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COVID is killing cash

The cashless shift accelerated by the pandemic could end up costing grocers big time

It has been about half a year since COVID-19 first caused us to take extreme measures to prevent its spread; unfortunately, it remains a serious disease that is far from under control worldwide. That means all the heroic grocery store workers in Canada, who have done such Trojan service for their customers by protecting them as they shop for groceries, must continue to sacrifice for many weeks to come.

As grocers have done everything in their power to minimize exposure to the virus (sanitizing carts and shelves, putting Plexiglass between cashiers and customers, enforcing social distancing, wearing masks and even bagging individual selections of produce), there is one more virus-related problem to worry about. That’s the unprecedented, rapid migration from using cash to using credit and debit cards.

Cash has become problematic, since there is a perception that handling cash can spread COVID-19. Customers are choosing instead to use their cards, especially those cards that can simply be tapped to complete a purchase. Some grocers themselves are reluctant to handle cash, even when wearing gloves, while some have abandoned cash checkouts entirely.

There are two major fallouts from the migration from cash to cards: the first is the added cost to grocers from processing fees imposed by the major credit card companies. The second is the incredible inconvenience caused to those people, many lower income, who do not have credit or debit cards.

Grocers certainly don’t want to turn away customers, but there is little choice when cash is no longer accepted. Those customers with cash only are forced to find grocers, convenience stores or specialty stores that accept cash, even though in some cases the goods at those stores could end up costing them more. It is not a happy situation.

As for the additional cost to grocers of accepting credit cards, we have documented the problem several times in recent years. When COVID-19 first struck, there was already a long-running standoff between grocers—particularly independents—and Visa and Mastercard. Grocers have long complained that the fees they are charged are unnecessarily exorbitant. With COVID-19 continuing to rage around the world, grocers, card companies and governments have all been preoccupied with fighting the virus and the debate over the fees has been put to the side.

In a recent opinion piece in the Toronto Star titled “Going cashless a boon for banks,” Gary Sands, senior vice-president public policy and advocacy at the Canadian Federation of Independent Grocers (CFIG), wrote: “It’s a fairly safe assumption the migration from cash to credit will be permanent ... Many Canadians are perhaps not aware that for the billions of credit-card transactions that take place across Canada, some $5 billion annually is siphoned out of the pockets of those businesses in interchange fees.” These fees provide a windfall to banks, credit-card companies and payment processors, he writes.

A new framework supposed to take effect this year would bring fees down to an overall average of 1.4%, which is “still indefensibly and inexplicably higher than what other retailers such as Walmart and Costco pay. It is also a rate far higher than that paid by businesses in other jurisdictions,” writes Sands. And it’s important to note that those reductions were announced in the pre-pandemic world. “The post- COVID-19 landscape will be a much different one and will clearly benefit the card companies in a way that could not have been foreseen even a few months ago. But COVID-19 should not translate into a win for credit. The card companies don’t need more. But small and medium businesses in Canada will,” Sands argues.

The federal government is clearly (and understandably) preoccupied right now with fighting the coronavirus and keeping the economy afloat. CFIG has testified before the finance committee about the card fees. So, for now, it seems grocers must balance continuing their heroic efforts in store with hoping the government hears them over the matter of these excessive transaction fees—and takes action.

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