Cash vs. Card Payments for Small Businesses in Ireland:
Weighing the Real Costs To You as A consumer
Cash vs. Card Payments for Small Businesses in Ireland: Weighing the Real Costs
There is a lot of online chatter at the moment about the cost to a business of accepting card v the cost of accepting cash with some wild claims being made about bank charges for card payments. As is always the case with such internet noise, there is a grain of truth and a whole pile of misinformation being presented as fact.
If you are not a business accepting card payments, there is no reason for you to inform yourself of the real costs and as such you may well believe that a business you frequent is being fleeced by their bank when you pay by card.
We are all familiar with the various claims and I am including only a few random examples here.
Are these claims true?
Lets take a closer look
The Real Cost of Accepting Card Payments
Card payments are undeniably convenient for customers. With the rise of contactless technology, payments can be made in seconds, reducing queuing times and making transactions smoother. However, for small businesses, the convenience comes at some cost.
In Ireland, businesses accepting card payments face fees from various sources. These include:
- Merchant Service Charges (MSC): This fee, usually ranging from 0.4% to 2% per transaction, is charged by the payment processor for each card transaction. The rate can vary depending on the type of card used (credit, debit, or commercial) and the volume of transactions a business processes but for example, a small business with a turnover of €8000.00 per week and card payments of 75% which is about typical will pay somewhere between €30-120 per week for card transactions.
- Commercial Processor v Banks: Businesses may have to rent or purchase a card terminal depending on which processor they use. Typically the more easily obtainable options for terminal rental charge the higher fees and typically they are not banks but commercial processors.
With the commercial processors, a business can expect to pay between €15 and €30 per month for a basic model terminal. Advanced terminals with features like mobile payment acceptance or enhanced security can be even more expensive.
Fees from commercial processors are typically north of 1.5% and in addition, your bank will charge for transferring funds from the commercial payment processor to your business’s account. - Chargeback Fees: In cases of disputed transactions, businesses may be subject to chargeback fees, which can range from €20 to €50 per incident. This is particularly relevant for online transactions where fraud risks are higher.
- Banks will typically only charge a set up fee for a terminals and fees are typically 0.4-0.5%
It is worth noting that many Irish banks are now offering a flat fee for contactless payments and the current cost of this can be as low as €45.00 per month including terminal.
Based on these figures, the company claiming it paid £500.00 in bank fees would need to have a turnover of at least £360.000 P/A. It is highly unlikely that a company of this size would not be dealing directly with a bank and would thus be paying about £45.00 based on actual charges
The Real Cost of Accepting Cash Payments
On the surface, accepting cash might seem like the cheaper option. There are no merchant service charges, and businesses receive payment immediately. However, cash comes with its own set of costs and risks:
- Banking Fees: Banks in Ireland charge businesses for lodging cash. This fee can range from €0.50 to €0.90 per €100 lodged, depending on the bank, this amounts to pretty much the same cost as accepting card payments when using some of the pricer merchants.
- Security Risks: Handling large sums of cash can be risky. There’s the ever-present threat of theft, both external and internal. Businesses must invest in security measures such as safes, secure transport, and potentially even insurance, all of which add to operational costs.
- Time and Labor Costs: Managing cash requires time and effort. Cash needs to be counted, reconciled, and lodged at the bank, This necessitates a trip to your bank, almost definitely queuing time and then the task of feeding cash, note by note into an automated teller. If a business owner values their time by the hour then they must add in the cost of an hour or so every couple of days to bank their cash
- Risk of Errors: Human error in counting or giving change can lead to discrepancies, which could affect the business’s financials. There are no accurate costs for this in Ireland but the estimated cost in the US is massive 3.1 trillion dollars per year.
The Fact is, for an honest business, there is no cost benefit of accepting payments in cash
Why Some Businesses Accept Only Cards
Some businesses, increasingly those in urban areas or online, are moving towards card-only transactions. Their reasons include:
- Reduced Security Risks: With no cash on the premises, the risk of theft is significantly reduced. This is a major consideration for businesses that operate late at night or in areas with higher crime rates.
- Efficiency and Speed: Card payments are faster, reducing queuing times and improving customer satisfaction. This can be particularly important in high-traffic environments like coffee shops or retail stores.
- Easier Accounting: Card payments are automatically recorded, simplifying accounting and reducing the risk of human error which as demonstrated above, can be significant.
- Pandemic Influence: The COVID-19 pandemic accelerated the shift towards cashless payments, as customers and businesses sought to minimise physical contact.
Why Some Businesses Still Insist on Cash
Despite the costs and risks, some small businesses in Ireland still prefer cash for several reasons:
- Avoiding Card Fees: Avoiding the merchant service charges associated with card payments is often cited as a reason for a business declining cards, but as demonstrated above, it is likely more expensive for a business to bank its cash (Honestly) than it is to have the process automated via card payments.
- Instant Availability: Cash is immediately available for use. There’s no waiting period for funds to clear, as is the case with card payments. But then the reason for an honest business needing cash must be questioned.
- Tax Avoidance: Although it’s a sensitive topic, some small businesses may prefer cash to minimise their tax liability, as cash transactions can be easier to underreport compared to card payments. But as this is both illegal and immoral. If a business is happy to break the law as regards its fair tax liability, would you trust the providence or quality of its products of services? The common view that it is ok to stiff the government when it comes to paying tax overlooks the reality that tax avoidance is a crime against us all and places unfair pressure and a larger share of burden on those who chose to be honest.
Conclusion: Finding the Right Balance
Most businesses, like ourselves here at The Bare Acre adopt a hybrid approach accepting both cash and card depending on a customers preference.
Our own preference is for card payments as they are quicker, the money goes to our account online and it is totally secure. It is easy to track income for the purposes of accounting and yes, for paying our taxes also. Remember, those same taxes finance the schools our children attend, the hospitals that treat us when we are ill and the very roads that bring customers to The Bare Acre .
