Traverse City Business News | Nickeled and defaced: New cafe adopts cash-only policy to avoid fees

Nickeled and defaced: New cafe adopts cash-only policy to avoid fees

$17,000: This is the amount in credit and debit card charges local restaurateur Becky Tranchell incurred at her former restaurant, the now closed Rose and Fern, in 2021.


When Tranchell announced a new venture earlier this year — a cafe and juice bar called Rough Pony — it did so with a surprising twist: The new establishment would be cash-only, with no credit or debit card payments. authorized.

According to financial advice website The Motley Fool, credit card processing fees in the United States in 2021 ranged from 1.3 to 3.5 percent per transaction, depending on the payment network. For example, Visa cards tend to have the lowest processing fees from major providers, while American Express cards tend to have the highest fees. If you’ve ever wondered why many restaurants and retailers don’t accept American Express, it all comes down to merchant fees.

Establishments like Rose and Fern, a breakfast and lunch cafe, usually end up bearing the burden of these fees. And according to Tranchell, they add up dramatically over the course of the year. Last year, it even started passing credit card processing fees on to the customer – a move that has raised customer awareness of merchant payment fees, prompting many customers to make paying cash a routine. Rose and Fern.

“So if you think about it, my processing fees last year would have been even higher (over $17,000) if I hadn’t started passing the processing fees on to the client in the early months of winter,” Tranchell said.

That experience — and the willingness of most customers to pay cash, whether to help out the restaurant or to avoid overcharges — ultimately inspired Tranchell to pay cash only for Rough Pony.

It’s an approach she thinks is doable, especially since 1) her new place in the MKRT warehouse will put her right down the hall from an ATM and 2) a coffee shop falls into the category of establishments – with ice cream parlors and small bakeries – which tend to work best with a cash-only approach.


Rough Pony won’t be the first property in Northern Michigan to refuse credit card payments. Bardon’s Wonder Freeze, for example – one of Traverse City’s most beloved summer institutions – has long been a cash-only spot. And Art’s Tavern in Glen Arbor, known for its legendary chicken and jalapeno soup, has been cash-only since it opened — since 1934.

“At first, of course, there really was no other option,” Bonnie Nescot, co-owner of Art’s Tavern, said of the restaurant’s decision. After all, the modern credit card wasn’t even invented until 1950. Rather than turning to the new form of payment when it appeared, Art’s stayed the course.

“Over time, it was easier to keep things cash-only,” Nescot continued. “As credit cards became more and more accepted as a method of payment, it was a question of economy. As an example, take half a million dollars in credit card sales and multiply it by the fairly common credit card fee of three percent. $15,000 is a lot of money for a small business.

Still, not accepting credit cards is a bold move for any business in 2022. Every year, the Federal Reserve conducts a payments study — called the Diary of Consumer Payment Choice — to understand the payment habits of consumers in the United States. United. In 2020, cash accounted for 19% of all transactions, surpassed by debit cards (28%) and credit cards (27%).

Historically, card payments have been even more common in restaurants. A 2017 survey by payment processor TSYS Payment Solutions, for example, found that only 12% of restaurant transactions were paid for in cash, with debit cards and credit cards collectively accounting for 77% of payments.

Judging by general trends, these numbers would likely be even higher in the wake of COVID-19, when consumer habits shifted dramatically in favor of digital and contactless payments. According to the Federal Reserve Diary, cash transactions fell by a total of seven percentage points from 2019 to 2020.

According to Tranchell, the pandemic has proven particularly problematic for restaurants in terms of credit card processing fees. Not only were more customers using cards, but the way they paid was also often different – ​​and often came with higher fees than normal.

“Most people don’t know that credit card processing fees change depending on whether the person is actually present or not,” Tranchell explained. “So if you walk into my shop and pay with a credit card, the charge is about 2.5% plus five cents for each transaction. But during the pandemic everyone was online or calling on the phone to order and gave us their credit card over the phone, and if the person is not present for that transaction, the charge was around 3.2 or 3.5% (of the transaction), plus 20 cents on each transaction, because (this type of transaction) is a security issue.

Card processing fees are split between several parties: the issuing bank behind the credit card (a Chase or a Capital One, for example), the credit card company (Visa, Mastercard, Discover or American Express), the payment processor (like the aforementioned TSYS) and payment gateway (platforms like PayPal or Toast). Every amount of money squeezes the profit margins of the business the customer is actually frequenting — a problem for businesses like restaurants, which already operate on narrow profit margins.

“Restaurants, their profit margin is so low to begin with once you take out your labor, food cost, overhead, and random charges like merchant fees,” Tranchell said. “And I just couldn’t come up with a solution that I could stomach.”

Tranchell says she values ​​her autonomy and freedom as a business owner and doesn’t need a big company to transact.

“And my theory is that if I have $17,000 that I don’t pay at the end of the year to a credit card company, and I can instead pay that to my staff and keep them and their providing a work environment where they thrive is more important,” she said.

She mentions two former staff members who, although born and raised in Traverse City, left the area because they could no longer afford to live here.

“So one of my theories about doing cash only is hoping I can pay staff more money,” she said.

Tranchell admitted she’s nervous about how customers react to a cash-only situation, or how many Rough Pony customers have to turn away because they don’t have cash on hand.

“But I also think there’s an opportunity right now,” she said. “I think people are waking up.”

For example, Tranchell points to a partnership with Wild Pages, a radical bookstore under The Coin Slot, whose books and zines will be featured at Rough Pony.

“And they told us that when the Teleprinter article came out (advertising Rough Pony), customers intentionally started bringing cash to pay cash into their business – (they) just had no idea (the processing fee),” he said. she declared. “People don’t know if we don’t educate them, and that’s one of the reasons I own a business is because it gives me a platform to help educate.”