Financial gurus often tout the money saving aspect of paying cash. With cash, if you don’t have it you don’t spend it, unlike with credit cards. But there is a lesser known aspect of paying cash that will save you money in the long run. Paying cash, especially at local mom-and-pop stores will help to keep prices low.
I have a friend who runs a successful but small shop in my town. She accepts credit cards, but only reluctantly.
“So many people want to pay that way that I had to start taking them. But I didn’t want to, because of the cost. Unfortunately, taking credit cards means that my overall cost of doing business goes up, which means I have to charge more for my products. ”
Merchants pay fees to the credit card companies to accept their cards. Those fees usually include a monthly fee, fees for leasing/renting the processing equipment, and a per transaction fee. It may not seem like much, but it adds up. For a small business already operating on a small profit margin, the fees can really cut into the profits. This means a business often has no choice but to raise their prices.
It is illegal for a business to explicitly charge their customers for credit card transactions. (Governments are exempt and can charge you the service fee, separate from the item you’re paying for.) However, even though a merchant cannot explicitly charge you for credit card processing, there is no law against factoring those costs into the total cost of doing business and setting prices accordingly. The more credit card transactions they process, the higher prices will rise to accommodate those fees. This is why some merchants refuse to take cards at all. They know that the fees will eat into their profits and if they raise their prices customers will revolt. Rather than lose business, they refuse to take credit cards.
This is also why you see many gas stations offering a discount for paying cash. In essence, they are cutting you a price break that is the equivalent of their credit card fee for that transaction. They set a price for gas that reflects their cost of doing business with credit card companies and then, if you don’t force them to process your credit card, they give you a discount. There are other merchants who use this model, but gas stations are the most common. Any time you can get a discount for paying cash, you should take the merchant up on it.
Paying cash can help a local merchant (or even a national merchant) keep prices low. If more people paid cash, merchants would not incur so many credit card fees that they then have to pass along to consumers. My friend estimated that a 50% reduction in the number of card transactions she handles each month would result in a 10-15% price reduction in her store. Obviously she’s just one example and every business will be different, but wouldn’t it nice to see a price reduction in a store? If you want to help keep prices down over the long term and save yourself some money, think about paying cash.