Cash? Credit? Both? Neither? Huh?

In a recent blog post I addressed pandemic-driven changes in consumer payment behavior and the apparent confusion over both health factors and the economics of various payment instruments. Since then the plot has only thickened- with lawsuits filed, misinformation propagated, and no sign of clarity on the horizon. Allow me to update the situation through a variety of personal anecdotes and news items.

In reopening the gates of Truist Park to paying baseball fans, the Atlanta Braves have promoted “safety measures” they’ve taken including the adoption of cashless concession booths. There are numerous benefits to going cashless- Mercedes Benz Stadium, Atlanta’s other major sporting venue, took that step well before COVID had entered the vernacular. Customer and worker health is not among them, however- there is no evidence linking cash and coins to COVID transmission.

Within the course of a month, the Braves expanded from permitting one-third capacity to hosting a full house of 40,000. While I have no major qualms with this decision, I’d respectfully suggest there’s greater incremental transmission risk from adding an extra 5,000 people to crowded vestibules than from accepting cash payments.

The Braves have apparently embraced the business case for card acceptance, determining that the added interchange cost is justified by resulting operational benefits. A restaurant I recently visited in rural Georgia reached a different conclusion. “USE CASH and SAVE!!” exhorted its receipt next to an alert that “a 3.5% service fee is applied for all credit or debit card transactions.” The payments geek in me couldn’t resist asking why debit and credit were being treated the same, given that card issuers and networks charge far lower interchange fees on debit transactions. “It doesn’t matter- they cost us the same,” I was told with a shrug.

I had a similar experience at a tavern in the Midwest, with a prominent “Minimum $10 for credit cards” sign hanging behind the bar. My tab was safely above (the walleye sandwich was great, BTW) but I still asked if the minimum applied to debit as well. “A card’s a card” was the cocked-eyebrow response, the barkeep seeming suspicious I was trying to pull a fast one.

These experiences support a theory discussed on a recent BIGCast; despite all the pain and suffering attached to the Durbin Amendment and its role in slashing FIs’ debit income, the average merchant does not seem to realize any cost savings- and if not, it logically follows that the consumer doesn’t, either. In most cases, acquirer/processors have adopted a blended rate applied to both debit and credit- and more reflective of the costs of the latter. As card mix continually shifts toward debit, the decline in average cost is pocketed by the processor- but guess who the merchant typically blames?

Which leads to our final point. In late April two groups of North Dakota retailers filed a lawsuit against the Federal Reserve, claiming it has not properly applied the Durbin Amendment and that debit interchange should be further reduced. Strangely, the suit points to acceptance costs that appear to be drawn from data that includes the processor fees noted above. Actual issuer fees for debit card transactions- the portion governed by Durbin- comprise only about 10% of that total. It’s unclear whether the plaintiffs are suggesting these processors’ fees should be similarly capped, if they’ve misread the economics, or if they’re merely looking to jumpstart a debate.

One thing is clear, however- the emotion and confusion surrounding point of sale payment decisions will not be resolved anytime soon.