Wednesday, February 2, 2011

Why Cash Still Reigns as King

Okay, I have to admit, I used to be one of those people who roll their eyes when someone fumbles through their wallet to count their cash so they can pay with exact change. Wouldn't it be easier if everyone just swipe their card? As an engineer, the question of efficiency constantly lingers my mind. In this case, card swiping wins against cash, especially when there are 7 other people standing in line behind me and we’re all waiting for the person in front of me to finish paying.

Well, efficiency often comes at a price. In this case, the tradeoff presents itself in the form of interchange fees and wasteful spending.

Interchange Fee
If you’ve ever gone to a store that tells you it doesn't accept credit cards or that there’s a baseline spending you must reach before you can swipe, you probably have the interchange fee to thank for your inconvenience.
This is a fee that card companies charge the venders in order to provide their card service to customers. For debit cards, this is usually between two to five percent of your purchase, and for credit cards, this fee can be as high as 12 to 15 percent.

And those stores that won’t accept credit or debit cards? It’s not because they’re backwards and can’t keep up with technology (for the most part, anyways). They’re usually mom and pop shops that simply cannot afford to squeeze this fee out of whatever tiny margin they make.

This fee has been in the news a lot in the past month or two because of a lack of regulations by the government. Credit card companies make a majority of their revenues off of the interchange fee. Many in congress have proposed to set a limit on how much these companies can charge merchants.

I used to get really frustrated with businesses who refuse cards, but when I heard how much businesses get dinged for me swiping my card, I decided that it’s justified (for small local businesses, there’s not much sympathy going around for big chains). My motive isn’t completely selfless, though. In order to compensate for the cost of the fees, many merchants pass the charges on to consumers. As card companies raise interchange fees, stores are more likely to raise prices. I don’t know about you, but I want lower prices!

Wasteful Spending
Just swipe it. It’s so easy to get carried away with a card in your hand. It’s because using credit and debit cards make paying money a very impersonal experience. You don’t see the money being physically depleted, so it doesn’t hurt as much. Well, not on the spot anyways, but it’ll hurt when all of a sudden you see a large chunk of money gone from your bank account or a large amount of debt on your credit card.

A lot of times, people don’t even take their receipts, so besides checking your account constantly, it’s hard to tell how much you’ve spent in a short period of time. Unless your card gets denied, card swiping can seem as if you have bottomless pit of money. Most people are much more aware of how they use their money when cash is involved. It’s easy to see every cent that’s leaving your wallet. So maybe there is something to scrambling for change at the cash register, after all.


Post a Comment