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Comment by mikeash | Hacker News Reader

Are we all subsidizing people who use cash? Keeping large drawers full of valuable paper isn’t cheap, nor is insuring it against theft, hiring armored cars to move it around, etc.

There’s a lot of hand wringing about credit card users being subsidized by other customers. If it were that significant, we’d expect to see a lot of stores only accept cash and compete with other stores by offering lower prices. In my experience, cash-only stores are extremely rare.

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I live in Seattle. I bring cash for cash-only businesses.

In my experience, cash-only stores still exist. Stores that like cash are very frequent.

There's a lot of hand writing about cash users being subsidized by other customers. If it were that significant, we'd expect to see a lot of stores only accept credit card and compete with other stores. They would just be losing a few percentage points of revenue from transaction fees...

Cash-only stores certainly exist. I can’t remember the last time I’ve seen one in the US. I think I ate at a hole-in-the-wall cash-only restaurant in DC a couple of years ago.

Nice attempt to turn my phrasing onto me, but I’m not actually claiming that cash users are being unfairly subsidized. Rather, I’m arguing that cash also costs, and the difference between cash and card (whichever way it goes) evidently isn’t all that important.

Just because it's minor doesn't mean it's nonexistent. I think it's fair to say that cash subsidizes cards, and the other cards subsidize AmEx. Stores should be free to pass on the transaction fee, it's not fair that processors can hide it.

My apologies. I did misunderstand that.

I don't necessarily agree, but it's an interesting thought. I've never considered the cash overhead before.

I've encountered several cash-only restaurants over the years. Some in NYC and even a few in my area. The local one that stands out in my mind is a combination of the restaurant being extremely good and reasonably priced, so there's always a long waiting line. There's also the "cash discount", which my dry cleaner offers. And I can't tell you how many house contractors will charge less (sometimes substantially less) if you pay them in cash.

Don’t know about NYC, in other places (eg. Italy) cash payment is attractive to the stores because it can remain hidden to taxation. Restaurants particularly like cash because of two reasons: 1. Food is perishable, it’s easier to justify discrepancies between food bought and revenue. 2. They often pay workers under the table.

I once naively asked why so many ice-cream vans were based in the UK council housing estate where I grew up.

It was pointed it out that it was the perfect tax-free income mechanism; no vendor certification or registration, no fixed property, minimal ingredients, cash transactions...

I have been to cash only bars (think neighbourhood pub), donut, and pizza shops in the bay area this year. there are plenty still.

> I can’t remember the last time I’ve seen one in the US

Confused... I've been all over the US and every city has tons of cash-only stores. Especially smaller cities and towns. It wouldn't surprise me if half of the independent delis in the US are cash only. I'm guessing you live and spend most time in a suburb?

I am in a suburb, but I spend spent of time (and credit card money) in urban and rural areas.

In fact, most of the Chinese take-out restaurants still prefer cash payments than cards; for the rare ones that do take cards, they require a minimum charge of $10-$15.

There are a bunch of card only cafes in a kind of gentrifying neighborhood by me.

I've always assumed cash-only businesses are up to something mildly shady, like tax evasion (local example, Paseo).

Also, I've encountered a couple card-only businesses lately (local example, Optimism Brewing).

Paseo is an immigrant restaurant in a very expensive neighborhood.

I'm not sure they would be able to stay open if 2-5% was cut off their revenue. It's just money; not a conspiracy.

Amazon doesn't take cash, they seem to be crushing everyone else.

Its not uncommon to encounter credit card only merchants in my experience.

Often cash only stores where I live like cash because they don't report it on their taxes.

If only 5% of your sales are in cash, you nearly all the expenses of storing, securing and transporting cash.

So if 50% of sales are in cash, it doesn't cost you 10x more.

But every incremental credit card transaction costs another 3%.

So you can't argue that cash customers are subsidized by card customers when cash costs are relatively fixed while card costs scale linearly with volume.

Completely false. There is a huge difference in what an insurance company will insure your business for if you regularly hold $500 vs. $5,000. Cash is a huge liability.

Also, I can store $500 in a locked drawer or I can comfortably bring it home with me. $5,000 would need a safe bolted to the floor. And if you have a safe, now you need a camera to watch the safe. Say you now want to hold $50,000. Now you need a bigger safe and more cameras.

Cash does not scale at all.

Any references on the insurance risk?

Uh, literally any commercial insurance? You get categorized into a risk pool depending on whether you handle cash or not, and how much cash you store overnight. Google “commercial insurance”, there’s usually a section for Theft and Counterfiet of cash risk.

If the references are so trivial to find, perhaps you might present one?

I find numerous results on procedures. None obviously addressing premiums.

Though the notion does seem likely.

https://duckduckgo.com/?q=cash+handling+business+insurance+r...

I mean, it's just a basic tenant of commercial insurance. If you hold lots of cash, you are at a higher risk for theft. This is evaluated when you are in the process of acquiring commercial insurance. You basically just asked me for a reference for whether or not you get wheels when you buy a car. Of course you get wheels, you just need to work with the dealership to determine what they look like!

Just to give you a reference, here's a special package Nationwide offers: https://www.nationwide.com/crime-insurance.jsp

Thanks, and to be clear, again, I'm not doubting you. I'm looking for a referenceable source. A peculiarity of mine.

Taking another angle: what's your familiarity with this? Operating a small business or insurance firm yourself? Conversations?

Investopedia's list of business mentions numerous concers.

Cash handling isn't among them, though embezzlement controls are.

https://www.investopedia.com/articles/financial-theory/09/ri...

Cash is probably cheaper than the 2-5% the credit cards charge. And you don't have to sign thousands of words of legalese that restricts your speech and your pricing freedom.

A store can't compete on the 2-5% difference in price because it isn't enough of a persuasion on each small individual transaction, even though it's a huge percentage of the business cost when taken together.

the nash equilibrium is weird.

Customers are incentivized to carry credit cards because of cash back rewards, need for a short term loan, convenience of not having to carry cash, and fraud protection.

Merchants are incentivized to accept credit cards because many potential customers carry little cash because it is inconvenient.

And in all this, we are implicitly paying a 2-3% tax for everything we buy that goes straight to the credit card companies.

mikeash makes a different point, one I often make: accepting cash is not free. It's a physical item that can get lost or stolen, which means it needs significant physical security when storing or transporting. There are card-only stores, and I imagine the reason is how much is simplifies their physical logistics. (No need for cashing out drawers at the end of shifts, no need for safes on site, no need to pay a company to transport cash to the bank.)

How much does that cost the consumer? Is it less or more than the "tax" what we pay to the credit card companies?

I'm reasonably confident I lose, burn, have stolen from me, or otherwise fail to enjoy the benefit of far less than 2 of every hundred dollars in my wallet.

That's just not living. Try smoking a Jackson some time.

What's a Jackson? A twenty dollar bill?

It is.

Not to mention the significant fraud risks when dealing with cash.

Many years ago I worked retail. A few minutes after I sold something to a man, he came back to my counter angrily. He said I'd given him change for a $20, but he'd given me a $50. I was quite certain he'd given me a $20 and he was trying to steal from us. This is not a pleasant situation to be in, and it wouldn't have been possible if he'd paid with a card.

Don't debit cards give much of the same benefits for both parties as CCs, and aren't they much cheaper to process? I know sometimes their can be a buyer fee associated with a debit card but I've never had one that did. My bank card can be used as either. I use debit when given the option specifically because I thought it was cheaper for sellers in most cases.

Debit cards don’t offer insurance and fraud and purchase protection to the same extent or at all at least in Europe.

Reversing a card transaction on a CC is one call away on debit GL with that.

it's illegal to offer cash discounts, for shop keepers, so everyone is forced to pay for the credit card fees, even if they just want to pay with cash. People should have the right to choose and shop owners should have the right to choose. I don't see how this crazy law isn't being challenged by the courts.

It’s not illegal. It is against the terms of credit card agreements, and you could make the case that there isn’t enough competition there. They seem to have at least some loopholes, as I’ve seen quite a few places either offer cash discounts or require additional fees for card payments.

I doubt it costs 2% of the cash value to store and secure it.

According to this random study I googled up, it is in the neighborhood of 2%: http://fletcher.tufts.edu/CostofCash/~/media/Fletcher/Micros... (PDF, per transaction costs of cash are discussed on page 25.)

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