In this blog post, Vaultex Commercial Director Mark Trevor looks at why the people pushing for a cashless society have got it wrong.
Natalie Ceeney’s recently published UK Access to Cash review asks us to consider the implications of a society where physical cash doesn’t exist. It got me thinking of a video clip I used to open a recent conference presentation.
It’s a scene from one of the more forgettable Star Trek movies. Captain Jean Luc Picard is chatting to his current romantic interest who, for reasons too convoluted to get into, hails from the mid-90s earth.
His companion, who has never seen a spaceship, asks how much it cost to build. She’s told that there is no such thing as money in the 23rd century. “No money?” she says, unbelieving. “Then how do you get paid?” Jean Luc, in his dulcet thespian tones, replies: “The acquisition of wealth is no longer the driving force in our lives. We work to better ourselves and the rest of humanity.”
There’s still a couple of centuries to go, but the jury’s still out on whether philanthropy and goodwill will be tomorrow’s currency. It’s certainly in keeping with Star Trek’s optimistic outlook and its faith in mankind’s ability to better ourselves. But, in the meantime, we’re stuck with the grinding wheels of unbridled capitalism, which are greased by cold, hard cash.
But what is cash? Whether it’s a piece of paper (or polymer), or some numbers quietly ticking up or down in a piece of software, when it comes down to it, money represents an exchange of a thing for goods or services.
As it says on a Bank of England note: “I promise to pay the bearer…” After all, money is as much a social construct as it is an economic one; it relies on a collective belief that these promises will, and can be, honoured. Gold standards are a thing of the past. And don’t get me started on bitcoin.
A banknote is a promise between two parties, upheld by a central bank. Unlike many other payment methods, when you buy loaf of bread a pint of milk with cash, the transaction isn’t going through several intermediaries. This promise, with its historical precedent and sovereign tradition, is why I would argue cash is never going away, despite the countless articles about its imminent demise.
Forgive me if you’ve heard these arguments before. Cash volumes are going down. People are switching to mobile and contactless payments. You’ve probably noticed yourself you’re carrying less cash about. In the US, UK, Western Europe, and a few other economies around the world, transactional cash use is going down. This is not disputed. What is argued over is whether this decline is exponential. In other words, are we moving inexorably towards a cashless society? Like a motor reflex, it seems to come up in every article where cash is mentioned.
But to reference another sci-fi film, this time to paraphrase Jeff Goldblum in Jurassic Park, perhaps people are so preoccupied with whether they could (go cashless), they didn’t stop to think if they should (go cashless).
The problem is that the term ‘cashless society’ is bandied about with such abandon there’s a danger that it becomes a fait accompli concept without any need for it to. At the end of the day, who is even asking the question? Well, a few people. Card companies (but they would). The landlord of Britain’s first cashless pub. One of the blokes from ABBA.
Okay perhaps I’m being flippant. You can be sure it’s been mulled over in bank boardrooms. And the Swedes are all over it. After all, cash is not without its flaws, and it will face cost and efficiency challenges as its transactional use decreases. But for most people? Well they’re fine with cash.
It may be that they like to have it to hand as a back-up. The Federal Reserve of San Francisco argues that “consumers may be demanding cash less as a means to pay, and more as a store of value.” After all, if cash was going away, why have the number of notes in circulation been steadily increasing in the US and Europe countries – the very places where cash transactions are falling?
For some people, it may be that their preferred method of payment – be that their card, mobile or wearable contactless headband – isn’t available, so they default to cash. And that’s fine. Retailers and consumers were probably pleased that cash was available during the VISA’s European outage in the summer.
And, if the worst were to happen and there was a cyberattack or a run on the banks…well you can see why central banks are cautious about talk of national digital currencies.
Other people simply need to use cash. The Access to Cash Report suggest eight million Brits rely on cash, and that it’s an “economic necessity” for 25 million. These are big numbers.
It comes back tothat idea: I promise to pay the bearer. If we can’t guarantee to make that promise – because of a dodgy Wi-Fi signal, an IT meltdown or financial exclusion – the system doesn’t work. The socio-economic construct that is money breaks down. Until a currency is invented that replicates cash’s traits, why fight to get rid of it the payment type that is most universally known, accepted and, until recently, used? A banknote stands for something: in an increasingly intangible world, cash gives us something tangible we can trust.
Besides, in another 200 years, if we are to believe Captain Jean Luc Piccard, maybe we won’t need payments or paychecks full stop.#
Social shoppers: why consumer attitudes to cash matter
“Predicting rain doesn’t count. Building arks does.” Warren Buffett
Cash has been around for over 3,000 years. It’s part of any culture’s identity. In fact, you can chart the rise and fall of many civilizations just by looking at the size of coins they minted.
Today, the barbarians at cash’s gates are technological ones. In 2016, you can pay using credit card, debit cards, contactless or your phone. You probably make most of your purchases online, without even leaving the house. And more payment options and innovations could result in further fragmentation in the future.
The natural result of all this change is the decline of cash usage. Payments UK, the UK payments industry’s representative body, is predicting that cash will drop from being used in half of all payments (45.1%) in 2015 to 9% in 2025.
But predicting cash use in not an exact science. Credit cards and debit cards were meant to have sounded cash’s death knell. But despite a slow decline, cash endures.
What makes cash so resilient and why have past predictions been off the mark? One reason is that current models only look at economic factors that influence payment preferences, without considering the social factors: how people behave.
This is area that’s attracting more research, including a PhD study by Vaultex’s Head of Product Development, Anne Lewis, which looks how a person’s shopping personality can affect how they pay. The research identified two broad groups: utilitarian shoppers, who want to get in, get out and pay by debit card; and hedonistic shoppers, who prefer cash and credit cards.
There are plenty of other factors that could be at play as well, including generational attitudes towards spending, where the money is being spent, and what it’s being spent on. Different payment methods also have different virtues. Cash, for example, can be more discreet: it’s perhaps no surprise that some people prefer to use cash for certain big tickets purchases so it doesn’t appear on a credit card bill.
Ultimately, consumer behaviour varies wildly. So, on one end of spectrum, you have 2.2 million Brits that are unbanked, while on the other you have 2.7m people who rarely use cash.
This puts retailers and financial institutions in a tricky position: they can’t pick a winner. This can be expensive. As cash use declines, the cost of handling it increases. Meanwhile, the introduction of any new payment technology involves a significant investment in supporting infrastructure. Hedging your bets can be costly, especially since not every new payment method or scheme is guaranteed to gain traction.
The payment ecosystem therefore needs to be considered as a whole, one in which cash remains a tried and trusted part. But it needs to be carefully managed: considering the best infrastructure and distribution channels to make sure cash remains economically efficient to handle, while planning for unforeseen events that may result in a spike in use (as happened during the last recession).
There’s no silver bullet solution to this, but there are plenty options. For example, we worked with large supermarket chain to integrate a smart till system that reduced back office costs and made it easier for them to return cash. The new process significantly reduced shrinkage costs and saved a six figure sum annually. We’ve also worked with leading high street bank to implement a Managed Services model for their remote ATM machines. By streamlining the end-the-end process, we’ve cut a day off the cash cycle and significantly reduced operating costs.
Other solutions including increased automation, local cash recycling, improved security systems and a holistic review of end-to-end cash management. We can never be certain of what the future will bring. But that doesn’t mean we can’t plan for it.