As the world becomes more digitally advanced, it’s no surprise that consumers expect merchants to provide debit and credit payment options. But regardless of how popular these methods become, cash will always be a prevalent way to pay for products and services.
To meet customer demands in this highly competitive environment, store owners often offer these three different payment options. It allows consumers to use their preferred method, increasing sales opportunities and loyalty.
But do you know how much it costs to accept each method? Do you know which option is the most cost effective and which is the most expensive? The answer might surprise you. Read on.
Fees, Fees, and More Fees: Accepting Credit and Debit
Many merchants dislike offering credit and debit payment methods. After all, the costs associated with them are direct and obvious. The fixed costs include the banking payment-processing services required from a financial institution or third party. These will run you about $35 to $40 a month per terminal and include cash services, terminal leasing, card processing and related services. You’ll also have the cost of overhead, set-up, equipment, maintenance, repairs, and network communication lines.
The variable costs include the set fees and percentage fees of debit and credit card transaction. These costs vary depending on the volume of transaction. Accepting debit cards can cost you between 0.2% and 2% per transaction, plus a flat fee ranging between $0.11 and $0.25. Even with these costs, accepting debit is still less expensive than accepting credit.
When you accept credit, you end up paying more for processing fees and also have to pay the intercharge rate set forth by the credit card company and the company that processes your credit payments for you. The processing fees range from 1.5% to 4% per transaction, plus a $0.20 to $0.30 cent charge per transaction. The fees you pay will differ depending on the type of credit cards you accept and whether you accept the payment in store, on the web, or on a mobile device. For example, American Express has higher fees than Visa or MasterCard and internet transactions generally have the highest costs as well.
Though you can reduce your costs by doing your due diligence, researching different companies, and making informed decisions, you will inevitably have to pay to accept both debit and credit. Though you will pay fees, you’ll benefit from increased sales opportunities by offering a variety of options, which could improve your bottom line in the end.
However, what you pay for these payment methods is actually lower than what you pay for accepting cash.
Is Accepting Cash Really the Cheapest Option?
Merchants far and wide mistakenly believe that accepting cash is the cheapest option. This erroneous belief is mostly due to the fact that, though credit and debit fees are obvious, the costs associated with cash management are largely hidden and far less obvious. Many merchants simply do not realize how much they’re paying to accept cash. In reality cost of handling cash is often the most expensive, especially if you handle cash manually, have lax cash management procedures, and process large volumes every day.
The expenses that come with this method of payment come in many forms. First, you have the significantly higher labour costs because you have to count, sort, reconcile, report, store, and deposit by hand. You also have losses that come from human error and administrative error as well as robbery, counterfeit fraud, and shrink. You have the costs of security measures to keep your money safe, such as armoured car fees and security cameras, secure storage such as a cash room and a vault, and the equipment and supplies needed for cash handling on a monthly basis. Though cash is king, it’s also very expensive.