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I'm sorry sir, we don't accept cash

Cash only really works if everyone involved in a transaction agrees to pretend that some types of bits of paper or metal disc have more intrinsic value than others. Call me old fashioned, but beads, ivory, salt, thimbles, whale teeth, oxen and wampum were a lot more, well, tangible. I do accept that herding an ox through the shopping mall to pay for a new suit and a burger has its challenges (not least what to do with the change) but cash too seems increasingly anachronistic.

How long then, before paying with cash becomes equally archaic? Already, cash usage is in decline in most developed economies. Bulky, easy to steal, cocaine-impregnated and expensive to accept, cash has many drawbacks. And it is best not to even think about the hygiene issues associated with that grubby note handed over by the barman.

Fast forward a few years and I believe we will see cash well on its way to becoming the preserve of the elderly, the contrarian and the illicit.Today we have the majority of the components in place to hasten that decline – e-Wallets and prepaid accounts, contactless transactions, soon-to-be ubiquitous smart-phones, nearly effective regulations and practicable payment rails. Consumers, governments and businesses all stand to benefit.

With an effective infrastructure, consumers will be able to pay quickly and securely using a device they trust. Moreover they will be able to control and track their spend more effectively. This is a critical issue – research by the Fair Banking Foundation shows that being in control of our money can be as much a contributor to ’financial wellbeing‘ as actual net worth.

So what is slowing us down? We certainly have to tackle the real and perceived threats of fraud and crime; we have to get merchants and consumers to accept the attendant technology; but top of the list has to be social acceptance.  Let’s face it, IT and banking people (like me) are notoriously bad at predicting the pace of consumer adoption.

Take contactless card payments. I have no direct empirical data here, but from observation we seem to be making hard work of the job of getting a consumer to undertake the first three transactions. Once they have tried it and used contactless successfully a couple of times, experience tells us that there is a good likelihood that the consumer will use it regularly.

However, it is still difficult for customers to find fully functional terminals attended by sales staff who understand how they work. In my own experience, where I find an NFC acceptance device that isn’t broken, or tucked away under the counter, I find that I am drawn into a long and (probably mutually) unwelcome discussion at the till. My poor family knows that I tend to do this when we go shopping, but I would imagine that less dangerously zealous people are unlikely to go this far. This is great technology and, when it works properly, it provides a good consumer experience.

On the positive side, we are seeing an explosion in demand for prepaid cards. Strangely, I think the two least important aspects of prepaid cards are the fact that they are prepaid and the fact that they involve cards! The opportunity is in providing an electronic cash alternative that is (or can be) independent of a bank account. This opens up huge opportunities for government payments, currency exchange, remittances, compensation and so on. Whether the token used is a physical card, a single-use code or a mobile phone is not important. Equally, whether the e-Wallet is prepaid or operates as a form of decoupled debit is also secondary.  

Eventually, a cashless society is probably inevitable, and the physical notes and coins form of cash will seem as extraordinary as their beads and feathers predecessors. But it will likely take many times longer than the most conservative predictions. As a point of comparison, at FIS, one of our business units provides cheque guarantee services in the UK, Ireland and France. Over the last 12 months, more than 40 million cheques have been called through to our Transax service for cheque warranty or appraisal. To paraphrase what Mark Twain might have said, rumours of the cheque’s demise are much exaggerated.

The truth is that whether cheque, cash, traveller’s cheque or book token, financial instruments have a very long tail and a capacity to be reinvented. Aside from the obvious advantages of anonymity that cash brings, there is something satisfying about holding a large wad of notes – and it is an experience that many would not want to give up soon.

But in the meantime, if you are troubled by too much cash and you are looking for someone to take care of it all, you know who to contact...

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Comments: (9)

A Finextra member
A Finextra member 28 September, 2011, 16:01Be the first to give this comment the thumbs up 0 likes

A cashless and paperless society is definetly up and coming strong with organizations all over the world.  In the past few years a lot less checks have been written with more payments being made through Electronic Invoicing.  Not only is it Environmentaly correct but also it is saving Organizations Time and Money!

Melvin Haskins
Melvin Haskins - Haston International Limited - 29 September, 2011, 08:53Be the first to give this comment the thumbs up 0 likes

Ian

The Florida Turnpike in South Florida has built 10 exits where no cash payment is accepted. You cannot leave the freeway at these exits unless you have bought a pre-paid electronic tag. The main toll points have reduced their cash payment booths from 20 to 4, since 80% of all traffic on the turnpike has a pre-paid tag. It is only a matter of time before you will be excluded from being able to use the turnpike if you do not pre-pay.

An example of cash on the way out.

Mel Haskins

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 29 September, 2011, 12:36Be the first to give this comment the thumbs up 0 likes

Only mass transits, tollways and other quasi-monopolies can afford to say "I'm sorry sir, we don't accept cash". For one, as long cash is legal tender, I'd imagine that it's simply illegal to refuse cash. More importantly, for every merchant who declines cash, there's another who accepts it, so customers could equally well say "I'm sorry sir / madam, we won't buy from you". Point is, cashless methods of payments will find mass adoption only if they provide consumers with greater convenience and / or security than cash, not because they're archaic or cheaper to process by banks / merchants.

While on this subject, let me cite the example of Flipkart which has shown that cash can equally well be on the way in even in today's world for unexpected usage scenarios.  

Online book sellers have been around in India for over 10 years. But, it's the new kid on the block Flipkart that has taken book etailing to never-before heights. Its runaway success is widely attributed by analysts and market observers to a new payment method it popularized (though didn't invent): Cash on Delivery, where the customer pays by cash to the courier who delivers the consignment and doesn't need to use ePayments.

Similar examples like Kwedit in USA suggest that cash isn't going away anytime soon. 

A Finextra member
A Finextra member 29 September, 2011, 13:35Be the first to give this comment the thumbs up 0 likes

Re: Mel's comment. We do a fair amount of business in the fuel sector here. Once the car is full of diesel it is a bit late to argue about what kind of payment type is expected (unless you are a dab hand at syphoning fuel back out again).

I am curious to know what happens if, when you get to the far end of the freeway, you can't pay. I hope they don't make you drive back to where you started!

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 29 September, 2011, 14:07Be the first to give this comment the thumbs up 0 likes

@Ian B:

Not sure about UK, but with the PayAtPump (PAP) technologies that we're familiar with in USA, Canada, Australia and India, no dab hands at syphoning fuel back are required!

The motorist first inserts the card into the card reader located at the gas station's forecourt and enters the amount of fuel required. The PAP system gets a pre-authorization from the card-issuer bank and only then unlocks the dispenser to dispense fuel. Any difference between the actual and expected amounts are processed through another transaction. However, in each and every case, we've seen gas stations allowing motorists to walk into the store located inside the gas station and alternatively pay cash to the human attendant sitting by the till.  

A Finextra member
A Finextra member 29 September, 2011, 15:33Be the first to give this comment the thumbs up 0 likes

Interesting post, but I am convinced that cash will be around for the rest of my and my children's lifetimes and their children etc.

I see four reasons, which you have touched upon yourself.

1. Illicit activity
I don't see drugs/prostituion/illegal gambling/theft being eradicated any time soon.  Also, what about bribes?  How can they be paid electronically?  Of course there will be ways of covering them up, but I still see cash being the currency of choice.  Also cash is great for avoiding paying tax.

2. Limits to spending
When young, a great way of not overspending at the pub on a Friday night was to take only a set amount of cash out with me.  With cards, that's a bit more difficult (although pre-paid cards might work).  Just have to be more disciplined I 'spose.

3. Security
Zitmo, not havign all eggs in one basket etc.

4. Anonymity

Regarding contactless card payments, yeah cool tech, but what need does that address? (honest question).

A Finextra member
A Finextra member 29 September, 2011, 15:35Be the first to give this comment the thumbs up 0 likes

WRT PayAtPump (PAP) technologies - this is widespread in France and Switzerland.  Not sure about other European countries.

A Finextra member
A Finextra member 03 October, 2011, 14:31Be the first to give this comment the thumbs up 0 likes

Whilst there are examples of 'cash no longer accepted', the largest step of all is to make its replacement both universal and utterly reliable in performance. No technology has reached either of these two attributes as yet.

Reports variously suggest that as much as 20% of a countries GDP may be derived from the dodgier sectors of our economy. Can any government really ignore that? They may not make any tax revenues out of it, but they would be foolish to overlook the liquidity it provides.

Finally the taxpayer is paying for the production and management of notes and coins. I don't think this is proposed in epayments just yet, and with the governments record of delivering on IT projects, its hardly likely.

Eventually, maybe. Fifty years? At least.

A Finextra member
A Finextra member 03 October, 2011, 17:18Be the first to give this comment the thumbs up 0 likes

Dear Sirs, In Sweden close to 75% of all F2F retail purchases are paid for by cards and the growth rate is 10% measured by number of  transactions. Atm cash withdrawals are down some 8% per annum measured in both number and amount. Cheques died in 1992 when first one bank started, and then others followed, to charge customers the equivalent of 1,5 USD per issued cheque. The death struggle took some 90 days. If you today try to pay with a cheque in a department store, the shop attendant is puzzled becaude it will be the first ever encounter with a cheque. Some conveniency stores do not accept cash after 6 pm for staff safety reasons. Public transportation also demand cashless payment  for the same reason and parking meters accepting cash are hard to find. The debate is about convenience and speed of payment completion for electronic payments. It is difficult to find a merchant that does not accept card payments including taxis, news paper stores and fast food. Swedes use their cards some 200 times/annum at POS the majority of which is done with debit cards. Development in Norway is somewhat faster and Finland and Denmark show similar development. Cash has not disappeared but the volume is shrinking. Next year the banks in Sweden will introduce a realtime P2P mobile phone based credit transfer service in order to cater for payments between consumers. This will further reduce cash needs.