Visa Begins Bribing Merchants To Stop Taking Cash

Tyler Durden's picture

Authored by Yves Smith via Naked Capitalism blog,

The war on cash is escalating. A big driver isn’t central banks who want to be able to inflict negative interest rates on savers, or Treasuries who see cash transactions as hiding revenues from their tax collectors, but the payment networks that want to kill cash (and checks!) as competitors to their oh so terrific (and fee-gouging) credit and debit cards.

However, one bit of good news is there doesn’t appear to be much enthusiasm on the buyer, as in merchant, end.

First, the overview from the Wall Street Journal:

Visa Inc. has a new offer for small merchants: take thousands of dollars from the card giant to upgrade their payment technology. In return, the businesses must stop accepting cash.

 

The company unveiled the initiative on Wednesday as part of a broader effort to steer Americans away from using old-fashioned paper money. Visa says it is planning to give $10,000 apiece to up to 50 restaurants and food vendors to pay for their technology and marketing costs, as long as the businesses pledge to start what Visa executive Jack Forestell calls a “journey to cashless.”

There are good reasons to think this initiative won’t get far.

Customer resistance. Food vendors, and in particular restaurants, are low margin businesses with fickle customers who have little to no loyalty. Why risk driving business away?

Aside from the fact that some customers prefer cash, a related issue is that using cards and smartphones often seem to be a tax on time. I really hate using chip cards. Mag cards were often faster than cash, since you swiped and could stuff the card back in your wallet while the transaction was being approved. Chip cards, by contrast, require you to keep the card in the machine while it is being approved, so one is very much aware of the wait. And when I’ve seen people using phones (often to buy small stuff like coffee, which really amazes me), I find that they are slower with it that they would probably be with cash, in that they seem to have to fumble with the phone to get the right app readied and then the payment doesn’t always go right through either.

And that’s before you get to the fact that ApplePay and other smartphone payments time stamp exactly when you paid, adding to the information the surveillance state is gathering about you. By contrast, even if you use a credit card at a store, Clive informs us that the card network typically retains only the date of transaction.

Higher merchant charges. I take credit and debit cards through PayPal, and also checks. And even though I am often slow to deposit checks because I find it hard to get to the bank, I’d still rather have checks despite the somewhat greater hassle because I save the 3% cut the card networks take. Visa makes the argument that handling cash has costs too, but they are the ones that have ginned up the numbers, and in my case, they don’t wash. As the Journal points out:

Indeed, many merchants prefer cash because they don’t have to share the revenue with card companies. Credit-card interchange fees, which networks like Visa set and that merchants pay to the banks that issue their cards, are on average around 2% of the transaction amount, according to the National Retail Federation, the largest trade group that represents merchants in the U.S.

“The idea that merchants don’t want to accept cash is a myth,” said Mallory Duncan, senior vice president and general counsel at the National Retail Federation.

Negative impact on employees who get tips. As one of my tax attorney buddies drily remarks, “Some people have this odd idea that cash payments aren’t taxable.” Restaurant workers who have tips as the major source of their income almost assuredly prefer getting them in cash, rather than facing the delay of having their employer receive them through the payment network which creates delay as well as the not-trivial odds that the boss might cheat them either informally or declare that he’s entitled to a processing cut. And that’s before getting to the fact that restaurant pay levels probably pre-suppose a fair bit of tax evasion, so the business owner might risk losing his better employees to competitors who hadn’t gone the no-cash route.

Enforcement. How is Visa going to police establishments that say they aren’t going to take cash? Will Visa have spies? Will Visa have audit rights?

Risk of legal challenge. As a surprisingly large number of Wall Street Journal readers pointed out, cash is a legally sanctioned means of payment. For instance:

Richard Tavis

Merchants who will no longer accept cash won’t get my business, period. Call me a Luddite, but U.S. currency pretty clearly states that “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE”. It seems to me this will go to court eventually. Merchants must accept notes issued by the Fed. Sorry, that’s the way it is.

Richard Tauchar

@Richard Tavis
That’s my take as well.
And, as someone else mentioned, what happens if you refuse to pay with a Visa, or don’t have one, after having completed the meal? Will they take cash then, or is the meal free?

So I’d be surprised if Visa had a legal leg to stand on, when trying to make these deals.

The Treasury does support the position that private business can refuse to take cash as payment for goods and services, as opposed to settlement of debts.

However, as writers following David Graeber’s Debt: The First 5000 Years, like to point out, we incur and settle debts all the time. And a bar tab or restaurant bill is a debt. The vendor provides the service<strong> without being paid, then expects you to settle the debt you incurred.

Thus the market segment Visa is targeting for this move (the Wall Street Journal headline says, Visa Takes War on Cash to Restaurants) would seem to be one where Visa is on a particularly weak legal footing. I can easily see someone with a penchant for mixing things up go to a restaurant, either not have a card or bring a card he knows will be declined (just to look like he didn’t intend to stage a stunt) and then video putting down more than enough cash to settle the bill and leave. The merchant will have no legal out. He’s been paid. And at least in any decent-sized city, no way will the cops intervene. They’ll regard this as a private dispute not worth their time. If the restaurant staff try to restrain the exiting customer, they could wind up with a very costly suit on their hands.

Taking cash may be the real point of the merchant. A savvy New York City colleague regularly points out how many New York City businesses, like pizzerias and cheap jewelry stories that never seem busy, or nail salons that have economics that don’t seem to make sense, are probably partly if not mainly in the money laundering business.

Visa has even bigger ambitions:

Visa is trying to turn those numbers more in its favor. In the U.S., it is going after spending categories, such as parking and rent, that have been entrenched in cash and check payments for decades. Abroad, it is partnering with governments to move more payments onto its network, including an agreement that it recently signed with the Polish government to move the country to a cashless system.

For what it’s worth, my landlord (more accurately, his in-house management operation), who has an office building that takes up a full block on Park Avenue in the upper 40s, plus has seven residential buildings, takes only checks for rent. One factor may be that in NYC, if a landlord accepts a rental payment from a party, that party obtains a legal interest in the lease. That in turn means the landlord would lose one of his main axes for controlling who lives in the apartment (or worse, a corporation could pay make a rental payment and in theory let anyone it authorized stay in the apartment). It’s easy to see on a check who is making the payment. On a bank transfer, the landlord may regard it as too much hassle to verify the source of a bank auto-debit to be worth any potential labor-savings on other fronts. I’d be curious to learn from any readers who rent what types of payments their landlord accepts.

In the meantime, those of you who like cash should not just make a point of paying in cash, but also tell the employees and in particularly, anyone who appears to be a manager that they will lose your business if they stop taking cash. Vocal customers may be the best way to head off Visa’s profiteering.

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wisehiney's picture

Funny how they left out the fact that the best thing about cash is fucking the tax man.

Those bribes are less than the extra fees and taxes.

Visa is wasting their money.

zuuma's picture

I've noticed that on the 2, rare occasions when I used my credit card at a restaurant (3 months apart) this past year, fraudulant charges appeared on the card within days of each vist.
The card had to be cancelled and a new one issued. 2nd time it was a chip card, too.

so...  the phukkin waiters & waitresses are copying the name, number, exp, & CCV and SELLING IT.
Nowadays, you cant use a credit card unless you watch how it is handled the entire time it is out of your posession.

No cash taken = no visit from me.  Period.

evoila's picture

WTF is legal tender?

2000's picture

Let me buy my Camo Cake from Walmart in privacy!

Alt_Right_Girl's picture

My fav use for card (only debit) is car renting abroad.

Don't care about parking fees, highway speeding cameras, laws, nothing..

And the minute I return the rental the card gets canceled and I ask for a replacement, worth of $4. So all that time saved by speeding on highways and saved parking fees cost me a measly $4. 

That's a way of sticking it to those European socialist governments that want to fleece the motorists by any means.

Especially in failed countries like Spain, Italy and Greece.

 

Talking about Greece, there is some good news,

Back to the Roots: Greeks are Worshiping Their Ancient Gods Again

http://dailywesterner.com/news/back-to-the-roots-greeks-are-worshiping-t...

Jim Sampson's picture

I've been seeing people go to hand held card machines, this way I control the card the whole time.

38BWD22's picture

 

 

Provident Metals, a gold dealer, takes Bitcoin at a 1% premium to check or cash (wire transfer, but that's ~ $25).

Bitcoin may be a solution to the Visa's attempted monopoly.

tmosley's picture

Yup. Offer people a discount for payment in certain major cryptos, and have the payment ID printed as a QR code on the bill. People will start keeping some BTC or whatever crypto the market chooses in small wallets on their phones to issue such payments.

Of course, this will have to wait for the network issue to resolve itself, but that will be resolved before too long, or else another crypto will rise to dominance that doesn't have that problem.

3LockBox's picture

That is a premium not a discount....1% over the cash price...

All kinds of hidden fees with cryptos.

Herding the sheep to the slaughter in their wetdream cashless society.

Of course they have been giving money out to the early pyramid scam players preying upon people's greed.

Once they have herded enough the jig will be up and those trapped will be slaughtered.

Pool Shark's picture

There's a bigger, more fundamental problem wih crypto-currencies:

 

There is an infinite supply of them.

Yes, just look at all the Bitcoin clones popping up: Etherem, Lite-Coin, etc.

As soon as ANY crypto-currency appears to be overbought, people will simply migrate to the latest & greatest new one.

[Reminds me of the silly fools on the 'B-Arc' from Hitchhiker's Guide to the Galaxy; they tried using leaves as currency only to find out that the cost of a small item was close to 3 deciduous forests.... Thanks, but I'll stick with PM's...]

 

 

Never One Roach's picture

I was in a department store the other day and 8/10 people used cash. I also swung by Kohls and same thing there, esp from mexicans who usually get paid in cash and do not have credit cards.

 

i am not sure how this 'war on cash' is going to be good for businesses. When i was in business I was always overjoyed when someone offered to pay me in cold hard cash.

Bunga Bunga's picture

There is an infinite supply of them.

For PoS coins that is true, but you can't create infinite amount of PoW coins, because resources are not infinite. Just take a look at the utility bills of Bitcoin miners. If you want to create another coin with similar value compared to Bitcoin, you need to invest a lot of energy to mine them. If you are lucky, you will make a small return, but first you need to burn old money in order to create new money = zero sum game. Price of a coin reflects mainly the cost to make a coin.

As soon as ANY crypto-currency appears to be overbought, people will simply migrate to the latest & greatest new one.

That is not so easy, check "network effect". In addition, when a PoW coin is "overbought" = meaning current price is way higher than electricity cost, miners will increase mining capacity, but the consensus does not allow to increase the number of coins produced over a certain period of time. It will it make it harder to create coins (difficulty adjustment), which increases electricity cost again.

HonoraryCarioca's picture

Despite the "war on cash" there is an equal and opposite force, which is the war on fraud. We have seen the banks introduce all sorts of security measures in recent years, all of which now makes cards infinitely less user friendly than when first introduced. It it is my prediction that we will ultimately revert to cash for most transactions, primarily because it is essentially fraud free. And it avoids a 3% fee, which is a big deal for most businesses. 

JohninMK's picture

Most renters in Europe don't accept debit cards, only credit is OK.

BennyBoy's picture

 

Coming to US currency bills:

This note is legal tender for all debts, public and private.

Unless Visa is accepted.

Crash Overide's picture

Only a matter of time until Visa gets swallowed by the blockchain, the days of 2-3% fees numbered.

zuuma's picture

yup.  converting over to 15% fees in the unregulated, anonymous blockchain world.

Yay.

tmosley's picture

Easily fixed. Many have already, and the rest are working on it.

BullyBearish's picture

paper replaces metal, now plastic to replace paper...next thing you know they'll be pushing Bacteria Bucks--your unique fauna from a whiff of your breath into the ever-present "payment" device will immediately decrement your account...

adanata's picture

 

As most of us already know, Nigeria is now wholly controlled; and therefore owned, by MasterCard and Wall Street banks. Nigerian 'biometric cards' are the first full blown implementation of this cashless crap, and includes their fingerprints, iris scans et al. As noted above, first the banks used "certificates" to pull real money away from the economically illiterate public and into their vaults, now they're trying to use plastic to replace fiat. VISA is just one more wedge between people and their assets. Civil forfeiture is a message to the public that cash is "dangerous" and you must keep it in the BANK as the police may confiscate it without any crime being charged or committed... even if you sue, you rarely get your money back. If they move forward with eliminating $100-$50 dollar bills, those bills become worthless unless you take them to the BANK. This noose will simply continue to tighten, one step and "new law" at a time... the banks will never stop voluntarily.

btw... the name of the president and first recipient the "card" in 2014 was... literally... Goodluck Jonathon.

motorollin's picture

That's not going to happen any time soon.

Current blockchain processing speed: 7 Transactions/sec

Current Visa network speed: 50,000 Transactions/sec

 

 

rygar's picture

bitcoin + lighting network: millions transactions per second

JustUsChickensHere's picture

hmmmm...... unfortunately that is a pipe dream.  Mathematics rules out Lightning as a scaling solution.

 

See here  : https://medium.com/@jonaldfyookball/mathematical-proof-that-the-lightnin...

83_vf_1100_c's picture

Groceries at the checkout is not really a private debt. The bill in a restaurant is. Only one thing is clear, lawyers will make money. This will give small biz people a bump, 'Yes, we accept cash!'  Most of my biz is via mail but I freaking love the locals who peel off cash money for services rendered.

AllBentOutOfShape's picture

What will a restaurant do after I finish my meal and tell them all I use is cash?  Will they take my money or will I be thanking them for a free meal?

Roger Rabbit's picture

Exactly why you never hand over a card with a high limit. Never give your debit card or your main credit card.

 

Take out a 2nd card with a small credit line (say $300-500) and only use that in public, and especially when you hand it to some young pencildick who then disappears for a while out of sight.

NumNutt's picture

I have had to explain the following to a number of people: i am asked often why a debit card can be used as a check card or a (visa) credit card. the answer is for fraud protection. If you purchase a $500 dollar item on-line and it shows up broken, or some other type of issue, or you never recieved it (wink wink nod nod) and you purchased it as a visa credit transaction, you can dispute the charge, visa will refund your money, and they will go after the merchant to recoup the money. If you made the same purchase as a debit card you are just fucked. You can dispute any transaction with visa, that is part of the "bonus" of using them instead of another form of payment. And yes that policy gets abused very often.

I too, prefer cash, but if I am buying shit on-line, and don't want to be taken to the cleaners, I utilize my visa card. Let them deal with the risk.

ASimpleTrader's picture

If you used a debt card and its got fraudlent transactions, it may go to the bank level. 

Wife had a situation were her debit card number was stolen, and fraudlent charges were made. Credit union refunded all the fradulent transactions back. Took a week, but she got it all back.

Check your bank's TERMS!

jaxville's picture

  I think the lowest limit you can get is now $1,000.  I use such a card for all internet purchases.  I have several others but only until I have 50 cards with $20,000 limit on each.

  At that point I buy 1,000,000 in gold from the internet vendors.  I shred the bills then eventually move to rental across the street and essentially disappear.  If they find me I tell them to fuck off.  Why should I care about my credit rating when I have a million in gold?

  I always knew that cc's would be good for something.

Sonny Brakes's picture

My dealer doesn't take credit cards.

NumNutt's picture

He will soon, there is an i-Phone app for that...

Akzed's picture

Tell Julian to get his shit together!

HRClinton's picture

By "bribe", does it mean that VISA will pay them 3%? Not a sustainable biz model for Visa.

Of course, given that Cash is Legal Tender, it means that you can walk out of the store with the goods, if they won't take said Legal Tender to settle the debt. Free is a price I can live with. Just like the FSA can.

I double dog dare these merchants to pursue this route!

NumNutt's picture

Here is a bit of trivia for you, believe it or not, Visa is considered a non-profit by the federal government. Wrap your head around that!

OverTheHedge's picture

I would have suggested  that the business owner does not have to do business with you, and reserves the right to trade as he sees fit, but there was the whole gay wedding-cake thing which has confirmed that is no longer the case. You could probably get away with taking without paying, but only if you are differently gendered.

The Gun Is Good's picture

Great point. (I fail to understand why the downvotes. Ppl not getting the implied /sarc, I suppose.)

Leave cash on the table/counter. And since "Questioning" seems to be considered a legit gender ID nowadays, that'll suffice. "Questioning" is uttery meaningless.

curbjob's picture

Bar owner here. 

Over the last few years ,  cash tendered has dropped to around 10% of sales. 

Since one tries to avoid red flags, the irs sees most of that.

 

As an aside, lately the % of cash has risen ... ironically not a good sign . 

 

 

oddjob's picture

Like most bar owners, you can always make it up by watering down the booze and neglect cleaning the washrooms.

GunnerySgtHartman's picture

Implement sound money laws in each state and screw the Fed, the IRS, and the credit card companies.

https://www.soundmoneydefense.org/

Sonny Brakes's picture

You save a lot of money spending money you don't have.

oddjob's picture

I have plenty of money, just not for retailers that don't accept cash.

Michigander's picture

I am ready to use cash only, but right or wrong the usury is already built into the cost of doing business, so when I pay in cash, I am subsidizing those that use credit cards.

I charge everything...EVERYTHING I can on my personal and business cards that pay 1 1/2% and 2% cash back respectively and pay off my bill religiously, every month. Christmas each year I cash in my rewards and get a cumulative 3 to 4 thousand dollar check from Capital One. They dont steal from me, I steal from them.

swmnguy's picture

I have a weird relationship with Capital One.  I got a credit card from them nearly 20 years ago.  It had a $1000 credit limit and a bad interest rate.  Several times I've asked for an increased credit limit.  They won't do it.  I have a half-dozen other cards, with total credit available of well over $100k.  My credit scores are nearly perfect.  It's odd.  

So last December, just for kicks I decided to use that Capital One card for walking-around, and ran it up to about $980, paying it off immediately when the bill came.  They still wouldn't increase my limit, and the next month my credit score dropped around 30 points.  I suppose the percentage of available credit that I used on that card screwed up the algorithms.  I put that card back in the drawer and haven't used it since.  My score is back up around 840, depending on which bureau and which score formulation.  

I don't understand why Capital One won't adjust my card.  I don't care, and I don't need the card at all, but it's just odd.  Everybody else and their dog are trying to lend me money but I grew up poor and don't like to finance anything I don't need to, and that only for the shortest time possible.

Common_Law's picture

I wouldn't say you steal from them. It's more like selling your financial privacy for a few thousand dollars. 

Since enough people use cards it makes the gov's "game theory" models work all the better controling the Citizens. 

Knowledge is power.  Silent Weapons for Quite Wars sums it up nicely.

Bubble Man's picture

I use cash for every purchase under $20.  Cash makes up for close to 70% of my overall purchases.  I do have a cash back CC for purchasing online and filling the car with gas since I live in a city that required prepaying for gasoline or using a CC/debit card.

I get where you are coming from on the cash back.  Fo me personally, I spend less paying in cash.  It takes more time taking out a $20 bill etc to buy that coffee, soda, pack of smokes, etc than simply swipping a card.  For me, seeing that $100 or $20 bill vanish from my hands/wallet for a $5bill etc contributes to me spending less on things I don't need or have to have.

Swipping a magical card and checking the balance once a week makes it WAY to easy to overspend. And 2% back on stuff you don't HAVE to buy is still 98% too much.

 

 

NurseRatched's picture

The obligation for the vendor is "to start the journey to cashless.

OK. Give me ten grand and I will start the journey. But I will not come close to completing the said journey.

DontFollowMyAdviceImaDummy's picture

THE ONLY WAY TO GET A VENDOR TO STOP TAKING CASH IS TO GIVE BACK A % OF ALL TRANSACTIONS... every business owner i know HATES THE DISCOUNT AND PER-TRANSACTION-FEE THE BANKS CHARGE THEM ON EACH SALE.  Unless they're getting rid of every single one of those fees and instead paying the business to take the card there is a 0.00% chance for this to work.