ELECTRONIC PAYMENTS GAINING, STUDY SHOWS

GAIL ROBERTS

TAMPA, Fla. -- Retailers are installing electronic payment systems at record rates, even though it costs substantially more to process a debit or credit card transaction than it does to accept cash.

That's because the benefits of electronic payment systems are multifold, including increased transaction speed, higher sales, enhanced customer service and reduced check losses, according to the findings of a study titled "Benchmarking Comparative Payment Methods -- Costs and Case Studies."

The study analyzed various payment processing costs and developed guidelines to help retailers who are considering installing electronic payment systems in their stores. The results of the study were highlighted at the Food Marketing Institute's annual MarkeTechnics convention here.

"This is the first time we've made a strong attempt at trying to make retailers understand the cost of doing electronic transactions," said Bobby Gowens, executive vice president of Randall's Food Markets, Houston. Gowen chaired a 16-member research committee responsible for coordinating the research study.

The study revealed it costs retailers 7 cents in direct costs to process cash, 28 cents to process a debit card, 43 cents to process a check electronically and 80 cents to process a credit card.

Yet debit card transaction volume is increasing at a rate of about 35% annually, compared with average annual increases in the 10% to 20% range in the 1980s, the report said.

More impressive, the potential for further growth is enormous, because the majority of supermarkets still don't have electronic payment systems -- which can cost from $1,000 to $1,500 per checkout to install, according to the study.

Part of the reason for the proliferation

of in-store electronic payment systems is simply the "multifunctionality" of many of the newer front-end terminals. Not only can the newer terminals process debit and credit cards, but they can also authorize checks.

When electronic payment systems were first available, retailers needed stand-beside terminals if they wanted to accommodate multiple transactions.

Also, financial institutions and retailers have accelerated efforts to market debit cards. Retailers on the West Coast have the highest percentage of debit card users, the study found, probably because of the area's effort to push direct debit.

According to the study, four components contributing to the direct cost of a payment transaction are: time to make the payment, back-room time to prepare a deposit, bank charges, and other charges such as bad check collection fees. The study did not assess the cost of line charges or installation fees, but did analyze cost per component for each of the transactions.

For instance, it found that it cost 6 cents for the time spent to transact a cash payment, 17 cents for an unverified check, 20 cents for a verified check, 13 cents for food stamps, 16 cents for a credit card, 14 cents for on-line debit, 14 cents for automated clearing house debit, 15 cents for electronic benefit transfers and 18 cents for Women, Infants and Children payments.

The ranges of costs for alternative forms of payment were also analyzed. For instance, transaction fees for credit ranged from 6 cents to 16 cents with a mean of 13 cents. Check authorization transaction costs ranged from 2 cents to 10 cents with a mean of 8 cents. "There's a less expensive and a more expensive way to do all these things," said Gowan. "I'm hoping people will begin to ask questions about why they should pay this money."

Several data collection methods were used to prepare the study, including retailer surveys, checkout observations, case studies, telephone interviews and secondary research.