Forget “legal tender.” “We’re focused on putting cash out of business,” Visa’s new CEO Al Kelly said on June 22 at Visa Investor Day. Pushing consumers into digital and electronic payments is the company’s “number-one growth lever.” Visa has been dogged by the stubborn survival of cash and checks, despite widespread government and corporate efforts to kill them off. Globally, check and cash transactions totaled $17 trillion in 2016, Visa President Ryan McInerney said. Confusingly, that’s up 2% from a year earlier. So today, Visa rolled out a new initiative on its war on cash. It’s designed “for small business restaurants, cafés, or food truck owners,” and the like. In this trial, it will award up to $10,000 each to 50 eligible businesses (online businesses are excluded) when they commit to refusing cash payments. Going “100% cashless,” as Visa calls it, means that consumers can only pay with debit or credit cards or with their smartphones. That’ll be the day. You go to your favorite taco truck, and when it comes time to pay, you pull out a wad of legal tender, only to be treated to an embarrassed nod toward a sign that says, “No Cash.”
But Visa hopes that other folks will pull out their Visa-branded card or a smartphone with a payment app that uses the Visa system. This would help Visa extract its fees from the transaction.
“We have an incredible opportunity to educate merchants and consumers alike on the effectiveness of going cashless,” Jack Forestell, Visa’s head of global merchant solutions, said in the press release, which touted a “study” that Visa recently “conducted” that “found that if businesses in 100 cities transitioned from cash to digital, their cities stand to experience net benefits of $312 billion per year.”
However dubious these “net benefits” may be, one thing is not dubious: Visa gets a cut from every transaction made via Visa-branded cards or digital payment systems that use Visa. The merchant pays the cut and then tries to pass it on to customers via higher prices.
The total card fees normally range between 1% and 3%. Among the entities that get to divvy this moolah up are the bank that issued the visa card and the credit card network, such as Visa, MasterCard. Visa gets just a small piece of the pie, but if it is on every transaction, it adds up. And payments by cash and check seriously get in the way of a lot of money.
In 2016, Visa extracted $15 billion from processing transactions globally without even carrying any credit risk (the banks have to deal with that).
“To Visa, a cashless culture means convenience, security and ease of use. That translates to freedom for consumers and merchants alike,” said Forestell.
To rephrase: To Visa, a cashless culture means more revenues and more data collection on consumers. That translates to bigger compensation packages for Forestell and et al.
And for consumers, it translates to loss of privacy and higher prices. And for merchants it translates to higher transaction costs.
“The idea that merchants don’t want to accept cash is a myth,” Mallory Duncan, senior vice president and general counsel at the National Retail Federation, told the Wall Street Journal.
To make that no-cash policy go down more easily, Visa is willing to award eligible merchants $10,000, but not in cash. Instead, Visa would pay the merchant to upgrade the checkout technology to be able to handle contactless payments via smartphone and to help with marketing expenses.
“We’re really viewing this as the opening salvo,” Forestell told The Journal.
Visa accounted for 59% of purchase volume on US general purpose credit and debit cards in 2016, compared with MasterCard’s 25%, according to the Journal.
Visa has been desperately trying to get its tentacles into payments that consumers typically make via cash, such as parking. Hence the “smart meter” with a card reader. They’re all over San Francisco.
The rate changes depending on whether there is high or low demand. As aggravatingly expensive as parking is, it’s just peanuts.
So Visa is trying to go where the big bucks are, such as rent payments. But it’s an uphill battle. Landlords would be nuts to accept to pay a fee on such large amounts when there are free forms of payment available, such as checks and now-a-days automatic payment by the tenant’s bank.
And Visa is trying to get its foot deeper in the door with governments, where the government pays the fee. The Journal:
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.
In the US, you can pay the government with credit cards for many things that used to be paid for by check or direct bank transfers, such as taxes and penalties, to the greatest enjoyment of the entire credit card complex. But the IRS uses payment processors that charge taxpayers a fee, while checks are still free.
There is much to be said for switching to electronic payments to handle long-distance transactions, if the transaction costs are low. And electronic payments are useful for all kinds of other things. But standing in front of your favorite taco truck and being denied a taco because you insist on paying with what is still legal tender in the US is hard to swallow – especially since the only motive behind it is the profit-motive at Visa, which will result in higher taco prices, which make it even harder to swallow.
This is when the ocean of hype turns toxic....