At Spice Alley in Sydney’s Chippendale, none of the restaurants accept cash.

Instead, the Malaysian, Singaporean, Vietnamese and Cantonese restaurants along the hawker-style alley ask customers to pay with their credit cards via tap-and-go.

The restaurants have eschewed cash from the day they opened in late 2015.

Marcus Chang, the CEO of Kensington Street Holdings which owns and manages the restaurants, explains the decision: “Let’s not accept cash because, particularly around food, it’s not very hygienic, and it’s easy for accounts and recording and ordering and safety.”

Kensington Street is one of a small but growing number of businesses around the world that have decided to stop taking cash. In the UK, supermarket chain Waitrose has opened its first cashless store; and Swedish salad chain SweetGreen only accepts card or phone payments.

The move away from cash is typically thought to be driven by financial institutions, phone companies, and consumer preference, but as the cashless shop trend shows, some retailers are also moving in the same direction.

At Spice Alley, along with the hygiene issue of not handling cash around food, going card-only also removes security concerns involved with having a lot of cash on hand and makes bookkeeping a lot easier. “There’s no shrinkage. Press a button and accounts spit out. We know what we’re ordering for the next day. There’s very little banking,” says Chang.

Customer reaction has been overwhelmingly positive. The restaurants, which handle about 2000 transactions per day only receive about one complaint every three months. (Customers who insist on paying cash have the option of loading a payment card at a pay station and using that.)
“Cash is king” for transactions under $20 – but this is changing

Cash still king for small transactions

Even so, cash remains popular in Australia. According to the Reserve Bank of Australia, in 2016, cash accounted for 37 per cent of consumer payments (by number) –compared to 52 per cent of payments made with cards. This is a considerable decline from 2007 when cash accounted for 69 per cent of consumer payments.

Mike Ebstein, a Melbourne-based independent payments consultant, says “cash is king” for transactions under $20 – but this is changing.

Interchange fees are wholesale fees set by card schemes such as MasterCard, Visa and eftpos that require payments from the merchant's bank to the cardholder's bank on every transaction.

Ebstein says many merchants prefer contactless transactions because they are less time consuming. About one-third of the cost to merchants of non-tap credit card payments is transaction time, he says.

There are looming changes to the interchange fee regime. These are wholesale fees set by Visa, MasterCard and eftpos but subject to overall regulation by the Reserve Bank. No credit card interchange fee will be permitted to exceed 0.80 per cent. These changes will particularly affect “premium” cards, where interchange fees can be as high as 3 per cent. No debit interchange fee will be able to exceed 15 cents if levied as a fixed amount or 0.20 per cent if levied as a percentage amount.

“These changes are expected to significantly reduce the extent to which small and medium-sized merchants are disadvantaged relative to preferred merchants in the MasterCard and Visa interchange systems,” the RBA said.

Later this year, the RBA will also limit the surcharge that merchants are allowed to put on card payment to the actual costs incurred.

Most merchants to pay lower interchange fees

Ebstein explains that for the majority of merchants, interchange fees are expected to go down.

“To the extent that there is currently some reluctance to accept cards or there is some surcharging, you may see reduced surcharging and a greater willingness to accept cards,” he says.

“What this should do is accelerate the extent to which cash displacement is taking place because, to the extent that overall fees are coming down, the costs to merchants (particularly in the smaller to mid-sized merchants) will come down. It will also help open up merchant categories like mass transit where today we don’t see the use of open loop card systems.”

At Spice Alley, Chang views card fees as part of the cost of doing business, and doesn’t pass it on to consumers. “It’s a very small amount. We absorb that,” he says.

Nonetheless, he is pleased to see interchange fees come down as he expects this to result in reduced card fees to merchants. “It’s a small difference but it’s a difference nonetheless,” he says.

While merchants who know about the change will be glad of it, many won’t even notice, says Tommy Wu, an analyst at business forecaster IBISWorld.

“The interchange system has always been quite complicated. With a lot of merchants, I believe a lot of them may not be even aware of these kinds of costs. So, they’ll just see the total bill that they might get from the bank. If you break it down to this transaction level, they might not even notice it,” he says.
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