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The Return of Cash

In this time of economic decline, there is mass opinion on how we can stabilize the economy, return money to consumers and help businesses improve their bottom line. Pay in cash, pay in cash, pay in cash.

Every time a credit or debit card is used, the credit card company, merchant service provider and the terminal service gets a piece of the charge. Typically about 2.35% to Visa, MasterCard, AMEX or Discover, .25 or .35 to the Merchant services company and a monthly fee for the terminal service. The consumer doesn't see any of these charges, but they are deducted from the sale before any of the money ends up in the Merchant's bank account. So what, some say.
Lets look at how, eventually, the credit card companies will have all of the money, leaving the economy in an imbalanced state and the consumers wondering where all the money has gone.
For the sake of space, we will pretend that $10 is the total of all the money in America.

We start out with $10. We swipe a debit/credit card. Of the $10, $.24 goes to the credit card whose logo is on the card used and another $.25 goes to the processor (On a monthly level, there is also the terminal fee, usually about $125.00 but we will ignore that for now.).

So, after one use, the $10 is now 9.51. This money goes into the Merchant's bank account. When they go to spend it, there are the same types of fees if they use credit or debit card. $9.51 minus the 2.35% (.22) and the .25 transaction fee an we are at $9.04. $9.04 and the fees goes to $8.58. At this pace, we can handle 24 more purchases until we end up with $.24 and don't have enough funds for another transaction.

It is imperative that we take a look at spending and the systems that have been put into place. There is an obvious problem with the continuation of credit cards and debit cards. These fees are only a portion of how the major processors make their money. There are set up fees, there is the interest they charge the consumer and fees associated with the liberal charge back policies of the credit card companies. I will discuss charge backs soon. Return to your checkbooks and wallets. Leave the plastic at home in case you need to rent a car or hold a reservation, but withdraw your cash and leave some money in our economy.

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