Favorite movie rentals like Star Trek have long shown cashless societies, but consumers haven't been eager to give up the greenback in favor of electronic payments. Until now.
The American Bankers Association recently reported that credit cards and debit cards have surpassed cash and checks as the preferred method of payment for in-store sales. According to the ABA, 52% of transactions are now paid for electronically, with just 47% of purchases made with cash or a check. Cash has suffered the largest decline, falling from 39% of payments in 1999 to 32% in 2003. Debit cards, meanwhile, have seen the most growth, climbing from 21% of purchases in 1999 to 31% in 2003, with much of the growth believed fueled by small purchases such as fast food and video rentals.
Visa alone reports an increase in sales volume at video stores, from $652 billion in 2000 to $771 billion in 2002. Movie Gallery executive VP and CFO Steve Roy said that this represents a long-term trend at his company. "About seven years ago (electronic payments) were probably in 3%-4% of transaction volume," said Roy, "and today it's well over 10%." Likewise, a Blockbuster Video spokesman said that electronic payments increased 6% in 2002.
Even die-hard cash-only stores are having to surrender in the face of the plastic onslaught. "We're just now rolling out credit cards in our stores," said Gerald Pryor of Georgia's 66-store Video Warehouse chain. "We've had low rental rates, and we've always been a cash and carry business. But we've been getting customer requests for (cards)." In the stores that already accept credit and debit cards, "they're being used quite a bit," Pryor noted.
Tom Paine, owner of Video Factory, Redmond, Wash., has long accepted plastic, but he's seeing a big swing away from cash and checks, even in traditionally conservative rural areas. "I think there's a societal change," said Paine.
The shift presents challenges and opportunities for retailers. The biggest advantage, according to retailers and credit card companies, is that consumers who use plastic tend to make larger purchases, in part because they're not limited to the cash in their pockets. "It absolutely encourages customers to spend more without thinking," said the VSDA's Mark Fisher. "If a retailer can get a customer to rent one more tape or buy a bottle of soda or chips in the store, that little bit can make the difference between a very successful store and an average one."
More than one retailer told VB that they get benefits from handling less cash, including reduced losses from theft. Some report their bad check rates are declining. Customers like plastic because it gets them out of the store faster. Still, Fisher admits that he thinks of plastic as "a necessary evil." Credit card approvals demand a phone or Internet connection, plus hardware and software for handling cards.
While that can be a minimal to moderate investment, retailers must also pay a vendor a percentage of each transaction to settle the card transactions. Including all fees, retailers may pay 3% to 3.5% of the transaction to a settlement vendor in Paine's experience, and some stores are seeing those fees go up. "Our bank card fees have increased, double-digit increases over the past five years," said Paine. "It's a frequent topic of conversation among dealers."
Settlement charges decline as volume goes up, which is great for big chains but problematic for smaller operations. The VSDA negotiates a group rate for its member retailers, but even so, retailers find that they can sometimes get a better deal from local banks.
New technology also promises to make payment by plastic even smoother. MasterCard is introducing a proximity payment, or "tap-and-go" card, that doesn't have to be swiped. Visa is also working on a "swipe and go" system to speed customers on their way.
For more information, please visit http://www.videobusiness.com.
Copyright (c)2003 Reed Business Information. All Rights Reserved. Distributed by FluentMedia, a service of Tribune Media Services. Copyright (c)2003 by Tribune Media Services
