A post that has made the rounds on social media claims that €50 is not always €50.
In the post, the author claims whether you pay €50 in cash or with a card makes a difference. They argue that if a €50 bill is used repeatedly, it does not lose value. If you pay the €50 by card, on the other hand, you will be charged fees on a regular basis. The author then claims that after a certain number of transactions, nothing will be left of the €50.
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Is this claim true or false?
If you want to pay cash, you first have to get cash
If you give a banknote to another person, you don’t have to pay anything. If you withdraw cash from an ATM operated by the bank with whom you have an account, you will not be charged any fees. Your debit card is an exception because you had to pay for it when it was issued. In addition, you must pay your bank a yearly charge. If you use an ATM operated by a bank with which you do not have an account, you will normally be charged a transaction fee.
Cash or card? What does it cost the customer?
If you pay cash in a restaurant or store, you will not be charged any fees. However, the same is true if you as a customer pay by card. Customers are not charged any fees.
It is the vendor who has to bear the charges incurred by card transactions.
Paying cash = costs for the seller
A study by the German Federal Bank found that a cash payment also incurs fees for sellers. These are not direct fees, but indirect expenses, which according to the German Federal Bank, amount to €0.24 per cash payment. This sum is an estimate based on various criteria. For example, the cost of obtaining change, handling, transportation, security, and insurance. For the seller, cash is associated with time, personnel costs, and bank fees, if they want to use a night safe, for instance.
The seller runs the risk of losing money in a cash transaction, miscalculating, or receiving counterfeit money, which would be a clear loss.
The biggest loss, however, occurs over time. Inflation changes the value of a €50 note. While it still says “€50” on the note, you can buy less with it over time.
When it comes to card payments, banks are constantly working to shorten the processing times of a transaction. An “instant payment” transaction takes 10 seconds on average and is available 24 hours a day.
The post’s first claim is therefore not true, because the seller also incurs costs if you pay cash.
“If you always pay cash, €50 is always €50.” This statement is thus incorrect.
What are the costs involved in paying by card?
When a customer pays with a card in a restaurant or shop, the business owner incurs a variety of fees.
Fixed costs – The card terminal
There are many different reading devices for bank cards. On the one hand, there are stationary machines that are connected via a cable. On the other hand, there are mobile devices there are mobile devices that use a SIM card to connect. In general, the more options a device provides, the more it costs the seller.
Various operators sell or rent card reading machines. Contracts are typically arranged with the seller’s own bank. When it comes to pricing, a method similar to that employed by telecom operators is used. Depending on the purpose and requirement, banks provide different devices and flat rates to sellers. The rental of the terminal, both with and without a flat rate, costs between €10 and €50 per month on average. Some providers offer additional services in addition to the flat rate, such as a helpline, installation, or or device exchange.
Variable costs
There are three different costs that the seller has to pay per transaction.
1. The fee charged between two banks
This refers to the transaction fees paid by the seller’s bank to the customer’s bank. Since 2016, the EU has regulated and capped the rate of this fee.
The maximum fee that can be requested is 0.20% of the purchase price for debit cards and 0.30% of the purchase price for credit cards. In Luxembourg, however, the fee “d’interchange” is lower. For a V-Pay transaction, for example, the fee is 0.12% of the purchase price. If the customer and the seller have the same bank, this fee is waived.
Most European countries charge an additional fee of 0.04%, known as T.I.C.O. This is an abbreviation for taux interbancaire de carte en opposition. This fee, however, does not apply to Luxembourgish cards.
Example:
When a customer uses their V-Pay card to pay for something worth €50, the fees for this transfer are 0.12%. That would be €50 x 0.12%, i.e., €0.06. In this case, the fees therefore amount to 6 cents.
2. Network operator costs
These fees are deducted from the network operators, such as Sixt, Visa, and Mastercard, for example. The operator assures the customer’s solvency in relation to the seller and guarantees that the transaction will be carried out. The operator determines the amount of these fees.
Fees for the major operators, such as Visa and Mastercard, are between 1 and 1.3%. The fees are slightly lower with Groupement des cartes bancaires (CB), at 0.9%. American Express, which is not part of the European network, charges significantly more.
3. The bank’s margin
The seller must pay this margin to the bank in exchange for the service provided. This margin varies depending on the bank. A margin is negotiated based on the number and amount of transactions done in a month. A seller who sells expensive products can negotiate a better rate. The seller’s activities also play a role in the negotiations. In an activity where the risk of fraud is higher, the rate is also higher. In any case, the seller has an incentive to negotiate with the bank.
The margin differs not only between banks, but also between cards. A gold card therefore has a different rate than a V-Pay. In general, the big banks’ rates range between 0.4 and 0.8%.
Sellers pay for the service
In exchange for the fees, the seller is given a service. This saves time in the accounting and VAT declaration processes. The seller has greater control over his funds. Less cash also means less risk. No displacements, no loss due to incorrect accounting, no loss of cash, and no theft.
Is the €50 gone after 50 transactions by card?
This claim is definitely false. The €50 mentioned in this RTL Fact Check do not disappear from the economy, regardless of whether they were paid by card or with cash. The money is just distributed differently. Only inflation can change the value of a banknote.
The initial example illustrates a simplified and superficial vision of a complex issue. The author of the post overlooks essential factors, which we were also unable to thoroughly examine. The post makes no mention of the merchant receiving services as a result of card transactions. This includes, for instance, VAT, insurance, and online sales. For the customer, it doesn’t matter either way, because it costs them nothing in both cases. Many sellers welcome card payments, even if they incur a fee. The services they get in return make their jobs easier.
The big difference between cash and digital payment is, on the one hand, the ease and comfort of the latter, and, on the other hand, the infinite freedom of the former.
