A new report has highlighted the ‘hidden’ costs of businesses handling cash versus card payments. There has been a lot of talk about card surcharges and the impact this has on small businesses and customers.

But Professor Steve Worthington said Yahoo Finance Handling cash can incur “significant” costs that are usually simply “factored into the cost of doing business.” These include aspects such as counting the money, paying for cash delivery services and taking it to the bank.

Mastercard commissioned a report from the Boston Consulting Group (BCG) to find out how much this actually costs companies and consumers.

RELATED

Cash can cost you in different ways

BCG’s research found that there are “hidden” direct, indirect and back-office impacts associated with physical money.

• Direct: This also included the costs of collecting or providing the money through cash transport companies such as Armaguard.

• Indirect: This includes instruments needed for physical money, such as a cash register, as well as problems related to the transaction (e.g. theft by employees, errors in handling cash, fraud or other input errors during the payment process).

• Back office: These arise from the work involved in reconciling payments (e.g. reconciling invoices, preparing cash registers, depositing money at the bank).

Back office costs were found to be the largest of the three areas for cash as it is the most labour intensive. RMIT Associate Professor of Finance Dr Angel Zhong told Yahoo Finance In a small business, processing cash can take up to 29 days a year.

The BCG report estimates that there is a 3.9 percent Cost per transaction for handling cash at the point of sale (POS) for companies when adding together the three types of costs, compared to just 1.8 percent for card payments and 5.3 percent for “buy now, pay later” services.

The story continues

The data also showed that the cost of cash for consumers is approximately 0.4 percentin comparison 1 percent for card payments.

“Accepting cash is more expensive than most electronic payment methods,” the report says.

It continues: “The survey participants confirmed their preference for accepting electronic payments. Around 80 percent said they would like to use electronic payment methods either more often than before or to the same extent.”

“In addition, 44 percent of merchants in Australia said they would like to further reduce the proportion of cash in their payment mix.”

While electronic payments are preferred, business owners point out that cash is important because of its “speed” as it ensures “instant settlement”, whereas card payments can take hours or even days for the money to reach the business’s account.

Commonwealth banks’ view on cash

Commonwealth Bank CEO Matt Comyn was questioned by a parliamentary inquiry into credit card surcharges. Among other things, he was asked why a cup of coffee costs $5 with cash but $5.08 with a credit or debit card.

However, he reiterated that cash costs are usually hidden from the consumer.

“It’s not a direct comparison,” said Comyn. “Cash has costs involved, but digital payments don’t, because of the whole mechanism of electronic payments, both domestically and internationally.”

“Let’s just say there was a store that only accepted cash. You would probably pay $5.20 for the coffee… because 4 percent of the price of the coffee is included in the higher prices.”

So why does Australia have surcharges for digital payments rather than embedded costs like in the UK and Europe, where surcharges are banned? Comyn said it’s the “cost of acceptance”.

This is how it has been done so far, so consumers accept the additional fees when paying with a tap.

CommBank recently announced that it cost the company $350 million in one year to provide cash services to Australia.

In its FY 2024 investor presentation, the CBA noted that average monthly ATM withdrawals have plummeted 51 percent since 2019, while digital payments have soared 85 percent. The bank also claimed the cost of providing cash has increased by 50 percent and that it remains a “challenging business model” of its business.

But a spokesman said Yahoo Finance that cash “is and will remain an important part of the economy”.

“The CBA is committed to ensuring cash is available to those who need it and continues to distribute around $4 billion in cash each month through Australia’s largest branch and ATM network,” the spokesman said.

Cash can be far better than cards, even if the costs are higher

Although cash is more expensive than card payments, a small business owner in South Australia said cash is far more reliable.

Stephen is the owner of the ice cream parlor Zeppole & Co and said Yahoo Finance He struggled with EFTPOS outages for eight weeks and feared he would have to close his business forever.

“In the last month alone, our point of sale (POS) system decided to stop accepting payments,” he said.

“So let’s say we made $500 in sales one night, only $35 would be recorded. The rest of the money would be said to have gone through, but in the end it just disappeared.”

He tried changing systems and banks several times, but the problem was always the same and the outstanding bill that was supposed to be credited to his account was $10,000.

Stephen eventually got rid of his EFTPOS machine altogether and now uses cash only in his business.

But he is not the only one who still places great value on cash.

Richy Marchandise runs the Mimolette Café in Melbourne and has introduced a 10 percent discount for customers who pay with cash because he, too, was experiencing recurring problems with his card payment systems.

“EFTPOS doesn’t work as well as they claim. People get impatient when the system goes down and we keep losing sales. In 11 years I’ve changed EFTPOS providers five times,” he said Yahoo Finance.

Before the 10 percent discount was introduced, Marchandise estimates that around 5 percent of sales were made with cash. This figure has now risen to 20 percent.

He said it’s been a big help to him because his suppliers also like to be paid in cash, which makes that part of the business process much quicker and easier.

Get the latest Yahoo Finance news – follow us on on facebook., LinkedIn And Instagram.