War on Cash bogs down, despite best efforts of government, banks, and credit card companies.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain’s third biggest lender, CaixaBank, has just launched a pilot project in Madrid aimed at limiting cash services in their branches to less than three hours a day, from 8:15 am to 11 am. After that point, all cash operations, including the settlement of bills and cash withdrawals and deposits, must be conducted through an ATM.
Caixabank is not the first Spanish bank to try out such a scheme, but it is the biggest. Spain’s fourth largest lender, part state-owned Bankia, has removed all cash services from select branches (including my local branch), forcing customers to withdraw or deposit cash at the ATM or travel further afield to another branch that still offers cash services.
It’s part of a broad trend. Bank branches are increasingly becoming so-called “customer advisory points,” where the primary role of branch staff is to sell customers a myriad financial products, many of them no doubt risky.
Those same customers are forced to perform many of the more rudimentary bank operations (cash withdrawals and deposits, transfers, payment of bills…) themselves, either at the ATM or online. It’s a great way of getting your customers to do your work for you while also cutting back on staffing costs.
Spain’s banking industry has already witnessed a savage cull of branch and office staff since the financial crisis began as many banks collapsed while those left standing closed many of their branches. In 2016 the total number of workers in the sector was 189,280 — 81,605 fewer than in 2009. What’s more, it’s a trend that shows little sign of ending, especially with most other banks almost certain to follow CaixaBank and Bankia’s lead in paring back their cash services.
But this is not just about saving money; it’s about trying to force a dramatic change in customer habits. The more difficult banks make it for their customers to use cash, the more likely those customers are to turn to alternatives, such as P2P payments and wallets, contactless cards, mobile money platforms or CaixaBank’s very own contactless payment bracelet. At least that’s the thinking.
In the last couple of years, Spanish banks have pulled out all the stops to promote cashless payments, but to little avail. As in Germany and Italy, cash is still very much king at the point of sale (POS) in Spain, accounting for 71% of all retail transactions in 2016 — compared to 74% in 2011. In other European countries such as the UK, the Netherlands, Poland and Sweden the decline in cash usage has been far more dramatic.
Hence the need to make it harder and more time-consuming for bank customers in Spain to access physical money. But it’s not all stick; there’s also the occasional carrot on offer for those willing to make the shift to cashless payments.
In October the sleepy town of Suances in the northern region of Cantabria was home to a rather curious open-air experiment in cashless economics called “Cantabria, Digital Payment.” The scheme was led by the region’s somewhat Orwellian-sounding Modernization Forum and was co-sponsored by MasterCard (which gets a cut every time someone makes a payment via its system, rather than wish cash) and Banco Santander.
The initiative began with a ‘Digital Payments Marathon’ in which local residents were strongly encouraged (but not quite forced) to pay all their daily purchases electronically or digitally in establishments that voluntarily took part in the initiative, and then register their transactions through an ‘app’ that had been purposefully designed for the activity. At the end of the four weeks, the most active cashless citizens and establishments received a small prize for their efforts, including lower credit card charges for businesses.
Then there were the cashless ambassadors — 10 local volunteers who were given a contactless payment bracelet precharged with €150 to live out a whole week without using physical cash.
The pilot scheme was aimed primarily at enhancing the “financial skills and digital training of local citizens,” said Eva Díaz Tezano, the vice president of Cantabria’s regional government and head of the Modernization Forum. “We hope to be able to demonstrate to all Cantabrian stakeholders, to society at large, that transitioning towards cashless payments, whose applications do not cease to grow, is to the benefit of all,” she said.
Javier Aranduy, account manager of Spain for MasterCard, could not agree more.
“(Going cashless) has benefits for both retailers and consumers who can receive and make payments in a faster, simpler and safer way.” It also has huge benefits for MasterCard, for whom cash is still the biggest competitor. But not for much longer, according to Aranduy. “The process of paying exclusively with electronic methods, to the detriment of coins and notes, continues to advance inexorably,” he said.
Spanish consumers seem a lot less convinced. Indeed, so “inexorable” is the shift toward electronic methods in Spain that the use of cash has barely slipped a beat in the last six years, despite the prevalence of cashless technologies. Hence the need for such extravagant open-air experiments involving blatant financial inducements for participants, or for banks to make it increasingly difficult for their customers to access their own physical cash.
As MasterCard, Santander and Spanish authorities well know, Spanish consumers remain wedded to physical money. In a recent study, Analistas Financieros Internacionales, a major financial consultancy group, found that seven out of ten Spanish citizens continue to make most of their payments in cash, three out of 10 retail establishments do not accept card payments and one out of six stores with an electronic POS set a minimum amount for card payment.
In other words, the Spanish authorities and banks will have to offer a heck of a lot more carrots and wave a lot more sticks to persuade Spanish people to abandon physical lucre in favor of cashless payments. By Don Quijones.
But how did things get this bad? Read… Spain’s Pension System Hits Crisis Point (and Everyone Ignores it)