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.
5 comments:
For the vast majority of stores here in Ireland, offering cash back is a way to reduce the volume of cash on the premises, and so reduce insurance and security costs associated with transporting cash to the nearest bank.
I like getting cash back when I buy a birthday card at Walmart. The card doesn't cost much but it saves me a trip to get cash or write a check they'll hold for a month. I think people like cash in cards rather than a gift card (useless cash) or a check they have to go to the bank to get the cash.
I don't really like cash all that much. I use it when I have to. I don't like writing checks either. I would much rather issue a bank check online (ING's check feature is outstanding)...so I don't have to worry about those relatives that wait a month to cash it. I just end up obsessing over the account watching for it to show up.
I only use cash sometimes, so I've compiled a list of stores to visit if I'm going to need it for some reason.
This does lead me to make small purchases at times. Specifically, I buy the 99 cent chapsticks at CVS anyway, so instead of paying their ATM fees I just buy one to squirrel away until I need it. It works since I don't do it often.
I've never really thought of that side of merchant funding, as to what the benefits are to getting cash back at a store. Maybe because the higher the transaction amount is for, the less they have to pay in merchant transaction fees?
Post a Comment