Don't compare the cost of money with a CD rate, but with the expected ROI for VC investors - you won't get cheap funding in the amount you need; intentionally shortening your runway by 3 full months will bite a noticeably hole right in your equity.
The problem with cash reserves is that they hold cash for product you have already delivered, a 90-day 100% rolling reserve means that you are effectively extending net-90 terms for all of your customers. You're issuing credit, but not collecting any interest on it, while you have to pay your own vendors and other service fees/employees in the mean-time.
Another side-effect of this is running negative cash flows when your business surges. Say your business booms around the holidays, to meet the demands, you place larger orders with your vendors, and thereby incur larger costs - but have to pay them out of reserves from a slower period in the year. You cash flow for that ninety days around the holidays would be substantially negative (you've paid out a lot more than you've paid in), and the interest you may have to accrue from your vendors to float until disbursement may greatly exceed the nominal transaction fees you'd pay if you didn't have a 100% rolling reserve.
Generally speaking, I've always found higher fees (up and to a point) to be better than higher reserves. If you can combine just-in-time manufacturing (or purchase) with credit terms from vendors, you can "play the float" wherein you're paid today for something you don't have to pay for until a month (or, in reality, as much as 59 days later on a net-30 account) down the road. This is very effective at the beginning of the year for LLCs where members need to distribute all profits at the end of the year to members due to taxes being due, and minimizing the re-capitalization of the business to get through the 1st quarter.
Merchants want zero fees, and instant payout (like cash), but "wait a minute" you might say. Don't businesses pay taxes, and how do you think those tax dollars are spent (in a non-gov't shutdown state)? Partially keeping the dollar bill presses running.
Herein lies the problem. Cash is a government-run operation, and credit card networks are privately owned. We forget that our cash system doesn't run itself and isn't free to operate, so we take cash for granted, and undervalue or ignore the "interchange" fees.
By changing their perspective, merchants might see that zero fees is unrealistic. It's an unfortunate(?) consequence of leaving the bartering days behind, and joining a money economy.
Given a choice, there are lots of (big) businesses who would switch to debit/credit exclusively if that was an option, especially with the existence of branded credit cards. Home Depot would love nothing more than having all its customers using the HD credit card.
Actually, it makes a huge difference:
1) I pay property taxes on all inventory held on the shelf at the beginning of the year
2) I can offer a discount to move product off of the shelf now at a lower rate (equivalent to paying a higher transaction rate) to achieve actually present cash-flows
3) I can write-off inventory that sits on the shelf too long and depending on my accounting method, I may have to claim income on a sale today, even though I haven't been paid yet.
> % on month > 36% APR b/c of network leverage and government regulations.
No, it's 3%. Period. Not 3*12, just 3%. Don't conflate accrual of interest with acquisition costs. That'd be like saying that since labor on production is 2% of COGS, firing everyone increases my yearly margin by 24% (at best, it would be 2%, if you could still produce). Consider that any method of capturing payment, whether cash or credit card, has an acquisition cost (time, money, labor, etc.). Paying a 3% fee on CC optimizes time and labor in exchange for money.
[edit] the thinking is, if your revenue is $100/year, then in (A) scenario with higher rate you pay $1/year more in fees; in (B) scenario with delayed funds you need a permanent loan of ~$25 which will cost you more than that unless you can get an APR of lower than 4%.