Debit cards are accepted in a lot of places now, but there are some places that will still not take debit cards and will only take cash or cheques instead. This is usually either because the shop or service provider is too small or the merchant fees on debit cards make the transaction less profitable.
There are still a large number of shops or service providers who are too small to take debit cards. This is because debit cards need to have a card terminal in order to use them. These can be expensive, although the price is dropping dramatically and there are now terminals that can fit on to Personal Computers and smart phones which can radically reduce the cost, although a merchant account is probably needed. On the internet the use of PayPal has also meant that credit cards can be accepted with very little up front cost. However there are still new or small businesses that do not operate over the internet that can not accept these cards.
Another reason why shops refuse debit cards is the issue of merchant fees. These are the fees that are charged to the shop or service provider so that the credit card company will process the payment. They are usually about 1% to 2% of the transaction value. Many shops are happy to accept this as it will tend to mean that a person is free to spend more than if they are limited to cash, and there is less danger of the payment being rejected than with a cheque.
Although the merchant fee only takes up a small proportion of the total transaction cost, this can affect some shops quite dramatically. This is because the actual profit that is made on each item, what is often known as the margin, can dramatically change. If for example a shop sells a product for $10, but has a margin of only 5%, then a merchant fee of 2% can mean that the margin has reduced from 50 cents to 30 cents. This is a 40% fall in profit for this item. The profit per item is the amount of money that the shops need to pay the energy and rental costs. This particularly affects grocery stores and garages.
This can sometimes mean that there is a minimum charge, often around $10, that is charged for purchases. While the retailer may be willing to lose profit for a large purchase, they are not for a small purchase.