On Small Purchases, Cash is Still King
Even though credit card issuers have been providing significant incentives for consumers to use their cards over the past year, consumers are once again turning to cash to pay for small purchases.
According to a new Javelin study released on Tuesday, 79% of consumers used cash to make a purchase over the past seven days compared to 65% who used a credit or debit card.
The increased use of cash may be a side effect of the interchange fee regulations that capped these swipe fees for debit card purchases. While a smaller fee was good news for most retailers, it provided a cruel twist for the smaller merchants. Business owners specializing in lower-priced items like coffee, candy and ice cream now have to pay a higher fee when their customers use debit cards for transactions because many card companies discontinued the discounts that were often given merchants for small transactions. Issuers say the higher swipe fee previously paid by retailers subsidized the discount for smaller transactions.
Many consumers who once used a debit card for small purchases are learning to carry cash to cover these transactions, or pay a fee to cover the store’s cost of processing the debit card. The debit card fee regulations are costing some retailers more money. We are certainly not seeing much lowering of prices that retailers were promising when the swipe fee regulations were being discussed.
While consumers are turning to cash, most credit card issuers continue to provide fairly lucrative incentives for consumers to use their cards. The Chase Freedom card offers a $200 cash back bonus once a new cardholder spends $500 during the first three months. Capital One Cash offers 1% cash back on all purchases plus a 50% cash back bonus, in addition to a $100 bonus for spending $500 on the card during the first 90 days.