The Hidden Costs of Cash for Merchants

Tal VinnikOrdering & Point of Sale

Close up photo of $5 bill with Abraham Lincoln's face.

Merchants consistently perceive cash to be the cheapest form of payment, thinking it has lower costs for them than debit, credit or mobile payments. And while accepting cash may be cheaper than credit cards for merchants, it’s often debit cards that have the least costs. In fact, the average cost of cash is over 10 percent of a transaction in the food and beverage industry.

Though it may seem intuitive that cash would be cheaper to accept than other payments, there are other considerations besides card transaction fees. As two-thirds of consumers can see a future with a world with only card and digital payments, below are five oft-forgotten costs of cash and why we’ll continue to see more merchants go cashless.

Theft and human error

Let’s start with the human element. Employee theft has been estimated to be responsible for losses of four percent of sales in restaurants, adding up to billions in losses in food and cash for the industry. Then, you have the far less nefarious cost of simple errors with cash transactions; handing someone a $20 bill when you meant to give them a five or accepting a one when it should’ve been a 10.

With credit, debit, and mobile payments, those holes go out the window. The amount billed is the amount deducted from the customer’s account. As more retailers accept secure payments like EMV and NFC, including on dedicated customer devices like the Clover Mini where a cashier never handles payment, the potential for error, wrongdoing and chargeback liability goes down dramatically.

If you’re not willing to put cash by the wayside, make sure that you leverage a POS where you can see discrepancies in inventory and cash at the end of a shift, thus flagging short rings, voids and other methods of skimming cash that might get lost.

Lost sales and smaller tabs

Next, during high traffic times such as lunch at a fast casual restaurant or in between innings at a baseball game, there is a real cost if you’re not able to serve everyone fast enough for them to get back to work, the game or wherever else they’re headed. Long lines do affect whether people make it to the end of the line: a study found 41 percent of customers abandon a purchase if they perceive a line to be too long.

Cash requires several steps that can lengthen lines: 1) customer takes out their cash (possibly looking for exact change) 2) Cashier counts up cash and inputs into their POS/register 3) Cashier counts up change to return to customer 4) Customer fiddles with cash before getting out of line. On the other hand, credit/debit payments can be as simple as the customer tapping their phone.

Bypass saw the potential of faster transactions in action at Chesapeake Energy Arena, where our fast transaction times (up to six transactions a minute at Chesapeake, with chip transactions under three seconds) saw a 10.5 percent increase in per capita revenue compared to their earlier POS.

There’s also a potential cost of missing out on higher tabs. People consistently spend more when using credit cards because the money is less tangible and there’s no immediate penalty for overspending. Discouraging or eliminating cash can thus help get more people through lines faster and increase the customer lifetime value.

Handling and depositing cash

You have two inescapable costs in cash handling: time and, yes, money. Introducing cash into the mix requires time to prepare cash registers, reconcile cash payments at the end of a shift and/or day and prepare deposits. That cost might be minimal with a one-register restaurant, but quickly adds up when you’re either a multi-location franchise or a stadium with several hundred registers where in addition to time and money, you have to dedicate space and security for that massive stockpile of cash.

It’s easy to understand then why music festivals and sports events are going fully cashless or dedicating only a few lanes to cash. This eliminates or reduces the time staff needs to spend preparing for shifts and closing out.

Then, you have the costs in time and money of the deposit itself. Either employee(s) will make the delivery to a bank themselves, or the organization will hire an armored vehicle to make the deposit. While that cash is in transit, the organization may also be losing out on earned interest and once the money gets to the financial institution, the bank will charge fees for deposits (in addition to fees for cash withdrawals and coin ordering).

Protecting cash in the building and beyond

As mentioned above, one method you can reduce losses from cash are POS and dedicated inventory systems to keep track of cash. Many organizations, however, will also invest in additional security measures.

You could see many of these measures in last year’s movie Logan Lucky, depicting a fictional heist at a NASCAR track and highlighting what can go wrong with lots of cash on site. Though the film took some obvious liberties (like the venue turning to cash after their power grid went down when POS solutions like Bypass can work both without a network or a power source for some time), it did show the variety of measures organizations take to protect cash. Those include surveillance cameras (some of which can be integrated to align footage with POS transaction data), armed guards to protect money while it’s on site, secure vaults and money transportation systems, and armored trucks for transporting large sums.

That’s not to say there aren’t costs in credit cards like chargebacks and data breaches, but those are far easier to mitigate when merchants and their vendors follow PCI standards.

Losing out on customer data

More and more retailers are realizing the power of customer data, and cash is a major limitation in that regard. Tying customers to their individual transactions helps organizations better understand behaviors and preferences. When people opt in with their contact info, restaurants and venues can also target those customers with personalized offers after they get their food, as well as broader audiences who haven’t visited yet. Cash, however, makes it impossible to tie a transaction to an individual without some additional input like a loyalty barcode or a phone number.

Rather than forcing customers to separately pull out a payment and then a loyalty identifier, retailers like Starbucks and Panera are integrating payments and loyalty into a single code, or automatically identifying an individual based on their credit card info. Expect merchants to continue reducing barriers to data-rich experiences, which helps reduce friction in the experience for customers as merchants learn more about them.

While many retailers may not be ready to totally eliminate cash, they should take a close look at the various tangible and intangible costs. Though you may not eliminate the fixed costs of cash if you still accept it, It might be worth, for example, reducing where cash is accepted or encouraging credit card payments. Not only will you lower variable costs like labor and security personnel, but you’ll improve the customer experience with shorter lines and more personalization.


Photo Credit: President Lincoln by Neil Cowburn