A Blog by Jonathan Low


Jun 30, 2018

Why Stores and Bars Want To Make You Pay By Card

Fewer people required to process mean lower transaction costs. At least until it becomes the only alternative.

And then there's all that free data that can be resold. JL

Tony Naylor reports in The Guardian:

The new players in the “fintech” sector levy a set percentage for each transaction. No contract. No expensive card readers. “iZettle has transformed payment-processing." It costs a tenth of his old provider’s service.The infrastructure is there for cashless as is the customer enthusiasm. From contactless payments at self-service supermarket tills to online banking, it can seem like the digitisation of money is inevitable. But cash is proving curiously resilient. 59% of people blamed their overspending on using cards and 72% said that contactless payments make them prone to impulse purchases.
A strange thing happened to me recently. I was in a bar, but I couldn’t buy a beer. Or, to be exact, I refused to. I was in Öl at Hatch, a shipping container complex of food and drink purveyors on Oxford Road in Manchester, where the bar – to my surprise – was card-only. No cash. They had no way of taking my £10 note. It was stalemate. I had cards on me. But, in instinctive solidarity with the unbanked, those paid in cash or those who, like me (for years, a permanently skint freelancer), still budget in cash, I stood firm (and thirsty), irritated that any business would dictate how its customers pay.
I sat down to eat a curry I had bought (with old-fashioned cash) from another Hatch unit. Then, an Öl barman brought over a conciliatory glass of beer, on the house. I told him the bar’s cash-free policy is elitist; who wants to be forced to put a pint on a credit card? He talked about time saved and how not having cash on the premises was safer for the staff. We politely agreed to disagree.

Relating this later, to Öl’s co-owner David McCall, I find him irrepressibly upbeat, as if everything is going to plan: “We have probably given away 10 beers to people who didn’t have cards – and a few when Visa went down. But we would rather give you a free beer than give the bank five grand, and we want our staff to feel secure. On our second week, we were broken into [overnight] with sledgehammers. All they could take was one iPad.”
McCall’s Manchester coffee shop Takk takes cash. But opening Öl and a second Takk at the student-oriented Hatch was a chance to dispense with the £3,000- to £5,000-a-year in bank charges that the original Takk, like every business, incurs for depositing cash. “We pay above Living Wage [Foundation rates], but we want to pay our 25 staff more,” says McCall. The savings made by going card-only will help with that.
But where does this leave people without bank accounts (nearly 2 million people, according to the Financial Inclusion Commission), or those with poor credit histories who have to pay fees to use prepaid debit cards? Removing the cash option penalises them.
“We’re aware of the community issues,” says McCall. He says that Takk gives free coffee to homeless people sleeping rough – those at the sharp edge of this cashless evolution. “But when we’re picked up on the fact we could be excluding people, we have to say that’s a story for banks and government. Scandinavia is largely cashless, and there businesses and governments are having that debate.”
It is a debate that Britain may soon be having, too, as a wave of card-only food and drink venues hit UK high streets. With the exception of London’s bus network (cashless since 2014; south London’s trams follow suit in July), cash-free everyday businesses have previously been experimental one-offs. But now if you want a wrap at the Athenian in Bristol, a salad at the London chain Tossed or a coffee at Habitat cafe in Aberfeldy, Perthshire (after its local bank branch closed, Habitat’s owners were facing a 60-mile round trip to the bank) you will need to pay by card.It may seem a divisive move for hospitality businesses (in the US, a mixture of media criticism and customer confusion has meant that the burger chain Shake Shack has halted its cashless trials), but, says Matt Paice, owner of the London restaurant Killer Tomato, for small indies, whose cash sales run at 30% or far less, “cash is just grief”.
Card-only bill settlement is faster for diners, makes it easier to split bills and is cost-effective (no safe, no bank charges, fewer accounting errors, no cashing-up). If Killer Tomato took cash, says Paice: “On a busy night, I might have two staff counting and reconciling the float with the receipts. I’d be paying senior staff to count coins.”
Assessing which – card or cash – is cheaper for restaurants is difficult. As well as direct fees (0.49% of each card sale and 0.15% of each cash transaction, calculates the British Retail Consortium), there are indirect costs (staff pay, equipment), to consider. Everyone uses a different formula. Restaurateurs don’t agree on which offers better value. What is clear, however, is that the new card-payment processors, such as SumUp and iZettle, make going cashless far more attractive. The established “merchant services” providers (which hire out card readers on long contracts and charge a variety of fees on different card transactions), are, says Paice, “complicated and deliberately opaque. It’s impossible to know what you’re going to be charged.”
In contrast, the new players in the “fintech” sector levy a set percentage for each transaction. No contract. No expensive card readers. “iZettle has transformed payment-processing,” says McCall, who adds that it costs a tenth of his old provider’s service.
The infrastructure is there for cashless, says Paice, as is the customer enthusiasm. Very occasionally, he has to turn someone away, but he adds: “In two years, I have had four angry customers – and I’m guessing the ones who get really angry are people operating in cash because they’re fiddling their taxes. They give me this phoney outrage about how I’m discriminating against the poor or old people. It’s cobblers. Flat-broke people are not eating in restaurants and everyone in London has a bank card: 12-year-olds, 90-year-olds. What they really mean is: ‘I don’t want to declare my income.’”
In Sweden, where 81% of all payments are digital, VAT receipts are up 30% in five years. But, says Ross Clark, author of The War Against Cash, that argument is just another bogus way in which cashless is presented – by banks and governments, but also by Mastercard, Visa and others chasing a fees bonanza – as unrelentingly positive: “It’s nonsense to say you could eliminate tax evasion by eliminating cash. Transactions are theoretically traceable. It doesn’t mean that anyone is tracing them.”

From contactless payments at self-service supermarket tills to online banking, it can seem like the digitisation of money is inevitable. But cash is proving curiously resilient. Payments UK reports that it is still used in 44% of consumer transactions and, oddly, as the Bank of England has observed, despite the rate of card transactions soaring and the value of cash payments falling by 10% annually, the volume of cash in circulation is at a record high. The number of British people who deal solely in cash – 2.7 million – is also rising. That oddity is often attributed to low interest rates, people hoarding money after the 2008 crash and a booming criminal economy. But do we prefer to use cash for minor transactions? The 2018 G4S World Cash Report found that, in Europe, the use of cash in physical point-of-sale transactions has risen from 60% to 79%. “People trust cash; it’s free to use, readily available, confidential, it can’t be hacked and it doesn’t run out of power,” said G4S’s Jesus Rosano.
From concerns about data privacy to poor broadband in rural areas, there are all sorts of reasons, argues Clark, why people in the UK want to – and should be allowed to – use cash: “One in 10 of the population have never used the internet. Only 19% of over-65s own a smartphone. This is a real demographic who find [cashless] difficult. Yet the government seems to think it acceptable to cut them out of the economy.” The former Bank of England chief cashier, Victoria Cleland, put it this way in a 2017 speech: “Cash is vital in supporting financial inclusion.”
In this push by businesses and card providers to eradicate cash, food and booze is a key battleground. Last year, in the US, Visa’s “cashless challenge” offered $10,000 each to 50 restaurants, cafes and food trucks if their owners opted to go cashless. For bigger chains, cashless looks like a windfall. It will allow them to automate sites, reduce overheads and, given how people tend to behave when using cashless systems, increase spend. At one McDonald’s branch, introducing cashless kiosks upped order values by 30%.
The bars at the Standon Calling music festival went cashless in 2013. Punters pay with preloaded, contactless wristbands. Sales went up 24% and have continued to increase. The festival’s founder, Alex Trenchard, insists this is not because of drunken ravers spending wantonly at 1am: “It eradicates cash-handling mistakes, speeds up bar operation, reduces queues and allows us to price incrementally. Better-value drinks boost spend.” Festivalgoers, he says, like the fact that, by putting a set amount on their wristband, they can cap their spending.
However, it is an absence of control in cashless transactions that bars will see as an opportunity. In a 2016 survey by the financial technology firm ClearScore, 59% of people blamed their overspending on using cards and 72% said that contactless payments make them prone to impulse purchases. For example, that round of espresso martinis bought on Saturday night, which, redefining the two-day hangover, does not appear on your banking app until Monday morning.
“The haptic, physical sensation of handling and spending a £20 note makes you ‘feel it’. With cashless, that is lost somewhat,” says Jez Groom from Cowry Consulting, which researches “behavioural economics”. “The Apple Pay ding you get from your iPhone should be replaced with a vibration calibrated to the amount spent: light for under £10; heavy and consistent for £30.”
In an industry notorious for unscrupulous deductions from staff tips, card-only payments will make that easier, too. At Killer Tomato, all the service charge (a discretionary 10%) goes to staff. Paice covers the processing fees associated with such card tips. Do not expect corporate chains to be so generous. That is, if cashless doesn’t erode tipping entirely. Habitat in Aberfeldy posted on Facebook that so many customers now use contactless cards that tips have dropped alarmingly. “Technology,” it said, “has begun to kill the tip.”
For these reasons and more, David Fox, owner of the East Street and Tampopo restaurants in London and Manchester, has no intention of going cashless. But, given Britain’s direction of travel (“no institution is defending cash”), he can already see a future gap in the market for a restaurant aimed at people who crave the authenticity of notes and coins. “Like buying vinyl,” he asks, only half-joking, “will there be a generation who still enjoy the interaction of cash?”


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