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Cash-back - Retro is chic!

For all of us who have been tom tomming electronic money, digital payments and mobile payments, this report by the British Retail Consortium is a bucket of cold water splashed on our face! See http://www.brc.org.uk/details04.asp?id=1360

This report actually says that cash usage in UK has gone up and going strong! Reticent consumers; burnt by credit card and other debt, appear to be playing safe and sticking to 'jingle' payments. So, all our enthusiasm to write off cash and sneer at anything that isn't digital seems to be prematurely misplaced.

I also recommend this report by Mike Lee - CEO of ATMIA posted here -  

http://www.epaynews.com/resources/hundredyearsofcash.pdf

Mike believes that cash will still dominate for at least another 100 years.

So,  Cash even if not the King, will at least be a Princess courted by all of us!

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Comments: (1)

A Finextra member
A Finextra member 23 April, 2008, 17:10Be the first to give this comment the thumbs up 0 likes

Sriram,

You raise some interesting questions. I certainly don't see cash disappearing overnight, however I do see substitutes fulfilling the requirements Mike suggested in his very informative article.

I have placed his list here and I propose how mobile money could satisfy many, if not all of his stated requirements. 

  • It is valuable in itself and can function as a store or “shelter” of value

Probably not, but neither is a digital balance in an account, just ask anyone standing in the queue outside Northern Rock, even if they deposited in cash they certainly didn't have any while the doors were shut. The mobile is just the mechanism not the money.

 

  • It is fee-free for consumers?

It could be.

 

  • It is the most tangible and liquid form of money?

Governments, banks, merchants would like it to be and consumers will eventually follow if the benefits are there for them.

 

  • It carries certainty of acceptance as legal tender
I'd dispute the suggestion that all cash satisfies this, just try spending those dinars in London. Mobile money could easily fulfill this better than cash.

 

  • Its settlement is immediate – there is no settlement risk

Exactly what I have in mind for mobile money.

 

  • It has no credit risk attached to it
Debit payments carry no risk, nor do credit if their are mechanisms in place to reliably place each party in the transaction in which case instant settlement reduces risk.

 

  • It is a public asset regulated by the central bank, generating public tax (called seigniorage)
'Mobile money' is just a mechanism to act upon real money (ie. cash deposited in a bank somewhere)

 

  • It is anonymous and cannot be tracked

Certainly it is in my mobile world. I don't intend to discuss the security aspects of cash in terms of tracking but there are some readers who will know what I allude to.

 

  • It is easy to access and easy to use - it does not require technology or infrastructure for P2P payments

As easy as cash, or even easier and as for technology consumers require no more technology than 3.3 billion mobile phone users already have.

 

  • It is universal – accepted almost anywhere on earth?

That's up to the banks and merchants and I believe merchants are quite prepared to be flexible in how they are paid, so long as they are paid. Merchant's preferences are  influenced by cost and risk, and of course the preferences of the consumer who wishes to buy their goods. Remove the risk and reduce the cost and it would be. And I reiterate - it is only the mechanism to move the money.

 

  • It is interchangeable with other cash, unlike most plastic cards which cannot be interchanged

As I previously pointed out the mobile is not the money, only the mechanism to manipulate money.

 

  • It has a fast transaction speed

I'm perfectly satisfied that mobile transactions can compete in the speed stakes.
Even without counting the time people spend fumbling for change, it could be faster.
It's certainly faster than trucking a load of dinars back to Baghdad.

 

In respect of cash usage increasing, that could be blamed on cost and risk. Fees vary for the use of plastic to move money and may have an influence on consumer choices. When the banks look a little shaky gold goes up in price and so does cash usage, maybe there's a message for banks from consumers in the rise of cash?

If electronic money costs the consumer more than the convenience and safety it provides, then it will lose, however... 

The point to remember is that 'mobile money' is not money as such, it is merely the mechanism to move money (or cash) between parties. The merchant can get his cash in dollars or dinars, I'm sure the bank doesn't mind.

Hypothetically: 

Might the conclusions be different if mobile transactions whether debit or credit, cross-border or not, cost the merchant less than the cost of handling cash (say 1 cent for the the hypothesis), and if it was easier for the consumer with no direct cost and low risk to all because of real time settlement. Pick a time say 15 seconds? Mobile transactions also have a distinct advantage over cash - they can be safer.

Might that change the balance? I'm betting it would (I never gamble).

Inter-country remittances and transfers will be much more popular via mobile, there is no way I would accept that physical cash traveling through many hands to get to the family back in El Salvador will not be displaced by a safer cheaper alternative. Look what happened to the post office and it didn't take a century, merely 20 years.

There are a number of other factors which will always see a demand for a range of cash transactions around the value of whatever the popular vices cost. There is no avoiding cash circulating for that, so cash will be around for some time yet.

However, many of the trillions of low value cash transactions, and the majority of high value transactions will inevitably become mobile.

It's evolution. Feel free to assume otherwise.

 

ps.  And if Mike reads this - I'm only seeing cards disappear, I look forward to using my mobile at a slot in the wall which dispenses cash, probably not for the next century but certainly for a few years yet.