In July, Visa announced a new initiative. It would offer a select number of restaurants and food vendors as much as $10,000 each to upgrade their payment technology. There was one catch: The businesses had to agree to stop accepting cash.
The initiative was the “opening salvo,” as one Visa executive put it, in the credit card company’s plan to increase its market power by eliminating cash. “We’re focused on putting cash out of business,” Visa CEO Al Kelly told the company’s investors.
There’s a clear incentive for Visa to take on cash. That’s in part because the company has already conquered the market for credit cards. In 2016, 59 percent of credit and debit card purchases in the U.S. were made with a Visa card. Another 25 percent of purchases were made with a Mastercard, meaning that just two card networks now have a near lock on the market.
For the businesses on the receiving end of this push, though, a cashless future could be quite costly. That’s because of one of the other incentives Visa has for getting rid of cash. Every time a customer pays for a transaction with Visa, Visa gets a cut, along with the bank that issues the card, in what are known as swipe fees. Visa and the banks decide what that cut is. It averages about 2 percent [PDF] of the purchase amount. In other words, on a $100 purchase, that’s $2 that gets eaten up in swipe fees that would otherwise go to the business. Smaller businesses, which have no leverage to negotiate, often pay even more; in our survey of more than 3,000 independent business owners, retailers reported a median of 3 percent of their total revenue spent on swipe fees.
For many businesses, especially retailers and restaurants, swipe fees’ cut of their revenue is often more than their entire profit margin. As one business owner, the head of a fourth-generation supermarket in the Cleveland area, explains it, “Swipe fees have ballooned into my second-largest operating cost after labor… my profit margins don’t go much above a single percent.” Another business owner, who employs 400 people at eight gas station and convenience store locations in Minnesota, echoes the experience: “As with almost every other convenience store, the banks take more in swipe fees than I earn in profits.” Continue reading