Banks love cash-only businesses. Cash-only businesses are their profit center. Credit cards have very small profits in comparison.
I bet you have been told differently. Let me explain…
I’m walking around Brooklyn, and there are two restaurants of comparable quality competing with each other. One of them has an ATM which will charge me up to 30% to access my cash from my checking account, from experience. Another one does not. The one with the ATM will not take my credit card, the one without the ATM will take my credit card and pay somewhere around 2-4% in order to process my payment.
I withdrew only $20 from the ATM restaurant and paid a $3 fee to access my money with my debit card. The meal for my friend and I cost just under $20, so I don’t buy a drink worth $2-3. They saved $0.40 in transaction fees and lost $3 in revenue they would have made if they accepted my card. The customer at the restaurant with the credit card processor bought drinks, and their bill was around $25 minus $0.42 to the credit card processor, so $24.58 in revenue; the ATM restaurant only made $18, and the bank made $3.
Banks make more money from cash-only businesses. Local retailers make less.
https://www.youtube.com/watch?v=OceYCEexDqQ
Often, I will hear the call that lower-income users are subsidizing higher-income households who use credit cards. While this is technically true, we have to remember that cash is not free. If a business decides to go cash-only, it is far easier for an employee to siphon off a dollar here or there from cash in the till than it is for someone to siphon off money from credit card fees. While credit card fees are 2-4%, those are predictable. It’s hard to predict exactly how much cash will be siphoned off from the till by employees, and in a big store it is even harder to track who is stealing the cash. The average dishonest retailer employee costs their employer $1551.66, according to https://explodingtopics.com/blog/employee-theft-stats.
Ultimately the cost of cash-only costs businesses the same amount in theft as they would pay in credit card processing fees. The main benefit to the credit card is that people generally have hundreds if not thousands of dollars in credit available when using a credit card, while if you are cash only your customer is limited to the amount of money in their wallet, typically $40 or less. Over that limit, and your customer will have to hold back spending, reducing your company’s profit.
In summary:
- Credit card fees are not significantly different from the percentage businesses would lose from employee theft of cash.
- Cash-only customers are limited to the cash in their wallet, which is much lower than the credit available on their credit card.
This is the real reason why most businesses choose to take credit card purchases.