How much longer can politicians prop up cash?
Large brands such as Barclays and Amazon recently reversed course and allowed cash to accompany clearly digital strategies, moves that made more sense politically than economically. The question is how long public policy can be the main factor in slowing cash’s decline.
Barclays recently decided it would continue to allow cash withdrawals at U.K. post offices, which had reportedly become more expensive as the postal service hiked fees to maintain the expense of cash handling. Barclays earlier decided to halt postal cash withdrawals, but this move drew political push back.
The bank's moves come against the backdrop of a natural decline in cash in the U.K. that’s causing ATMs to disappear and has substantially changed previously cash-driven activities such as on-the-street philanthropy. While retailers rapidly digitize, much of the momentum toward maintaining cash as an option has been through political pressure.
In the U.S., Amazon Go, a checkout-free store that’s designed to provide an experience that’s as far away from cash as possible, earlier this year decided to accept cash following political momentum toward requiring cash payments as an option. Other cash-free stores have also reversed course as legislative moves progress.
Barclays issued a public statement that hints at both the expense of maintaining cash and the role of political pressure in maintaining a program that the bank had concerns about: “We have been persuaded to rethink our proposals by the argument that our full participation in the Post Office Banking Framework is crucial at this point to the viability of the Post Office network.”
The bank noted it still has concerns regarding the sustainability of relying on the postal model in the long term. Barclays' original decision to cut cash access was consistent with a broader strategy to push the envelope on emerging transaction technology.
The dilemma for policymakers is they want to support financial inclusion, which requires at least temporary support for cash, while acknowledging the market forces of digital transactions and the expense of cash management.
“Any government has a delicate balancing act, ensuring as efficient a market as possible, yet ensuring all customers are treated fairly and equally,” said Gareth Lodge, a senior analyst at Celent.
The U.K. government, for example, has intervened with the U.K. Payments Association’s plans to get rid of checks in an attempt to achieve this balance, and more recently the Swedish Central Bank’s cashless initiative has slowed because of criticism the move was too fast for the entire population to manage.
“It becomes a question about the most appropriate way to ensure the social and political aspects are delivered by commercial companies who likely have different goals and objectives,” Lodge said.
Legislators aren't the only ones who want to promote cash access. In many retail categories, consumers still expect to use cash even if they would prefer a card or digital wallet in other settings.
“Cashless prohibitions by law will remain in various jurisdictions, but market forces will still play a role,” said Raymond Pucci, director of merchant services at Mercator. “Many consumers want to use cash in grab-and-go shops, especially quick-service, fast-casual and convenience stores.”
Amazon would not say if its move to support cash at Amazon Go was tied directly to the emerging laws, or provide comment on the user experience at Amazon Go when paying cash. Media reports have said it takes up to 10 minutes to checkout with cash at Amazon Go, a store designed with non-manual payments in mind. The Amazon Go app even tells the shopper how much time each trip took — a figure that can easily be under a minute for shoppers who are familiar with the store's layout and don't pay with cash.
“The economic arguments for maintaining cash have been waning for a long time,” said Rick Oglesby, president of AZ Payments Group. “While many will claim that accepting cash is ‘free,’ in reality it has many costs.”
While most stores accept cash, the benefits of reducing cash are abundant and go beyond cost savings. Digital transactions produce a data trail, giving checkout-free stores a way to cross-sell and analyze activity in their stores. Digital payments are also safer, which was the stated reason behind India's move to pull cash from circulation, a political move that's counter to what is happening in the U.S. and U.K.
The eventual political reality will likely be a mix of these approaches.
“The cashless movement is still small and experimental; few merchants will refuse cash,” Oglesby said. “Over time, however, you can expect the governments around the world to simultaneously promote electronic payments to increase financial transparency and efficiency while also protecting cash as a fundamental means to transact.”