Debit Cards and Doughnuts

I don’t often tread into the heady waters of economics, but a recent conversation (on Facebook) got me thinking about a topic that I’m sure many of you have noticed: Tim Horton’s not take debit or credit cards! I’m told that in British Columbia and Alberta, Tim Horton’s does accept debit cards, so the rest of this post will only be applicable to you if you ever take a trip to Ontario and see our wicked, backwards ways for yourself.

Tim’s (I will use every silly honorific term for the coffee and doughnut chain in this post, so bear with me) in Ontario and most other provinces do not accept debit or credit cards, opting for the traditional cash-in-hand method of payment. I’ve always assumed (and speaking from many years of experience) that this was because it was simply faster: Anyone who has ever worked in the food service industry at peak hours knows full well how grumpy people can be while waiting for their dinner, lunch, or before-work mastication ritual. Indeed, in any service industry where time is a deciding factor (say, at a movie theatre), merchants will go out of their way to provide anything that shaves precious seconds off the transaction.

The swooshing means it’s faster!

But other people (in the conversation and elsewhere, but I’m not naming names here, I hope you understand) have suggested that it is the cost of running a debit/credit system that Timmy’s is unwilling or unable to commit to. It’s not an unreasonable point, and I confess I had never thought of it before. The argument is that the regular maintenance/upgrade costs, on top of the per-transaction fee incurred by the merchant in a POS (Point of Sale) debit/credit system is too much for some merchants. Intrigued, I looked into this matter a little more deeply.

The first thing I did, was that I called the Tim Horton’s Customer Service line. They didn’t have any information. I could just have avoided even mentioning it here, but I wanted you all to know that I exercised my skeptical due-diligence as best as I could under the time constraints. Hopefully, Daniel Loxton will be proud of me (or at least, modestly nod his head in acknowledgment).

I failed a Google image search for “Due Diligence”, so here are some doughnuts instead.

That line of inquiry exhausted, I decided to look at the actual costs involved. A study published by the Bank of Canada last winter found that a cash payment system is indeed the least costly payment method for merchants. I’ve worked as a cash manager for several years, and cash handing is not an easy thing: you need to prepare and close registers at the opening and close of employees shifts, you need to ensure accurate counting (you may need to invest in a bill and coin counter), you need to use counterfeit-detectors, and there is constant risk of theft from within and without the organization. It’s also a labour-intensive process, requiring training and experience in cash handling, which can take years to get the hang of, depending on the environment. Also, because of insurance regulations with a cash system, a merchant would need to have a safe for the cash, and to have regular safe withdrawals from a security company. But still, financially speaking, the costs and risks of cash is worth it compared to a POS debit system.

The handy thing about a cash system is that the entire transaction exists between two parties: the consumer and the merchant. But with a POS system, other actors get involved: banks, creditors, technical services, and the phone company (on older systems). The more actors involved in a transaction, the more potential for costs to increase. Indeed, in a POS system, each transaction charges the merchant a small percentage of the sale (this is why some smaller merchants have a minimum purchase in order for you to use your debit card), so in order for the cost of POS to be worth it for the merchant, the purchase needs to be a certain minimum threshold, as seen below:

So we’ve established that the cash system is indeed the least costly to merchants (especially for the small sized transactions that Timmy Ho’s typically trades in), but what about the speed factor? Is a cash transaction really faster than a PIN-based debit (or signature-based credit) transaction?

Finding the average speed of a transaction was a little tougher, but I did find one article from which cited a 2002 FMI study that analyzed the length of time of the most common types of transaction. Normally a 2002 study might be cause for further research, but since the study measured fairly static practices, I think it matters little (besides, I doubt that people are better at punching in their PIN number now then they were eight years ago).

The average length of time of various transactions are as follows:

  • Cheque: 64 seconds
  • Signature-based cards: 48.4 seconds
  • PIN-based cards: 44.4 seconds
  • Cash: 28.5 seconds

In addition to the extra time it takes, there is also more than can go wrong that slows up the line. Anyone who has ever worked a cash register with a long lineup and a debit system knows the Snafus all too well: a PIN error, a customer can press chequing when they mean savings, an insufficient funds display (which the embarrassed cashier has to tell the now-embarrassed customer that they don’t have $5.73), a busted debit system, an older debit system where the other employee needs to get off the phone to use, and worst of all, the non-working card (which forces the employee to try every hilarious trick to get it working, which may be a lost cause).

During all these potentialities, the line can get longer and longer, and the angrier customers tend to take it out on the poor soul working the counter, rather than the customer with the defective card or the lousy memory. While I acknowledge that these instances are not normative of a debit transaction, and I could not find any studies to find out how often they occur, there is a lot that can very easily go wrong, and very little of it is under the control of the merchant/employee. This might explain why movie theatres have separate automated machines for debit/credit-only transactions (I’m being coy here: I used to manage a 7-screen movie theatre, and I can tell you that it is indeed one of the main reasons they’ve been installed).

So we know that a cash system is the most cost-effective transaction type, and that a typical cash transaction is more than 50% faster than a PIN-based debit one. It’s possible that Timmy Ho-Ho’s (I hate that name the most) uses a cash only system for both reasons, but with 4th quarter profits at $91 million (up 32% from the previous year), I would think that they could afford the extra costs they would incur were they to install a debit/credit system.

So I’m forced to (conditionally, depending if Tim Hortons says otherwise) conclude that Tim Hortons in Ontario and other provinces do not accept debit mainly because of the time it saves in the lineup. The next time you’re rushing to work and decide to go to a Starbucks (which does accept debit) on the way, if you’re late for your shift, you know that there are other options.

But I confess: despite my years of experience in the business community, I’m not entirely certain of all the factors that may be at play here. I invite your (constructive!) feedback in the comments section to draw attention to anything I may have missed. Why do BC and Alberta Tim Hortons use debit while Ontario does not? Why do some restaurant chains use debit and others don’t? Downtown Toronto seems to be particularly bad at not providing debit service, while other regions of Ontario (like London, Peterborough, both of which I’ve lived in) seem to prefer debit? Let’s have a conversation! (Or not. Because let’s face it: it’s a silly issue).

“Stop that! It’s getting very silly in here!”

One Response to “Debit Cards and Doughnuts”

  1. Great blog! Good post, I’ll be back for more.


  • Steve Thoms

    Steve is a professional music teacher living in Kitchener, Ontario. He studied recorded music production at Fanshawe College, and Political Studies/History at Trent University, where he specialized in political economy and global politics. He is an amateur astronomer, and an award-winning astro-photographer. Steve also runs the blog, Oot and Aboot with Some Canadian Skeptic." can can be followed on Twitter, @SomeCndnSkeptic.