Cash is being assailed from all sides.

Card networks looking to extend their dominance into low value payments, technology companies trying to disrupt the payments industry and banks trying to reduce costs of ‘non-core’ activities. All share a common goal to eradicate cash as a viable payments instrument. Governments and central banks appear, at best, ambivalent to these attacks and at worst, complicit, as they blame cash for fueling tax avoidance, money laundering and a whole range of other social ills. The response of many in the cash industry has been to bury their heads in the sand. I lose track of the amount of “cash is king” claims and disparaging comments about the integrity and desirability of the technology behind cash alternatives. I fear that this approach is detracting from the real need for the industry to face the truth; cash is in peril.

Yes, I know that international circulation figures have shown consistently rising volumes of cash since the financial crisis. However, look underneath these figures and a different story starts to emerge; Cash transactions in many countries are falling, even as cash in circulation rises. The difference is down to hoarding due to a number of factors, some long term (for example, demographics) but others short term and easily reversible (low interest rates). In March this year, card transaction volumes will overtake cash transactions for the first time ever in the UK - a leading payments market. Contactless payments are eating into cash volumes and values, especially at low value merchant outlets, such as quick service restaurants (QSRs), where cash takings are falling year on year. Furthermore, this process is accelerating as the distribution of contactless cards increases and the availability of contactless-ready terminals grows.

As cash values drop, along with transaction volumes, there is a need for the industry to adapt. Currently, too many cash industry costs are fixed, meaning that cash will become more and more expensive compared to alternatives. Investment in technology to improve productivity is patchy to say the least, with vaults potentially grasping the issue but merchant outlets still skeptical of the investment. This creates a vicious cycle for merchants in choosing which payment methods to accept. The management of cash throughout the industry is too commoditized, often using spreadsheets or forecasting software that hasn’t been properly upgraded for decades.

In CMS' recent publication, the Global Cash Report, we have highlighted how a number of forward thinking organizations are gaining competitive advantage by investing time and money in techniques to increase flexibility, streamline processes and improve productivity. It is imperative that the cash supply industry wakes up and acts to encourage innovation in the retail sector. These techniques deliver competitive advantage under normal circumstances, but in a declining cash market will ensure the survival of the fittest.

Brendan Doyle,
CEO - Cash Management Solutions