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Credit, Debit, Cash or Check?

Willy Street Co-op Owners tend to be a curious bunch. When picking up a bar of chocolate, you may examine the packaging to figure out if it is Fair Trade, how much cacao it has, if it is single origin, if it’s organic, etc. While not every Owner scrutinizes items at that level, there is a lot of label reading in the aisles. This reflects our general desire to be informed about what we are spending our money on.

When deciding whether to pay with cash, check, debit card, or credit card for our well-thought-out purchases, we all probably have personal preferences but may not know the associated costs. How could we know? We cannot turn over our credit card and see a clear depiction of the transaction fees and how those fees are being used. If you could, though, your personal preference may change.

The balance of this article will hopefully leave you better informed of these costs. However, before I get into the gory details of the different tenders, I’m going to break the suspense and share my conclusion. Whenever possible:

  1. pay cash, especially for purchases under $10.
  2. avoid using credit cards, especially rewards cards.

Cash, check, and debit cards

As you can see in Table 1, cash is the preferred form of payment, especially for small purchases, but check and debit cards aren’t that far behind. The benefit of these three forms of payment is that transaction costs are fixed regardless of the purchase amount. Whether you buy $1 of goods or $100 of goods, a debit card will only ever cost the Co-op $0.30.

Credit cards

As I researched credit cards, I found three surprises that I think you should know about.

  • Surprise #1: The amount the merchant pays in transaction fees vary based on the type of card. Rewards and corporate cards are the most expensive types of cards. As you can see in Table 2, the cost to the Co-op on a $50 purchase can range from $0.42 to $1.00. The Co-op, like all other merchants, has no ability to negotiate the fees paid to Visa or MasterCard.
  • Surprise #2: Only 13% of the transaction fee that the Co-op pays to MasterCard or Visa pays for the actual processing costs. 44% of the fee pays for rewards programs. 3% pays for marketing expenses. 35% pays for other costs and profit margin. (source: Diamond Management & Technology Consultants)
  • Surprise #3: In 2007, 73% of U.S. households received on average 5.5 credit card offers per month. In total U.S. households received 5.2 billion new credit card offers in 2007. (source: Synovate Mail Monitor)

Summary and my New Year’s resolution

The grocery industry is a penny business, meaning that we aim to achieve only a couple of cents of profit on every dollar spent by customers. As such, every penny counts. Therefore, it makes a significant difference whether the

Co-op pays $0.30 in transaction fees on a $50 purchase or it pays $1.00! I am sure it makes a big difference to your other favorite merchants as well. Debit and credit card fees add up quickly. For the current fiscal year, we are budgeting for $170,000 to cover these fees.

So, next time you reach into your wallet and choose between cash, check, debit, or credit, consider the costs discussed here in addition to the myriad of other factors you consider. I, for one, am going tobe more intentional about how I pay for my goods and services. To that end, I am making the following New Year’s resolutions.

  • I am going to keep enough cash in my wallet so that I can support local merchants by paying cash for purchases under $10.
  • I have considered getting a credit card with a rewards program. That is no longer an option.
  • I am also going to reserve my credit card for emergency purchases only.

References and resources

If you want to learn more on this topic, you may want to explore some of the following links:

  • Diamond Consulting (
  • Synovate Mail Monitor (
  • “The Cost of Tender,” Willy Street Co-op Reader, 10/2005 (
  • “Paper or Plastic,” Willy Street Co-op Reader, 03/2007 (