A recent report from a supermarket trade group indicates that electronic payments in the industry are on the rise, even though offering card-based transactions carries higher direct costs than accepting cash.

"It appears that, at least in certain areas of the country, electronic payment systems are becoming a reality," the Food Marketing Institute's "Benchmarking Comparative Payment Methods" reported.

"At the forefront of the issue is cost," the study added.

On the surface, the benchmarking survey, which is based on responses from 46 grocery retailers of various sizes, seems to make a case against electronic payments.

According to the report, the average direct cost of cash transactions is 7 cents, compared with 30 cents for on-line debit transactions and 81 cents for credit card transactions.

The numbers account for direct costs from checkout labor, back-room labor, and bank charges.

However, a closer examination reveals why many supermarkets are embracing electronic payment methods, such as online debit, credit and electronic check authorization.

When indirect elements such as float gains, allocation of equipment costs, and accounting costs are factored in, many supermarkets are finding that accepting debit is less expensive than pocketing cash for transactions.

"What we find is that once a store puts in debit [capabilities], they also want credit because that's an option consumers want to have. But debit is really driving [POS installations] now because of the cost considerations," said Lewis N. Pergament, senior vice president at Transaction Network Plus, a New York-based merchant processor.

Another reason that supermarkets may be attracted to electronic payment options is that consumers appear to spend more when using cards instead of cash.

The Food Marketing Institute study revealed that the value of the average sale on a debit card is $31.61, compared with $13.83 for cash purchases.

Consumers using credit cards tended to purchase even more - $35.56 on average -- than debit users. But because the costs related to credit transactions are based on a percentage of the purchase price, the increased credit sales matter less to supermarket executives than do debit sales increases.

Although the study does not draw a cause-and-effect line between the use of payment cards and higher spending tendencies, experts have noted that consumers tend to spend more freely when using plastic instead of cash.

Despite these benefits, the majority of supermarkets in the United States have yet to embrace electronic payment options, according to the Food Marketing Institute.

This represents a tremendous opportunity for merchant processors who sell point of sale services to retailers.

But as more supermarkets embrace electronic point of sale payments mechanisms, electronic banking networks and credit card issuers also stand to benefit as transaction volume rises.

"It is in supermarkets and gas stations that people are going to get used to using debit," said Liam Carmody.

"Once they are familiar with the cards," Mr. Carmody added, "it is safe to assume they will look for other places to use them."

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