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Most grocery stores and Walmarts I've been to ask you how much cash back you want as one of the steps you punch in after you swipe your credit card. This happens after you have swiped your card so they know if it will be a credit or debit transaction. You pay $X extra, and receive $X in cash from the cash register with no fee.

Since the store has to pay a fee (e.g. $0.10 + 2% of the transaction amount) to the credit card company, why do they bother to put that option in front of your face? From the perspective of a corporation, the attention millions of people give to that screen as they complete their purchase is extremely valuable. Why wouldn't they at least offer some product/service that would earn them money?

Philip
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6 Answers6

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The only card I've seen offer this on credit card purchases is Discover. I think they have a special deal with the stores so that the cash-over amount is not included in the percentage-fee the merchant pays. (The cash part shows up broken-out from the purchase amount on the statement--if this was purely something the store did on its own without some collaboration with Discover that would not happen).

The first few times I've seen the offer, I assumed it would be treated like a cash-advance (high APR, immediate interest with no grace period, etc.), but it is not. It is treated like a purchase. You have no interest charge if you pay in full during the grace period, and no transaction fee. Now I very rarely go to the ATM.

What is in it for Discover? They have a higher balance to charge you interest on if you ever fail to pay in full before the grace period. And Discover doesn't have any debit/pin option that I know of, so no concern of cannibalizing their other business. And happier customers.

What is in it for the grocer? Happier customers, and they need to have the armored car come around less often and spend less time counting drawers internally.

jjanes
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Cash-back also lets the store turn hard currency into an electronic transfer or check, which reduces the hassle/risk of hauling bagfulls of cash to the bank.

(The smaller stores I've spoken to have called this out as a major advantage of plastic over either cash or checks. I'm assuming that the problem scales with number and size of transactions.)

keshlam
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It doesn't cost them anything, they don't pay commission on you taking cash-back. But it brings customers to the stores because these customers would rather buy something and use cash-back to get cash, than go to an ATM and pay the ATM commission.

littleadv
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The cost to the store is small. They may have to pay a slightly greater fee because the transaction is now bigger. They do need additional cash on hand. Even though the majority of transactions are electronic (credit/debit) or check, the local grocery store still seems to have significant cash on hand.

This is seen as a customer service. If there is a 2% fee the $50 advance costs them $1 for the minority of customers that take advantage of it. After more than 10 years of doing this they have figured this into the cost of groceries.

Of course the credit card company could also waive the fee to store. My credit card online statement does tell me how much cash back was received. The line says date, store, amount ($40.00 cash over and $123.45 purchases) $163.45 total. Therefore the credit card company knows that cash back was used.

mhoran_psprep
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Cash back from credit cards is handled separately than the rest of the purchase, i.e. interest begins accumulating on that day, and likely at a higher rate, and usually comes out of a lower limit than the credit allotted to that card.

Given all these differences, and the obvious revenue-generation situation for the lender, it makes sense for them to give the store an incentive, rather than penalize them further, for the use of such a feature.

Note: I am not privy to the inner-workings or agreements between large stores and credit lenders, so I cannot guarantee any of this.

user2813274
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The reason is, stores want customers to use cash.

By giving us cash, we are more likely to use cash next time.

I feel a little guilty when using my bank card at the store because I know I'm giving about 2-3% of the sale to the bank. Unless I don't really like where I'm shopping (ie Walmart), I try to use cash if I have it. I doubt these large stores pay extra for supplying the cash portion. They just need to keep the cash onhand.

In other countries, do they not mind paying banks a percentage of each transaction? That's a huge loss for retailers. (I also heard tipping isn't popular in some countries, maybe the lack of regard for vendors is related somehow??)

Oh, plus, it's a value added service. A customer is more likely to return to a store if they provide this service.

Dave
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