Tough times prompt cash comeback

New figures from the British Retail Consortium (BRC) show, despite card companies pushing plastic alternatives, cash has increased its dominance as a means of payment over the last 12 months.

Cash is now used for 60% of all transactions, up from 54% last year. Measured by value, cash is used for 34% of retail spending compared with 32% a year ago.

British Retail Consortium, director general, Stephen Robertson comments: "Reports of the death of cash are premature. Cash is not only alive, it's thriving. Hard up customers are increasingly reluctant to spend money they haven't actually got in their hands. While total retail spending continues to grow, there is a widening gap between the amount spent in cash and the amount spent using cards, suggesting customers want to keep tight control of their finances."

The BRC's Cost of Collection survey includes results from 17,000 shops, large and small, multiples and independents, with a sales turnover of £131bn a year, over half of total UK retail sales. It shows cash is the most cost effective way for retailers to accept payments and highlights the huge extra costs card companies impose on retailers for processing card transactions.

The BRC says customers do not realise how much retailers are charged for processing card payments. On average, a retailer is charged £0.02 ($0.04) for processing a cash transaction while the charge for a credit card is £0.34 ($0.68) and, for a debit card, £0.08 ($0.16). These costs are too high for retailers to absorb and are inevitably passed on to customers in the form of higher prices.

Retailers responding to this year's survey were charged £516m in 2007 of which 82% (£424m) related to card payments. The BRC is accusing card companies of pushing cashless payment methods as a way of further boosting their own revenue.

The BRC says, in making moves to replace cash, card issuers and banks must acknowledge the very low costs they actually incur and reduce charges for processing these card payments. If cash replacements, such as ‘Touch and Go' card systems, are to be accepted by retailers, charges must be below those for handling cash.

"The BRC has consistently said these unjustifiable charges cost customers because they are so high retailers are forced to pass them on,” adds Robertson. “As banks move to replace cash, they must acknowledge the very low costs they actually incur. Banks should not be exploiting new payment systems as a way of taking extra money from shoppers. There should be a lower fixed fee per transaction which actually reflects the cost of processing, so new technology brings balanced benefits to retailers, consumers and banks."

Retailers have condemned ad valorem (percentage) charging for credit card fees because it costs no more to process a high value transaction than a small one. They also continue to object to the ‘Honour All Cards Rule', which compels them to accept all cards branded with the card scheme logo. Depending on the type of card and where it is used, there are big differences in the fees retailers pay.

This is open to abuse when retailers can do nothing as banks move customers to types of cards with higher charges. HSBC plans to issue 10m UK customers with Visa debit cards, replacing the current Maestro. The bank says it will help customers who make international transactions. The BRC says it is a self-serving move to rake in millions more in charges.

Since 2000 the Office of Fair Trading (OFT) has been investigating the so called interchange fees imposed by MasterCard and Visa. It is expected to rule shortly. At the same time the European Commission is examining cross-border interchange fees. It has already ruled those imposed by MasterCard are illegal and is now investigating Visa.