By Dale S. Laszig
DSL Direct LLC
It's no secret that the payment card brands would like to see cash go away. Representatives from American Express Co., Discover Financial Services, MasterCard Worldwide and Visa Inc. have vowed to replace cash with greener digital technologies.
Now that Sweden is modeling the way to becoming a cashless society (see "What Sweden can teach us about the future of payments," by Kirsty Tull, The Green Sheet, April 13, 2015, issue 15:04:01), some business owners see a cashless future within reach in the United States. However, some U.S. payments analysts feel that cash will not go quietly, citing numerous examples of how disruptive technologies have failed to unseat incumbent payment schemes and have ended up coexisting in a patchwork payments ecosystem.
According to MasterCard's Cashless Journey project report, published in 2013 by MasterCard Advisors, cash accounted for 85 percent of $63 trillion in global consumer spending, despite an array of "non-cash options." Author Hugh Thomas and contributors Amit Jain and Michael Thomas studied the impact of cash versus noncash payments, positioning heavy cash usage as a possible "indicator of other economic problems."
How do cash payments impact global economies? Following are differing views from business owners, card brands, healthcare professionals and payments industry stakeholders.
Research performed in 2013 by Dutch and Turkish healthcare professionals identified several strains of bacteria on banknote paper. They shared their findings in "Money and transmission of bacteria," published in BioMed's Antimicrobial Resistance and Infection Control Journal.
"Globally, money is one of the items most frequently passed from hand to hand," wrote researchers Habip Gedik, Timothy A. Voss and Andreas Voss. The authors stated that money can become contaminated and play a role in transmitting infectious microorganisms. They also found that "the general hygiene levels of a community or society may contribute to the amount of microbes found on coins and notes, and thus the chance of transmission during handling of money."
New York University Professor of Biology Jane Carlton led the NYU Dirty Money Project in 2014 as part of a broader initiative that studied "the microbes all around us." Researchers studying paper currency also discovered infectious bacteria, leading Carlton to say that "some of the one dollar bills in New York City are really nasty."
Costs related to accepting cash can make interchange fees seem like a bargain to some retailers. The cost of cash in the United States, a Tufts University white paper published in September 2013, found that managing cash costs the United States approximately $200 billion a year, with $55 billion in business costs, $43 billion in consumer costs, and $101 billion in lost tax revenue resulting from off-the-books transactions.
The paper's authors, Bhaskar Chakravorti and Benjamin D. Mazzotta, found three major cash-related costs among 130 business owners surveyed are theft, security services and money handling. Large merchants generally pay higher cash-handling costs stemming from theft insurance, security and logistics services, losses related to employee theft and change-making errors, and accepting counterfeit currency.
"Cash costs and management processes differ greatly across firm size," they wrote. They also pointed out that large businesses invest in optimizing cash operations, while small businesses are less likely to upgrade the ways in which they manage cash.
Despite overwhelming evidence of the high cost of paper and coin-based transactions, survey results indicate that using cash may be a difficult habit to break. A majority of respondents don't see appreciable benefits or significant cost savings in eliminating cash.
Chakravorti and Mazzotta also observed that U.S. consumers spend an average of 28 minutes a month traveling to ATMs, which equates to 5.6 hours yearly. They also found that the physical properties of cash make it awkward for consumers to carry to stores for major purchases, ATMs place daily limits on cash withdrawals, and unbanked and underbanked consumers pay disproportionately higher fees when using cash.
"The current banking and payment infrastructure is stacked against consumers at the lower end of the economic ladder," said Alex Cooper, founder and Chief Executive Officer of Rezzcard. He feels it's a misconception to think that underbanked consumers have no interest in making purchases online with electronic payment methods or in using credit cards at the POS. "The financial services industry needs to move quickly to adopt new credit scoring models and remove the obstacles that restrict the underbanked from getting access to credit or qualifying for a loan or even checking account," he said.
Consumer advocate and blogger Dave Ramsey cited pros and cons of using cash versus credit. The positives include using cash as a basis to negotiate a good deal, as a protection against overspending and for simplifying purchases. The negatives include a potential to overspend, the lack of recourse for lost or stolen money, the inability to book travel without using a credit card, and time-consuming payments in brick-and-mortar stores.
Cash enables users to go incognito, without broadcasting their geolocation status or brand preferences to the hyper-connected world, which can be a good or a bad thing. Peter Sunde, founder of The Pirate Bay and micro-donations service Flattr, said a cashless society would inhibit discretionary spending.
Digital currencies such as bitcoin also facilitate anonymous transactions, according to Marc Goodman, a global security officer, futurist, and author of Future Crimes: Everything is connected, everyone is vulnerable, and what we can do about it.
"Though bitcoin, like all forms of money, can be used for both legal and illegal purposes, its encryption techniques and relative anonymity make it strongly attractive to criminals," Goodman wrote. He further noted that "it should come as no surprise that criminals are not only transacting bitcoin but also targeting the crypto currency for theft."
MasterCard's Cashless Journey researchers observed that payment technologies have changed more in the past 15 years than in the previous 150, yet cash remains the most common payment method in the world and will remain in use for some time to come. Despite a strong desire on the part of many stakeholders to implement a fully electronic payments system as soon as possible, MasterCard researchers concluded "the global cashless journey is just getting underway."
Dale S. Laszig, Staff Writer at The Green Sheet and Managing Director at DSL Direct LLC, is a payments industry journalist and content provider. She can be reached at dale@dsldirectllc.com and on Twitter at @DSLdirect.
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