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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?

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    BTW: Cashbacks are only allowed with PIN debit transactions, not credit. So the fees are different (usually flat fee anyway, and the cash-back option allows reducing the cash in the register without the costs of moving it around). – littleadv Jul 29 '14 at 8:52
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    @littleadv I have never taken advantage of cashback offers, but they seem to be offered for credit-card transactions too; not just for debit transactions involving a PIN. – Dilip Sarwate Jul 29 '14 at 9:30
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    @DilipSarwate I have never seen that. Credit card cash-back is a cash-equivalent transaction which will require specific merchant category separate from the original purchases. It shouldn't be done on the same slip, and I don't believe it is. You may have heard the cashiers automatically offering it (because they trained to offer), but it wouldn't work if you tried. Try it once, as an experiment. – littleadv Jul 29 '14 at 9:34
  • @littleadv I have always assumed that cash-back would be treated as a cash advance (meaning interest is charged from the day the transactions posts to the credit-card account till the day it is paid off -- no grace period as is the case with credit-card purchases -- and thus have never felt the least desire to accept such an offer. People who carry balances on their credit-card accounts might not even notice a difference but people who pay their accounts in full each month would. – Dilip Sarwate Jul 29 '14 at 9:48
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    @Dilip Cash advance on credit cards is indeed treated like that. However, cash-back is an ATM-like transaction. It is generally used by people who cannot access their bank's ATMs and want to avoid ATM charges. I used that option myself several times. – littleadv Jul 29 '14 at 10:09
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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.

  • A little late to the party, but I think it's worth adding the other benefits of the grocer: The grocer also reduces cash handling fees, the risk of large amounts of cash lying around, the time spent just carrying cash to the safe, the amount that a dodgy staff member could steal etc. It also means the money goes into their account and starts earning interest instantly - it may only take a day or two to get the cash into their bank, but multiply 2 days of interest by millions of dollars and that's a lot of interest! – Jon Story Dec 4 '15 at 16:17
  • I wish the credit card issier explanations would be that easy too! Much appreciated – Eugene Oct 14 at 2:00
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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.)

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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.

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    I just bought something tonight with my Discover card and they offered me cash back. I'm 90% sure Discover charges every store a percentage-based fee. Do you have any citations that say otherwise? – Philip Jul 29 '14 at 9:43
  • @Philip next time they offer try to take it. See my comment to Dilip above. – littleadv Jul 29 '14 at 9:47
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    Sorry @littleadv my wife uses a Discover card to get cash back almost every week, and I have done so on a few occasions. It has never appeared as a cash advance. We pay the credit card every month so there is no interest charged. I have no idea if it is offered with every credit card but our local grocery stores do so with Discover. I can even pick 20,40,60,80,100 with just the push of two buttons on the terminal. – mhoran_psprep Jul 29 '14 at 11:32
  • +1 - it's charged along with the rest of the debit, far less than a credit card transaction. A tiny cost to attract the customer. – JTP - Apologise to Monica Jul 29 '14 at 11:50
  • Discover is a little different. They have a special feature called cash over purchase on offer at some stores that is different from a cash advance. It shows up on the statement as part of the purchase, so if you buy $80 worth of groceries and take $20 over purchase, it will show up as a single $100 transaction. – mwp Jul 29 '14 at 18:50
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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.

  • It doesn't make sense to me that the credit card company would waive the fee for cash back. A large portion of the fee goes to pay for chargebacks and fraud, and I'd think if you stole a credit card you would try to get as much cash back as you could. – Philip Jul 29 '14 at 22:55
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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.

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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.

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