'Hidden' cost of using cash in Australia: 'Twice as expensive'

A new report has highlighted the "hidden" cost of businesses dealing with cash compared to card payments. A lot has been said about card surcharges and the impact that is having on small businesses as well as customers.

But Professor Steve Worthington told Yahoo Finance there can be a "considerable" cost to handling cash that's usually just "written into the cost of doing business". This includes aspects like counting the money, paying for services to provide cash, and taking it to the bank.

Mastercard commissioned a report with Boston Consulting Group (BCG) to see just how much this is actually costing businesses and consumers.

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Different ways cash can cost you

BCG's investigation found there were "hidden" direct, indirect and back-office impacts that come with physical money.

• Direct: This included the cost of having the money collected or provided by cash-in-transit businesses like Armaguard.

• Indirect: This is related to instruments needed for physical money like a cash register, as well as issues relating to the transaction (for example, employee theft, cash handling errors, fraud, or other keying errors during the check-out process).

• Back-office: These stem from the work required to reconcile payments (such as invoice reconciliation, cash register preparation, and depositing money into the bank).

Back-office costs were found to be the biggest out of the three for cash as it was the most labour-intensive. RMIT associate professor of finance Dr Angel Zhong revealed to Yahoo Finance it can take a small business up to 29 days per year to handle cash.

The BCG report estimated there's a 3.9 per cent cost per transaction for dealing with cash at the point-of-sale (POS) for businesses when you add up the three types of costs, compared to just 1.8 per cent for card payments and 5.3 per cent for buy now pay later services.

The data also highlighted that the cost of cash for consumers is around 0.4 per cent, versus 1 per cent for card payments.

"Cash acceptance is more expensive than most electronic payment instruments," the report stated.

It added: "Survey participants confirmed their preference for accepting electronic payments. Around 80 per cent said they would like to use electronic payment instruments either more than they do now, or to the same extent.

"Moreover, 44 per cent of merchants in Australia... said they would like to reduce the proportion of cash in their payments mix further."

While the preference might be on electronic payments, business owners noted how cash was important because of its "speed" as it ensures "immediate settlement", whereas card payments can take hours or even days for the money to come into the business's account.

Commonwealth Banks' view on cash

Commonwealth Bank CEO, Matt Comyn, has been grilled at a parliamentary inquiry about card surcharges and was asked why it would cost $5 for a cup of coffee with cash but it's $5.08 when a credit or debit card is used.

However, he reiterated how cash costs are usually hidden from the consumer.

“It’s not a like-for-like comparison,” Comyn said. “Costs [are] embedded for cash but not embedded for digital because [of] the entire mechanism of electronic payments domestically and globally.

"Let's just assume a business that was only accepting cash. You'd probably be paying $5.20 for the coffee... because 4 per cent of the cost of the coffee is embedded into the higher prices."

So why are there surcharges for digital payments in Australia, instead of embedded costs like in the UK and Europe where surcharging is banned? Comyn said the "cost of acceptance".

That's the way it's been so consumers accept the additional charge when tapping for payment.

CommBank recently revealed it cost them $350 million in one year to provide cash services to Australia.

In its FY24 investor presentation, CBA noted that monthly average ATM withdrawals have plummeted 51 per cent since 2019 while digital payments have skyrocketed 85 per cent. The bank also claimed the cost of providing cash had jumped by 50 per cent and it continues to be a "challenging commercial model" of its business.

But a spokesperson told Yahoo Finance that cash "is and will remain an important part of the economy".

"CBA is committed to making sure cash is available to those who need it, and continues to distribute around $4 billion in cash each month through the largest branch and ATM network in Australia," the spokesperson said.

Cash can be far better than cards even if the cost is higher

While cash might cost more than card payments, a small business owner in South Australia said it's far more reliable.

Stephen owns the Zeppole & Co ice cream store and told Yahoo Finance he struggled with EFTPOS outages for eight weeks and feared would have to close his business down forever.

"Over the last month alone, our point of sale (POS) system decided to stop taking payments," he said.

"So, say we did $500 in sales in one night, it would only register $35. The rest of that money would say it went through, but in the end, it just sort of disappeared."

He tried changing systems and banks several times, but he kept running into the same problem and the outstanding bill waiting to drop into his account added up to $10,000.

Stephen eventually ditched his EFTPOS machine completely and is now an entirely cash-only business.

But he's not the only one who is still very keen on cash.

Richy Marchandise runs the Mimolette Café in Melbourne and he's brought in a 10 per cent discount for customers who pay with cash because he too kept running into problems with his card payment systems.

"EFTPOS does not work as well as they claim. People get impatient when the system is down and we lose sales constantly. In 11 years, I have changed EFTPOS providers five times," he told Yahoo Finance.

Before the 10 per cent discount was introduced, Marchandise estimated around 5 per cent of sales were done with cash. That's now jumped to 20 per cent.

He said it's a massive help for him because he claims his suppliers also love to be paid in cash, making that side of the business flow much faster and easier.

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