Comparing the Hidden Costs of Cash vs. Cards
Part 1 in this article series explored the various costs to the merchant associated with accepting credit cards. In this part, we pivot and take a closer look at cash acceptance costs.
Insight – Card swipe fees have grown to become one of the largest operating costs for retailers, but they are still materially lower than what many retailers silently pay to handle cash.
It is now costing the American household about $1,200 a year, as the merchants pass on the costs to the consumer in the form of higher prices.
Worse yet, the swipe fees represent the second largest cost to the Retailer after labor!
Swipe fees currently sit at an average of 2.35% of the transaction value, which is hard to accommodate in some Retail segments. In the convenience store segment, swipe fees are now at a similar level, or even higher level, than the profits the gas station makes from selling fuel!
That’s driving lobbying for increased competition. In 2010, the Durbin Amendment, part of the Dodd-Frank Act, placed limits on the interchange fees, but for debit cards only. Recently, merchant coalitions were lobbying the government for similar regulation on credit cards, and a proposed piece of regulation, the Credit Card Competition Act, is currently in review by the Congress.
In Europe, the EU had already rolled out legislation (called the Interchange Fee Regulation) at the end of 2015 capping debit card interchange at 0.2% and credit card interchange at 0.3%.
With this backdrop in mind, let’s turn our attention to cash acceptance costs.
Research Around Cash Acceptance Costs
There are many studies around the cost of cash (in more than one geography), but my favorite by far is the one published in 2017 by IHL Research and conducted by Greg Buzek. Although it is a relatively old study now, the results are still relevant in percentage terms (I will explain why later), especially when compared to card swipe fees (which are also percentage-based).
Insight – Industry research shows that manual cash handling costs average about 9.1% of cash revenue, revealing that “cash is free” is a myth for most retail segments.
Let’s go over the research. But first, let’s start with some definitions.
DEFINITIONS
IHL’s research spanned a wide range of Retail segments, and they are defined in Table 1 below.
Table 1. Retail Segments Analyzed by IHL Research in Cash Costs Study
Insight – Different retail segments experience vastly different cash management costs, driven by lane density, ticket size, and process maturity, which naturally group into low-, medium-, and high-cost “buckets.”
IHL surveyed the above segments for manual cash costs, measuring the following cost categories defined in Table 2 below.
Table 2. Categories of Costs in Manual Cash Management in Retail
Insight – Most of the manual cash cost comes from labor-intensive activities such as starting/closing drawers, preparing deposits, and coordinating banking/CIT, rather than from bank fees alone.
Note again that the above cost categories are for the purpose of manual cash management. There are of course cash automation technologies that, if adopted by a Retailer, might have shifted some of the definitions above. Take, for example, the deposit-only smart safes deployed by CITs. This would have consolidated some of the costs currently under Bank Charges in Table 2 above into the CIT category.
RESEARCH FINDINGS
The research found that the amount of cash transactions (industry gross in count) varied widely across the segments, with the Fast-Food category logging by far the largest count of cash transactions across that segment in a year. However, this metric is highly dependent on the number of outlets or stores in each segment. A better indicator of cash usage in a segment would be the percentage of transactions conducted with cash, which we will leverage from hereon.
The research found that the costs of cash management spanned a wide range across the segments, as can be seen in Table 3, which sorts the segments by percentage of transactions conducted with cash, and shows the average cost of cash management in that segment as a percentage of cash revenue.
Table 3. Percentage of Transactions in Cash and Costs
The variation in the percentage of transactions in cash can be expected given the demographics in each segment, as well as the average ticket price. Lower ticket prices are more likely to be paid with cash than higher ticket prices. And a segment that caters to demographics of all walks of life is more likely to see a higher percentage of transactions with cash than segments with Retailers targeting the more affluent.
Not surprisingly, therefore, Fast Food tops the list of the segments with the highest concentration of cash transactions. The affluent demographic is less likely to dine there, and ticket prices are on the lower side. Convenience is also a segment with a typical ticket price under $10. Department Stores, on the other hand, generally have a much higher ticket price and that would explain it being the segment with the least concentration of cash transactions.
But what is surprising is the vast difference in cash management costs across the segments. Grocery is the lowest (adopting efficient processes), while the Restaurant industry has the highest cash management costs. IHL attributes this high cost in the Bar/Restaurant industry to the time spent by waiters and waitresses handling cash payments by patrons, shuttling between the table (to collect the money), the cash register, and then back to the table to return the change. IHL points out that each segment has a different significant contributor to its cash management costs.
Table 4 rearranges the segments in descending order of cash management costs.
Table 4. Retail Segments Sorted by Cash Management Costs
This rearrangement lends itself to a potentially useful classification of the Retail segments into 3 buckets:
- The “green” bucket: stores with a large lane count, and a high volume of transactions annually (double whammy!), with a good portion of purchases with ticket prices $25 and under (many people visit those stores to grab only a few items during the week). This segment historically has been forced to institute good cash management processes (due to the above factors), and “enjoys” the lowest cash management costs of all.
- The “yellow” bucket: cash management costs in this segment are higher single-digit and within a close range of each other. These are businesses that have a relatively lower ticket price, stimulating payment in cash (Target probably skewing down the % cash transactions in the Mass Merchants segment). But these are also business with a relatively lower count of tills (lanes). IMO, the fact that Convenience and Drug have a higher rate of cash management costs is due to the fact that those stores typically have a policy stipulating maximum amounts of cash at the till at any time (due to threat of armed robbery) and therefore the pickup rate in the segments by the manager is higher than that of the Mass Merchants category. The Retailers in this bucket have historically not had to institute advanced cash management processes.
- The “red” segment: this is the segment where cash management costs are greater than 10% of cash revenue. We’ve already explained the reason why the Bar/Restaurant segment has high costs. Fast Food’s costs are higher probably because of the acute concentration of cash transaction intensity into a small count of registers (1-3 typically). The other Retail segments have a lower percentage of transactions in cash than Fast Food and Bar/Restaurants and so have not historically had to focus on efficient cash management processes.
Now, let’s look at (manual) cash management costs.
Breaking Down Manual Cash Management Costs
Across all segments, the cost of cash management is ~9.1% of cash revenues (see Table 3 above), which is very high relative to card swipe fees. Since the devil’s always in the details, let’s look at the different cost categories of cash management, which were defined earlier in Table 2. Figure 1 is a direct extract from the IHL report.
Figure 1. Manual Cash Management Cost Factors – 2017 Findings
But before we progress any further, let’s address the objection that this is old data (from 2017 research).
Short of recommissioning this research again in 2026 (we’re in December 2025 already), there’s no way of knowing what these values are for sure today. However, we can rationalize a directional movement for each of the cost categories in Figure 1 above since 2017 (i.e. for 2026).
Since 2017, cash transactions as a percentage of Retail transactions must have dropped down significantly. That’s because cash’s share as an instrument of payment vs all other payments dropped.
In another article entitled “Should You Enable Cash Payment at Your Bill Payment Kiosk”, we started answering this question by understanding demographics and the use of cash vs. other instruments. We referenced findings from the US Federal Reserve’s 2025 report entitled “Findings from the Diary of Consumer Payment Choice”. Figure 2 below recalls a chart relevant to our current topic.
Figure 2. Share of Payment Instrument Use for All Payments
IHL’s findings in 2017 showed cash’s share of Retail transactions was 30%. This is spot on with the older Fed findings, as shown in Figure 2 above (cash share at 31%). Figure 2 shows the share of cash in transactions dropped to less than half in 2024, at 14%, and it is not too risky to expect this share to drop by another 2% going into 2026. So, for the purpose of the analysis that will follow, and to use “round” numbers, let’s assume that the share of cash from the 2017 IHL report to 2025/26 has dropped in half (it dropped a little more than that).
With this backdrop, let’s rationalize whether each of the manual cash cost categories listed in Figure 1 above stayed the same (as % of cash revenue), went up, or went down. Table 5 below summarizes our assessment, with the rationale provided thereafter.
Table 5. Summary of Assessed Changes in Cash Cost Categories
Here’s the assessment for each cost category:
- Start/Rebuild Drawer: Typically, Retailers start drawers with a fixed amount of money (change in notes and coins). This activity also requires some paperwork to be filled by the store/cash manager. Neither of the two elements of starting a drawer gets impacted by a lower number of cash transactions. Furthermore, it is not expected that a Retailer would reduce the amount of lanes that accept cash or designate cashless-only lanes (very few do). So, in general, the time consumption in starting drawers is not expected to reduce with time. However, we all know the cost of labor has inflated significantly since 2017. With a higher cost basis (think: numerator) and a lower cash revenue basis (think denominator), it is expected that, on a percentage basis, the cost of starting a drawer has gone up.
- Close Drawer: Closing a drawer involves some paperwork activity, which does not change with the amount of cash in the drawer. However, the task of counting the cash in the drawer does get easier with less cash in it. We would have to assess the amount of time (seconds) spent counting notes vs. logging in everything into the paperwork. Chances are the task of counting the notes is a smaller part of the overall time spend closing the drawer. Moreover, many Retailers leverage desktop note counters to help the cash manager. With counting speeds of 12 notes/second for modern counters, trimming the amount of cash counted is going to save no more than mere seconds. Couple that with a significant increase in labor costs since 2017, and a halving of the cash intake (the denominator, the most significant factor here), and we assess this cost category as going up (at least slightly) on a percentage basis.
- Prepare/Coordinate Deposits: We follow the same logic for this cost category as in the Close Drawer one.
- CIT/Deposit Costs: Retailers have a regular cadence for CIT visits to pick up the cash, or for the manager to walk to the bank to deposit them. Labor costs have gone up simultaneously with a reduced quantity of cash being deposited. This cost is expected to have gone up on a percentage basis.
- Bank Charges: Some elements of this cost category would have scaled back commensurately with lower cash intake (e.g. processing fees, procurement of change), but other elements (like account and other monthly fees) would have gone up on a dollar basis. That, coupled with a reduced cash revenue base, would have driven this cost category up on a percentage basis.
- Pickups: The frequency of picking up excess cash from the open tills is directly correlated with the amount of cash coming in. As less cash is coming in vs 2017, the frequency of pickups should drop. Sure, the drop wouldn’t be perfectly linear with the amount of cash reduction (i.e. a register that is overflowing with $100 will require an emergency pickup the same way a register that is overflowing with $300), but since this is a large universe of Retailers, a perfectly normal distribution is expected. We can safely model this cost category to remain constant on a percentage basis.
- Change Orders: The direction of this cost category should follow the exact same logic as that of Pickups above. We expect this cost category to remain constant on a percentage basis.
- Cash Loss: You’ll hear much press out there that shrink in these difficult times has gone up. But most of the shrink is product shrink, with the press around increased shrink mentioning the Self-Checkout side of the cash wrap as a strong driver. With less cash coming in, there should be fewer bills stolen, but, especially in the current tough economic climate, cash shrink is not expected to go down. At a minimum, we can assume it will stay the same on a percentage basis.
- Audit Discrepancies: Since cash disappearing is what generally triggers audits, we can assume that this category follows the same direction as the Cash Loss one. Sure, there might be human errors in logbooks and ledger tracking, but if anything, these don’t depend on cash intensity. At a minimum, we can expect this cost category to stay flat on a percentage basis.
Since 2017, some of the cost categories are expected to have stayed constant on a percentage basis, but most of them are expected to have gone up. More importantly, it is more the highest contributors to cash management cost that are expected to have gone up.
In Conclusion…
Manual cash management costs across Retail were already quite high, at an average of 9.1% of cash revenue in 2017. We’ve shown that, while the research has not been renewed in 2025, that cost % would have probably gone up. At an average card swipe fee of 2.35%, it is natural, therefore, that Retailers (at least the corporate types) prefer cashless payment.
However, cash automation completely changes this dynamic. More on that in Part 3.
More Resources
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Executive Preview: Parts 3A & 3B (Premium Analysis)
In Parts 1 and 2 of this series, we examined the headline costs of accepting card payments versus cash — including swipe fees, manual cash handling, and why average cash costs are often cited at ~9% of cash revenue.
That comparison, however, is incomplete.
In the final installment of this analysis (Parts 3A and 3B, available as a paid executive PDF), we step beyond averages and examine how payment costs behave operationally — and how those costs change once automation is introduced.
What the Premium Analysis Covers (Not Available in Free Articles)
Part 3A – Rethinking Manual Cash Costs
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Why incremental cash often costs far less than total average cash percentages suggest
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Which cash management activities are effectively fixed or embedded labor
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How internal labor vs. external cash outlays distort many cost models
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Why owner-operator (“mom-and-pop”) economics expose flawed assumptions in enterprise modeling
Part 3B – How Cash Automation Changes the Equation
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Where cash automation actually removes cost — and where it does not
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Back-office vs. lane vs. SCO automation economics
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Net cash acceptance cost after smart safes, recyclers, and SCO cash modules
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When automated cash can cost less than card acceptance — and when it won’t
What Executives Get
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A vendor-neutral decision framework for evaluating cash vs. cashless strategy
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CFO-level tables and summaries suitable for internal review and planning
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Practical guidance by store format (QSR, convenience, grocery, retail)
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A clear explanation of when automation flips the cost equation — and when it does not
This is not marketing content.
It is decision intelligence designed to help finance, operations, and payments teams reassess long-standing assumptions with current data.
To pre-order with discount contact [email protected]
