I have always wondered why I am constantly pestered for getting cash back at every store I visit. Every store, when using a debit card, prompts for a cash back option. Why? What benefit does turning your cashier into an ATM machine have for the store?
After some searching, I wasn't any closer to a positive answer. I couldn't find any legal requirement (though there may be) so I have to assume there is some other incentive for these stores. On one hand, it doesn't make sense that they would actively encourage cash back. Take a company like Walmart, for example, with banks right there in the store. Sending your customers to the ATM would mean more fees and big profits. What good does it do to offer a free alternative? There must be a reason for this, to either benefit the merchant or the issuing bank. I have a few ideas.
There could be a regulation that merchants must treat debit as cash. Getting $20 cash back on a $30 transaction would be akin to saying, "I'm giving you a $50 bill, you owe me $20 in change."
Cash back leads to a higher transaction amount, possibly resulting in more fees for the bank should you overdraft.
research shows that consumers who use debit cards more often are also more likely to overdraw their checking accounts, card-issuing banks can reap an additional $1 million from nonsufficient-fund fees, according to the Mercator report. Another study revealed that customers who used debit cards more than 20 times a year paid an average of $223 in NSF fees annually, compared with $40 for those who didn't use debit cards at all. [source]
It could also be that statistically, if you offer cash back, customers are going to use debit more often than their credit cards because of that convenience. This means that the charge isn't racking up interchange fees for the merchant, which improves their profit on the sale.
One place I looked was a company that offered credit/debit services to merchants.
There are some big benefits with debit use, but nothing specific to cash back.
Benefits to Merchants [source]
- Provide an additional payment option to merchants' customers
- Offer less fraud potential than other forms of payment because of the use of PIN's
- Online capture means funds are guaranteed
- Lower risks with the reduction of fraud
- Provide a cost effective method of receiving payments
- Lower transaction cost than credit card processing transactions
- Encourage quick checkout
- Auto-close with funding within 24 to 48 business hours
Can provide a cash back feature, which can increase store trafficI wonder if this is the only real benefit, increasing store traffic? I just can't find a solid answer.