Why the 'cashless challenge' is counterproductive
Despite the best efforts and significant budgets of those who seek to replace cash with more efficient digital alternatives, paper money refuses to shuffle off its mortal coil.
Visa’s “cashless challenge” is the most recent attempt to persuade both consumers and merchants to drop cash in favor of cards. The company describes it as a “call to action for small business restaurants, cafés or food truck owners,” with Visa offering up to $10,000 per business that commits to rejecting cash from its customers.
Specifics of the program are vague and Visa has not responded with further details of the terms and conditions of the program, such as how long merchant participants are expected to shun cash, but the company is likely to have a significant uphill struggle in converting probably the most cash centric of business verticals — small food vendors — to digital transactions, particularly in the U.S.
Even worse: The promotion could wind up highlighting the shortcomings of digital payments, particularly for merchants who see the prize money as too little, too late for all the investment they've had to do so far to accept EMV and mobile payments.
Cards faster than cash? Wait a minute ...
American businesses have only recently switched to EMV transactions and are likely to still be experiencing teething trouble of both a technical and educational nature in getting customers to complete the requisite moves to get a chip card transaction to process. Even in a best-case scenario where both merchant and consumer are familiar with EMV, consumers are still irritated by the need to keep their cards in a reader for longer than they're used to. For this very reason, there are still a number of large QSR chains that have yet to turn on EMV acceptance in the U.S.
For a small merchant that is likely to have a similar small daily transaction window of the morning coffee run or the lunchtime food truck pilgrimage, these critical seconds count. Only in a scenario where the transactions were not card but mobile wallet, would there be a potential advantage and with tepid uptake thus far, it is unlikely that small merchants would simply abandon cash. Further, where’s the advantage here to Visa, as effectively they give up their "cashless" publicity stunt and marketing dollars to benefit Apple, Google and Samsung?
Visa is planning to launch the “cashless challenge” other countries, with an initiative also planned to run in the U.K. as a beachhead on an anticipated European expansion. Perhaps it would have made more sense to launch the challenge in the U.K. before bringing it to the U.S.
The U.K. recently hit a retail payments inflection point: For the first time ever, there were more card transactions made than cash. Much of this is attributed to the meteoric rise of contactless cards in the U.K. that accounted for a third of these payments.
The speed and convenience of contactless, combined with other use cases such as mass transit with the massively successful TfL Oyster Card, have been seen as catalytic in this success.
'Dying' cash is 8x bigger than mobile at the point of sale
Cash is in an indisputable steady decline, but it has a long way to go before reaching rock bottom.
Forecast data from Javelin estimates that in the U.S., cash transactions at the POS will drop to $711 billion by 2019, a decrease of nearly $100 billion since 2014. Though the numbers are big, this figure represents just a 1% year-on-year decrease in cash at the POS in terms of the overall payments mix. For further context, a 2016 report by Javelin forecasts that mobile proximity payments in the U.S are “expected to surge to $92 billion by 2019.” So, if ALL mobile POS transactions (Apple, Android, Starbucks, Samsung, Chase, etc.) catch on and grow from a current level, they will still cumulatively represent just 12% of the value of cash at the checkout.
Cash certainly has its drawbacks in costs to manufacture, maintain and transport; it is easily stolen or lost and it is arguably slower and more cumbersome that electronic equivalents. However, these attributes pale in significance against the one thing that keeps cash relevant: Its universal trust and acceptance by both merchants and consumers. Inertia is a powerful force and persuading people to change what is literally the habit of a lifetime won’t be easily done.
Visa’s decision to bring the fight directly to this segment of small merchants is audacious, but understandable.
According to the Federal Reserve Bank of San Francisco, cash represented 62% of sub-$10 transactions and 52% of food purchases in 2016. Visa is therefore going to war with cash in a merchant category where cash is at its strongest. Success in the “cashless challenge” would be a coup, persuading merchants and consumers that cards (and contactless) are better than cash; if Visa pulls this off, it bodes well for transitioning other, less hostile merchant segments. The obstacles to Visa doing this are not insurmountable, but are nonetheless formidable.
The $10 card cultural taboo
There are cultural expectations for specific payment types that we have been conditioned to respect.
Visiting a neighborhood pizza joint or a corner cafe, it is still common to see a handwritten sign warning that card transactions have to be over $10. Collectively, we have been trained that mom and pop businesses begrudgingly accept cards whether that sign is there or not — cash is preferred in order to bypass interchange and other charges. Some businesses still accept only cash, or at best have started using a mobile point of sale dongle rather than going all-in on a countertop system.
Cards aren’t cool, at least not in these locales, so to win over both merchants and consumers, there needs to be a clear advantage to dropping cash.
For cash to truly go away, there need to be not just technological shifts, but cultural ones too. Visa’s cashless challenge may be well timed for the former, but U.S. society is nowhere near ready for the latter.