The electronic-payments industry, which gets a cut from every electronic transaction, wants to kill cash. But wait…
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Not so long ago, it seemed that the death of cash was both inevitable and imminent. The war against physical money was advancing on all fronts. Cash, already with technological and generational trends stacked against it, faced an imposing array of enemies, including private banks, fintech firms, telecom behemoths, credit card giants, assorted NGOs, tech magnates like Bill Gates and Tim Cook, a bewildering alphabet soup of UN agencies and many national governments. All wanted (and to a great extent still want) to accelerate the demise of physical money, for their own disparate motives.
But a study released in June by UK-based online payments company Paysafe confirmed that consumers on both sides of the Atlantic continue to cling to physical lucre: 87% of consumers surveyed in the UK, Canada, the US, Germany, and Austria said they had used cash to make purchases in the last month, 83% visited ATMs, and 41% said they are not interested in even hearing about cash alternatives.
Now, even certain branches of government are pushing back against the cashless trend. In Washington D.C., city councilors have introduced a new bill that would make it illegal for restaurants and retailers not to accept cash or charge a different price to customers depending on the type of payment they use. The bill is in response to efforts by retailers in the city and around the country – like the salad chain Sweetgreen – to go 100% cashless.
Such moves have been decried as discriminatory against the roughly one-quarter of people in the U.S. who would have trouble using a card or some other electronic means of payment, not to mention those who would just prefer to use cash. “Certain underbanked customers have to use cash; they don’t have other alternatives. Other customers feel more financially responsible if they use cash as opposed to digital payments,” said Wei Ke, a partner at Simon-Kucher & Partners, a management consulting firm.
Another important institutional body that has leaped to the defense of physical money is the People’s Bank of China (PBOC), which last Friday announced that all businesses that are not e-commerce must resume accepting cash by mid August or risk being investigated. In a statement the central bank also warned businesses and individuals not to hype up the “cashless” idea when promoting non-cash payment.
Given that China is the world’s largest mobile payment market, with a record 81 trillion yuan (US$12.8 trillion) in mobile payments last year, the PBOC’s move to defend cash is significant. China was widely expected to be the first major nation to move towards a completely cashless society.
Its mobile payments market is dominated by a few Internet behemoths, with Tencent (owner of Tenpay) and Alibaba-backed Ant Financial (owner of Alipay) occupying respectively 40% and 54% of the third-party mobile payment market. In August 2017 the two companies promoted the idea of a cashless economy by distributing rewards to customers and shops using their platforms. During the marketing campaigns, some merchants rejected cash as payment, arousing complaints from customers.
The central bank deemed the refusal of RMB illegal, which prompted Ant Financial and Tencent to quietly remove the word “cashless” from their promotion materials. What the PBOC wants is to establish greater oversight and control over China’s vast mobile payments industry as well as gradually erode the dominance of Ant Financial and Tencent. To that end, it recently mandated that mobile payment groups must channel payments through a new clearing house, of which central bank-affiliated institutions are the largest shareholder.
“The regulation for non-banking payments was relatively loose in the previous years in order to support the innovative industry,” said analyst Wang Pengbo at research firm Analysys. “As it is growing much bigger, the central bank is taking more control.”
Now, the PBOC has taken its defense of cash a step further by giving physical stores just one month to get back to accepting cash or risk facing an investigation by authorities. According to Forbes, Chinese retailers’ rush to reject cash was causing “unforeseen” issues, such as excluding some consumer sectors (e.g. foreign visitors to the country, the elderly and children) from parts of the economy.
This exclusionary feature of cashless payment systems is an issue that keeps cropping up in countries that are close to eliminating cash. In Sweden, the first European country to enlist its own citizens as guinea pigs in a radical economic experiment — negative interest rates in a cashless society — the pace at which cash is vanishing is even beginning to worry the same authorities that wanted to get rid of it in the first place. If physical money disappears too quickly, it could be difficult to maintain the infrastructure for handling cash. And that may be enough to spark a crisis.
Apparently, most Swedes do not even want to live in a fully cashless economy. In a recent survey on the matter 85% of the oldest demographic, the 65-year-olds, wanted to keep cash. Even among the 18-29 year old respondents 56% declared that they still want to keep cash while 38% said they would welcome a cashless society. Their reservations will probably have grown in recent weeks, following the outage of Visa services in Europe in June, which left millions of customers across the region unable to make payments using their cards. The incident served as a reminder of one of the great benefits of cash: it doesn’t crash.
Until a cashless system can be created that is 100% safe from the threats posed by natural disasters, accidents, cyber criminals and basic human incompetence and does not exclude large swathes of the population from participating in the economy, most consumers in most countries will continue to cling to cash. No matter how aggressively banks, fintech firms and credit card companies “nudge” their customers towards digital services, the death of cash may not be as imminent as it seemed just a few years ago. By Don Quijones.
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