash to the bank.) How much does that cost the consumer? Is it less or more than the "tax" what we pay to the credit card companies?
  - killjoywashere 8y ago
    I'm reasonably confident I lose, burn, have stolen from me, or otherwise fail to enjoy the benefit of far less than 2 of every hundred dollars in my wallet.
    - anothergoogler 8y ago
      That's just not living. Try smoking a Jackson some time.
      - mateo411 8y ago
        What's a Jackson? A twenty dollar bill?
        anothergoogler 8y ago
        It is.
  - actsasbuffoon 8y ago
    Not to mention the significant fraud risks when dealing with cash. Many years ago I worked retail. A few minutes after I sold something to a man, he came back to my counter angrily. He said I'd given him change for a $20, but he'd given me a $50. I was quite certain he'd given me a $20 and he was trying to steal from us. This is not a pleasant situation to be in, and it wouldn't have been possible if he'd paid with a card.
- jasonkostempski 8y ago
  Don't debit cards give much of the same benefits for both parties as CCs, and aren't they much cheaper to process? I know sometimes their can be a buyer fee associated with a debit card but I've never had one that did. My bank card can be used as either. I use debit when given the option specifically because I thought it was cheaper for sellers in most cases.
  - dogma1138 8y ago
    Debit cards don’t offer insurance and fraud and purchase protection to the same extent or at all at least in Europe. Reversing a card transaction on a CC is one call away on debit GL with that.
electricEmu 8y ago
I live in Seattle. I bring cash for cash-only businesses. In my experience, cash-only stores still exist. Stores that like cash are very frequent. There's a lot of hand writing about cash users being subsidized by other customers. If it were that significant, we'd expect to see a lot of stores only accept credit card and compete with other stores. They would just be losing a few percentage points of revenue from transaction fees...
- mikeash 8y ago
  Cash-only stores certainly exist. I can’t remember the last time I’ve seen one in the US. I think I ate at a hole-in-the-wall cash-only restaurant in DC a couple of years ago. Nice attempt to turn my phrasing onto me, but I’m not actually claiming that cash users are being unfairly subsidized. Rather, I’m arguing that cash also costs, and the difference between cash and card (whichever way it goes) evidently isn’t all that important.
  - lukeschlather 8y ago
    Just because it's minor doesn't mean it's nonexistent. I think it's fair to say that cash subsidizes cards, and the other cards subsidize AmEx. Stores should be free to pass on the transaction fee, it's not fair that processors can hide it.
  - electricEmu 8y ago
    My apologies. I did misunderstand that. I don't necessarily agree, but it's an interesting thought. I've never considered the cash overhead before.
  - Chirael 8y ago
    I've encountered several cash-only restaurants over the years. Some in NYC and even a few in my area. The local one that stands out in my mind is a combination of the restaurant being extremely good and reasonably priced, so there's always a long waiting line. There's also the "cash discount", which my dry cleaner offers. And I can't tell you how many house contractors will charge less (sometimes substantially less) if you pay them in cash.
panarky 8y ago
If only 5% of your sales are in cash, you nearly all the expenses of storing, securing and transporting cash. So if 50% of sales are in cash, it doesn't cost you 10x more. But every incremental credit card transaction costs another 3%. So you can't argue that cash customers are subsidized by card customers when cash costs are relatively fixed while card costs scale linearly with volume.
- jbob2000 8y ago
  Completely false. There is a huge difference in what an insurance company will insure your business for if you regularly hold $500 vs. $5,000. Cash is a huge liability. Also, I can store $500 in a locked drawer or I can comfortably bring it home with me. $5,000 would need a safe bolted to the floor. And if you have a safe, now you need a camera to watch the safe. Say you now want to hold $50,000. Now you need a bigger safe and more cameras. Cash does not scale at all.
  - dredmorbius 8y ago
    Any references on the insurance risk?
    - jbob2000 8y ago
      Uh, literally any commercial insurance? You get categorized into a risk pool depending on whether you handle cash or not, and how much cash you store overnight. Google “commercial insurance”, there’s usually a section for Theft and Counterfiet of cash risk.
      - dredmorbius 8y ago
        If the references are so trivial to find, perhaps you might present one? I find numerous results on procedures. None obviously addressing premiums. Though the notion does seem likely. https://duckduckgo.com/?q=cash+handling+business+insurance+risk+premium https://duckduckgo.com/?q=cash+handling+business+insurance+r...
guelo 8y ago
Cash is probably cheaper than the 2-5% the credit cards charge. And you don't have to sign thousands of words of legalese that restricts your speech and your pricing freedom. A store can't compete on the 2-5% difference in price because it isn't enough of a persuasion on each small individual transaction, even though it's a huge percentage of the business cost when taken together.
IshKebab 8y ago
I doubt it costs 2% of the cash value to store and secure it.
- mikeash 8y ago
  According to this random study I googled up, it is in the neighborhood of 2%: http://fletcher.tufts.edu/CostofCash/~/media/Fletcher/Microsites/Cost%20of%20Cash/CostofCashStudyFinal.pdf http://fletcher.tufts.edu/CostofCash/~/media/Fletcher/Micros... (PDF, per transaction costs of cash are discussed on page 25.)
pascalxus 8y ago
it's illegal to offer cash discounts, for shop keepers, so everyone is forced to pay for the credit card fees, even if they just want to pay with cash. People should have the right to choose and shop owners should have the right to choose. I don't see how this crazy law isn't being challenged by the courts.
- mikeash 8y ago
  It’s not illegal. It is against the terms of credit card agreements, and you could make the case that there isn’t enough competition there. They seem to have at least some loopholes, as I’ve seen quite a few places either offer cash discounts or require additional fees for card payments.

CompelTechnic 8y ago

the nash equilibrium is weird. Customers are incentivized to carry credit cards because of cash back rewards, need for a short term loan, convenience of not having to carry cash, and fraud protection. Merchants are incentivized to accept credit cards because many potential customers carry little cash because it is inconvenient. And in all this, we are implicitly paying a 2-3% tax for everything we buy that goes straight to the credit card companies.

scott_s 8y ago
mikeash makes a different point, one I often make: accepting cash is not free. It's a physical item that can get lost or stolen, which means it needs significant physical security when storing or transporting. There are card-only stores, and I imagine the reason is how much is simplifies their physical logistics. (No need for cashing out drawers at the end of shifts, no need for safes on site, no need to pay a company to transport cash to the bank.) How much does that cost the consumer? Is it less or more than the "tax" what we pay to the credit card companies?
- killjoywashere 8y ago
  I'm reasonably confident I lose, burn, have stolen from me, or otherwise fail to enjoy the benefit of far less than 2 of every hundred dollars in my wallet.
  - anothergoogler 8y ago
    That's just not living. Try smoking a Jackson some time.
    - mateo411 8y ago
      What's a Jackson? A twenty dollar bill?
      - anothergoogler 8y ago
        It is.
- actsasbuffoon 8y ago
  Not to mention the significant fraud risks when dealing with cash. Many years ago I worked retail. A few minutes after I sold something to a man, he came back to my counter angrily. He said I'd given him change for a $20, but he'd given me a $50. I was quite certain he'd given me a $20 and he was trying to steal from us. This is not a pleasant situation to be in, and it wouldn't have been possible if he'd paid with a card.
jasonkostempski 8y ago
Don't debit cards give much of the same benefits for both parties as CCs, and aren't they much cheaper to process? I know sometimes their can be a buyer fee associated with a debit card but I've never had one that did. My bank card can be used as either. I use debit when given the option specifically because I thought it was cheaper for sellers in most cases.
- dogma1138 8y ago
  Debit cards don’t offer insurance and fraud and purchase protection to the same extent or at all at least in Europe. Reversing a card transaction on a CC is one call away on debit GL with that.

electricEmu 8y ago

I live in Seattle. I bring cash for cash-only businesses. In my experience, cash-only stores still exist. Stores that like cash are very frequent. There's a lot of hand writing about cash users being subsidized by other customers. If it were that significant, we'd expect to see a lot of stores only accept credit card and compete with other stores. They would just be losing a few percentage points of revenue from transaction fees...

mikeash 8y ago
Cash-only stores certainly exist. I can’t remember the last time I’ve seen one in the US. I think I ate at a hole-in-the-wall cash-only restaurant in DC a couple of years ago. Nice attempt to turn my phrasing onto me, but I’m not actually claiming that cash users are being unfairly subsidized. Rather, I’m arguing that cash also costs, and the difference between cash and card (whichever way it goes) evidently isn’t all that important.
- lukeschlather 8y ago
  Just because it's minor doesn't mean it's nonexistent. I think it's fair to say that cash subsidizes cards, and the other cards subsidize AmEx. Stores should be free to pass on the transaction fee, it's not fair that processors can hide it.
- electricEmu 8y ago
  My apologies. I did misunderstand that. I don't necessarily agree, but it's an interesting thought. I've never considered the cash overhead before.
- Chirael 8y ago
  I've encountered several cash-only restaurants over the years. Some in NYC and even a few in my area. The local one that stands out in my mind is a combination of the restaurant being extremely good and reasonably priced, so there's always a long waiting line. There's also the "cash discount", which my dry cleaner offers. And I can't tell you how many house contractors will charge less (sometimes substantially less) if you pay them in cash.

panarky 8y ago

If only 5% of your sales are in cash, you nearly all the expenses of storing, securing and transporting cash. So if 50% of sales are in cash, it doesn't cost you 10x more. But every incremental credit card transaction costs another 3%. So you can't argue that cash customers are subsidized by card customers when cash costs are relatively fixed while card costs scale linearly with volume.

jbob2000 8y ago
Completely false. There is a huge difference in what an insurance company will insure your business for if you regularly hold $500 vs. $5,000. Cash is a huge liability. Also, I can store $500 in a locked drawer or I can comfortably bring it home with me. $5,000 would need a safe bolted to the floor. And if you have a safe, now you need a camera to watch the safe. Say you now want to hold $50,000. Now you need a bigger safe and more cameras. Cash does not scale at all.
- dredmorbius 8y ago
  Any references on the insurance risk?
  - jbob2000 8y ago
    Uh, literally any commercial insurance? You get categorized into a risk pool depending on whether you handle cash or not, and how much cash you store overnight. Google “commercial insurance”, there’s usually a section for Theft and Counterfiet of cash risk.
    - dredmorbius 8y ago
      If the references are so trivial to find, perhaps you might present one? I find numerous results on procedures. None obviously addressing premiums. Though the notion does seem likely. https://duckduckgo.com/?q=cash+handling+business+insurance+risk+premium https://duckduckgo.com/?q=cash+handling+business+insurance+r...

guelo 8y ago

Cash is probably cheaper than the 2-5% the credit cards charge. And you don't have to sign thousands of words of legalese that restricts your speech and your pricing freedom. A store can't compete on the 2-5% difference in price because it isn't enough of a persuasion on each small individual transaction, even though it's a huge percentage of the business cost when taken together.

IshKebab 8y ago

I doubt it costs 2% of the cash value to store and secure it.

mikeash 8y ago
According to this random study I googled up, it is in the neighborhood of 2%: http://fletcher.tufts.edu/CostofCash/~/media/Fletcher/Microsites/Cost%20of%20Cash/CostofCashStudyFinal.pdf http://fletcher.tufts.edu/CostofCash/~/media/Fletcher/Micros... (PDF, per transaction costs of cash are discussed on page 25.)

pascalxus 8y ago

it's illegal to offer cash discounts, for shop keepers, so everyone is forced to pay for the credit card fees, even if they just want to pay with cash. People should have the right to choose and shop owners should have the right to choose. I don't see how this crazy law isn't being challenged by the courts.

mikeash 8y ago
It’s not illegal. It is against the terms of credit card agreements, and you could make the case that there isn’t enough competition there. They seem to have at least some loopholes, as I’ve seen quite a few places either offer cash discounts or require additional fees for card payments.