The most comprehensive study to date, It All Adds Up — An Activity Based Cost Study of Retail Payments reveals that electronic payments today account for an even higher portion of the dollar volume of grocery transactions at 30.8 percent
Using the accounting tool known as activity based costing, this new study documents all the expenses associated with each transaction at retail — both direct and indirect, including labor, overhead, bank fees and other costs that do not ordinarily show up on balance sheets.
According to Mark K. Webster, partner, PriceWaterhouseCoopers, “Not surprisingly, the study shows the increasing consumer acceptance of debit and credit cards for retail transactions.
One of the advantages of an ABC study such as this one, is the ability to identify underlying cost elements and determine which ones can be successfully controlled. By developing comprehensive benchmark data for the industry, FMI has provided its members with a tool they can use to identify internal opportunities for improvement and to track their progress.”
Highlights of the study include:
- The electronic transactions involve online debit cards (12.5 percent), credit and off-line debit cards (11.5 percent), and electronic benefit transfer payments (1.3 percent).
- The use of cash remains the preferred payment method at 39 percent, but that figure is down sharply from 59.3 percent in 1997. In addition, many consumers continue to use checks (33 percent), which account for half the transaction dollar volume (50.6 percent).
- The costliest transactions involve credit and off-line debit cards in which the purchase amount is not immediately deducted from the customer’s bank account.
- The typical credit or off-line debit card transaction costs grocers 72 cents, according to the study. This figure is at least twice as high as payments by check (36 cents), online debit cards (34 cents) and food stamp coupons (35 cents). Of that 72 cents, the study found that about 80 percent covers settlement costs, largely the transaction fees that financial institutions charge retailers.
“There are challenges with technology advances that we must realize as well. For example, the fees for off-line debit transactions can be “outrageously high,” said Jacki Snyder, chair of FMI’s Electronic Payment Systems Committee and manager of electronic payment systems at SUPERVALU INC. “The fees can be as high as 1.2 percent of the transaction amount, which effectively wipes out the grocer’s profit.”
Snyder added, “Retailers who want to examine these increasing operational costs can use this research to better identify the expenses that can be managed and controlled.”
Online Debit May Be Best Electronic Payment Method for Industry and Consumers
This study also shows that of the current alternatives,” Snyder said, “online debit appears to be the best electronic route for the industry and consumers. This type of transaction is fast and secured by the customer’s PIN (personal identification number). The lower costs for on-line debit allow merchants to control costs for consumers and it offers consumers the benefit of receiving cash back at the point of sale.
Webster of PriceWaterhouseCoopers pointed out, “From a retailer’s point of view, one of the key findings of the study is that while debit cards are already cost competitive with checks, many of the key components of debit card costs, such as labor, are directly controllable by the merchant, compared with check costs, which have grown significantly in recent years.
Participating in the study were 16 corporations and 36 stores. The study sample represented all the major regions of the country and all company sizes, including small independents and regional and national chains.
To order a copy of It All Adds Up — An Activity Based Cost Study of Retail Payments, click below or call FMI Publications and Video Sales at (202)220-0723.