What are the transaction costs involved with and what could be some strategies that could be adopted to deal with them by a discount retail store?
The fees charged by credit card companies that provide payment gateways to retail stores is a large transaction cost that is incurred by them. For a discount retail store this can reduce the profits substantially as discount stores have thin margins.
It is not easy to deal with this as the acceptance of payment by credit cards has its own benefits. When customers are allowed to pay for purchases using credit cards they have a means to buy products that exceed the amount currently available with them. A person can pay using a credit card at the beginning of the month and repay the amount at the end of the month within the interest-free period provided. Customers also do not have to carry around cash and limit their purchases to how much they have in notes and coins.
To reduce transaction costs, discount retail stores could offer a discount on payments made in cash. Customers could be given points that can be redeemed when they make subsequent purchases. The stores could also try to explain to customers in a discrete way why their not using a credit card and making cash payments helps the store in keeping its prices lower.