Merchant Advance Blog

Blog Article: Credit Processing: Cash No Longer King for Small Businesses?

“Cash is king” goes the saying when it comes to business practices. While it still holds true that maintaining a steady cash flow is extremely important for the health of your small business, the value of that expression may be changing for your customers.

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The King Dethroned

In a study for the Bank of Canada, Ben Fung, Kim P. Huynh and Gerald Stuber examined trends in the market share and value of retail transactions in Canada from 2009 to 2013. They found that while a gradual shift away from cash toward electronic means of payment has continued, ƒ the cash share of the value of retail purchases was, however, virtually unchanged over the period in question.

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Paper or Plastic? A Question of Convenience

Where are cash-users going and why?  In particular, the BoC study noted that the credit card share of retail purchases has continued to rise, at the expense of both cash and debit cards. Consumers appear to be getting used to spending more with credit even as household debt becomes a more significant issue nationally with each passing day.

The study links this trend to the emergence of mobile payment technologies (Such as Square and Apple Pay) the likes of which we’ve discussed before on this very blog. Cash is still mainly used for small-value transactions, but its share for such transactions is decreasing as “tap-to-pay” technologies evolve to increase the speed and convenience of user transactions.

The Effect on Small Businesses

What does it mean for your business if more and more customers will be expected to pay with credit? As the study notes, lightweight credit-based point of sale systems are more cost-effective than conventional payment terminals for smaller retailers and for merchants that do not have a fixed location. However, an increased proportion of credit purchases means that your business gets hit harder by the fees associated with credit processing. As we’ve previously examined here at the Merchant Blog, the Government of Canada has taken certain steps to limit and reduce the fees that merchants must pay to process credit payments – however, these fees still present an obstacle (rather ironically) to small business cash flow.

Businesses will need to balance the appeal to convenience of credit card payments with the more financially stable options of cash and debit.

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