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Digital Payments: Still Too Costly for Small Businesses

Electronic payment platforms may be getting lots of attention, but the associated fees are discouraging business owners from adopting them.

The digital wallet phenomenon may be gaining steam and garnering a fair amount of press, but many small businesses simply aren't willing to go digial--it costs too much.

According to a recent Bloomberg report, 80% of all purchases are "low-value purchases"--the milk and eggs customers pick up on the way home or the pick-me-up candy bar they grab midday. In order for both the merchant’s bank and the customer’s bank to profit from digital transactions like these, the fee is on average 30 cents a transaction. Most small businesses say it doesn’t add up economically for them. 

With those fees, it's often not worth it for a small business to invest in the necessary hardware to use digital payment platforms such as those offered by Square and PayPal. Large companies like Starbucks and Wal-Mart, meanwhile, can make it worth their while by developing their own payment apps, but its not clear that consumers want to collect even more cards and digital apps. 

Instead of taking over all forms of payment, digital payments may slowly replace plastic credit cards, says Bloomberg. Even so, according to consulting firm Edgar, Dunn & Co., nearly $1 trillion worth of cash purchases are made in the U.S. every year. For the foreseeable future anyway, cash will remain king.

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