Convenience is knowing that your credit card will be accepted in most locations you buy products or services. The entire marketing campaign of Visa is “It’s everywhere you want to be.” They say nothing about interest rates, late fees, or any of the factors which drive their revenue. As discussed in this NY Times article, the fees associated with swiping your card can add up very quickly for businesses that offer the convenience. From both a consumer and business perspective it’s very alluring but cracks are beginning to widen. Is cash really that inconvenient? Cash is everywhere, too, but with no fees attached or interest to consumers.

Credit card companies have had an interesting year due to U.S. government regulations and more changes are coming in 2010. In general, these changes have been pro-consumer but will likely cause the credit companies to shift sources of revenue. A business established to make a profit finds the path of least resistance. The passing of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 brought the most sweeping changes to the industry. The majority of the CARD Act dictates how fees can be changed, collected, and disclosed. The question is whether the credit companies will reduce consumer rewards or increase vendor fees. Either situation looks bad for credit usage but consumers have had a superior alternative to credit for a few years now: paying for gas with cash instead of credit.

Many gas stations are offering different credit and cash pricing. Accepting credit seems like a given assumption but while vacationing in North Carolina, I found many mom-and-pop gas stations didn’t accept credit. The bigger franchise stations are catching on and now offer implicit rewards for using cash. The price for paying with cash is often 4-5 cents cheaper than paying with credit. Here’s an example that assumes I use my Bank of America rewards card to pay for gas or, alternatively, I use cash. It’s clear that each credit card reward “point” is almost worthless – it’s less than one cent. The economic benefits of using cash in this instance are double that of using credit. That’s a market-changing influence.

These implicit rewards are an interesting phenomenon. Cash is now holding the position that credit cards held about 15 years ago. I don’t believe this advantage will last long. Transferring money on the internet requires a flexible and fast payment system, which cash is not. Technology in smart phones will be used for more transactions in the coming decade. Factors we can’t even predict will be game changers.

We’re witnessing an overt protest to the high credit transaction fees placed on vendors. So, until the market corrects itself, we should enjoy the benefits of cash. It’s possible the next system to replace credit cards will be even more convenient and less costly – just remember to keep a little cash on hand.