Let's go easy on cash
“Cashless” is a buzzword today, and becoming cashless no matter what is becoming an obsession.
In extreme cases, retailers choose to stop accepting cash altogether, prompting the powers that be to intervene in favor of those who stick to cash. Cash is enduring — and in many cases, prevailing. Should we fight it? I think we shouldn’t. Any orthodoxy is wrong, and bending the reality to match the conviction is rarely a working business strategy. Instead, our industry should work toward making cash easy to use in a digital environment with digital financial services at point of sale, gradually winning over cash users to our shared all-digital payment cause.
Temptation is strong to press for regulatory frameworks that favor cashless payments, though. Risking preaching to the choir, I’ll list the principal motives that make different stakeholders ardently support cashless payment adoption. For society at large, widespread acceptance of electronic payments means less tax evasion and less corruption — which, given the proper governance, leads to better government services.
For the government, less physical currency means more efficient spending. Just think about it: The Federal Reserve spends around $1 billion per year for physical currency production and handling, which is equal to approximately two days' value of all the money printed annually in the U.S.
For the merchant, going cashless means less employee fraud, less money-handling expense, lower exposure to robbery and violence, and easier access to financing. For the consumer, cashless payments ultimately can mean better infrastructure, better state services and benefits, all with potentially lower taxes.
Given the strong arguments in favor of eliminating cash, it may seem that going cashless should be common sense. So, why is cash proving so resilient?
“When all you have is a hammer, everything looks like a nail," the popular saying goes, attributed to Buddha, Abraham Maslow, and a number of others. The payment industry in its hubris did not avoid falling into this trap. Many of us think that underdeveloped infrastructure, or underperforming banks, and other purely technical factors are preventing the world as a whole from happily going cashless. This could not be further from the truth.
Surprisingly, countries as different as Germany and Zimbabwe are still heavily reliant on cash. Countries as opposite in every respect as Sweden and China use consumer electronic payments heavily.
My hypothesis is that cash usage strongly corresponds with the level of trust that exists in the society — not so much with the level of their technological development.
Why is trust important? Electronic payments in most cases imply an intermediary. Paying in cash is a one-to-one transaction, almost always an immediate one. (This may sound like an argument in favor of cryptocurrencies, but it is not. Electronic payments and cryptopayments are both electronic and one-to-one, but, unlike electronic payments, nonstate cryptocurrencies won’t have the nation states defending them, rather the opposite, as we have recently seen from the reaction of France’s Central Bank to Libra’s white paper. Cryptocurrencies in most cases lack the immediacy, too, at least on their current technical implementation.) So, trusting one’s money with an intermediary requires a level of trust that simply doesn’t exist in many places — with reason or not.
One may ask, how can it be that Germany, one of the champions of social democracy in the Western World, lacks societal trust? Likewise, how can it be that China, considered an authoritarian dictatorship, has enough trust between economic actors so that any street food vendor or a beggar in Shanghai accepts QR payments with WeChat?
It may be argued that Germany’s ongoing cash reliance has reasons similar to Zimbabwe’s, yet a bit more distanced in the past. Trying to understand it brings us about 100 years back, in the age of a trauma that apparently still haunts the German psyche. In 1923, the exchange rate reached 4.2 billion DMs for one U.S. dollar in what is one of the world’s worst cases of hyperinflation to this day. Workers were paid twice a day, so that their wages wouldn’t lose value in the evening. Is this the reason why 100 years after, an average German still carries around five times more cash than an average Scandinavian? According to a German Central Bank study, the psychological trauma of German hyperinflation was still there in 2009, decades after the events. It is hard to tell if it’s the only reason, but Hungary, a country that had a hyperinflation experience even worse than Germany’s, has a similar pattern of cash usage, about a 100 years later.
Reasons for the public to oppose the switch to cashless payments are sometimes deeply rooted within every country’s culture and collective past. Circumstances like unreasonable taxation, widespread corruption and a shadow economy hamper the adoption, too.
All these factors are outside of our industry’s sphere of control, and won’t change overnight, no matter what technological miracles we come up with. Instead, should work this rice field for many years to come.
For those who prefer cash, we should offer ways to participate in the digital economy. All we can expect is that the ease of use and convenience that our industry has to offer will gradually win customers over. The arrival of digital natives will improve the adoption rates, too.
The critical part of the process are digital financial services at point of sale. By digital financial services I imply a technology that facilitates a provision of financial services in the points where consumers physically visit anyway, like grocery stores and other businesses. Today, we can (and should) turn every corner shop into a financial services provider, and every mobile phone into a gateway to everyday financial services with payments, remittances and peer-to-peer loans. In this scenario, a consumer’s cash will end up in their favorite shop’s cash register, and continue to exist in virtual form. Since it is quite inconvenient to exist in the digital environment using nondigital means, sooner or later, the consumer will change their habits. The existing trust that the customer has towards their favorite shop, and to their mobile operator, will facilitate this gradual convergence.
All in all, wielding a shiny new hammer of payment technologies, we want to hit everything with it, without even realizing that factors that hinder the adoption have little to do with payments as such, and are clearly out of our control. Let’s not deceive ourselves: cash will continue to exist in the middle-to-long perspective. It is us who should adapt to society.