I kinda wondered about this forever as well. Then one day I was chilling in my local worker-owned cooperative bakery when the Brinks truck came by to do the bakery's cash pickup. Armed driver. Guard waiting next to the truck holding a long gun. Two guys (presumably armed) going into the business to get the cash and take it out to the truck. That's all pretty expensive!

Smaller family-owned businesses will just take cash to the bank - but it's super common for somebody to eventually surveil them long enough to rob them one day as they're transporting the cash to the bank.

It's pricey to handle cash!

Discount on cash IME is because they're not putting transactions through the till (POS) so they can commit [tax] fraud.

Ran a micro business in UK for 15 years, cash cost as much to deposit as card did - employee time (counting, reconciling, making deposit) and bank charges for cash deposits. It also slowed down transaction time (which was almost all IRL).

Fraud done by shop owners is one reason why they might still offer a discount, but also a lot of the time I simply think stores don't actually realise how much it is costing them.

E.g. they might not include staff time and incidental costs around cash transactions that aren't obvious because they're not linked to the individual transactions, such as reconciliation, time spent transporting the cash, costs of depositing the cash, insurance to cover storage of cash.

Also consider that it takes very little theft to tilt the balance, and even a tiny amount of theft by cashiers not putting through all cash transactions can make a big difference.

Here in Italy the answer would be that you cannot evade taxes if payments are tracked. I imagine that applies elsewhere too.

Cash can be misplaced. Stolen. Needs to be stored securely. Banks often charge fees for depositing large amounts. Security companies charge fees to transport said amounts. Counterfeit bills. Etc.