As payments systems globally have evolved traditional paper-based transactions into electronic ones, predictions about the rise of the cashless society have become increasingly relevant.
From the introduction of the payment card to the more recent development of mobile-payments, digital alternatives have ensured many assume cash and cash use must be on the decline and will ultimately become defunct. This is not unfounded, though it is arguably naive. According to the Payments Council data collected in May this year, 2014 was the first year in which cashless payments overtook the use of notes and coin. Plus, the report showed that use of cash by consumers, businesses and financial organizations fell to 48 per cent (down from 52 per cent in 2013), while 4.4 per cent of Britons even reported that they “rarely use cash” anymore.
Yet despite the efforts to displace it, cash has not disappeared. It is not defunct. And according to the Bank of England, it is unlikely to become obsolete any time soon.
Going cashless would have a huge impact on business success and crisis survival
One of the primary reasons cash remains powerful, as well as one of the crucial reasons to retain it in the future, is the hugely detrimental effect going cashless would have on business.
Take its influence in the viability and success of small and micro-businesses. Cash can be imperative for the birth of start-ups and can play a critical role during their infancy. The initial cost of innovation paired with losses made on digital transactions may in fact result in the inability of these start-ups and small companies to make it off the ground in the first place. This is the exact reason why so many bars and small retailers have minimum card payments to stem the flow of unmaintainable costs.
For micro-businesses – companies comprising of one to ten employees – cash is also crucial for bill paying. Alternative payment options can take longer to process, leading to unnecessary late fees. Also, when it comes to loans, having cash on hand means a small business can be more nimble, more capable of taking advantage of opportunities to expand or make acquisitions without loans.
Another crucial thing to remember is having access to cash allows for greater crisis preparation and survival in a downturn. No company works at full potential all the time, particularly in a recession. In order to avoid downsizing or declaring bankruptcy, cash is useful to pay off fixed expenditures before hunkering down. The same goes in a crisis where it’s necessary to pay off legal fees or unexpected costs. Without cash, money physically does not exist. For example, if a card provider goes under, businesses run the risk of losing their livelihoods but cash acts as extra security to a business. This is why cash is the ideal emergency fund. Even if everything else goes wrong, it will maintain its inherent value as currency.
Security is crucial to bear in mind when considering going cashless
In matters of business and equally in personal affairs, security is considered paramount. Many critics have emphasised the potential security risks and infringement upon freedom that could be abused in a society with no physical currency. In the wake of Andy Haldane’s speech just a few weeks ago, in which he posited the benefits of a society without cash, this is particularly poignant.
Traditionally, the reluctance to remove cash has been more noteworthy in the US, with Thomas Jefferson declaring in his inaugural address that government should leave Americans “free to regulate their own pursuits of industry and improvement, and … not take from the mouth of labour the bread [income] it has earned.” Likewise in the UK those more sceptical have expressed concern for the potential violation of freedom. As elite political planners (whether elected officials, central bankers, or unelected officials in multilateral, supra-governmental bureaucracies) constantly strive to increase government supervision and control over economic activity, there is potential to not just track wealth, but to control it and tax it further. There’s the potential to incentivize (read: force) people to go out and spend their money instead of saving for the future.
The fact is that arguments like Haldane’s, which would have paper currency abolished and negative inflation rates imposed, ultimately takes away from the pockets of the everyday person. It also takes away from the entrepreneurs looking to start their first company, from the young business that wants the safety of a rainy day fund.
Cash acts as the bastion of businesses
Whilst it may seem farfetched, it is necessary to consider that even though today it may be safe to put trust in current governments and institutions, once the decision to go cashless is put in motion, there is no turning back. The implications of giving this trust to such bodies now, may be something that is hugely regretted in the future.
Therefore it becomes clear cash plays a crucial role in business.
Similarly, society is not ready to go cashless
The fact that cash is still so in demand emphasises society is not ready to part with its paper and metal just yet. As John Kay reported in the Financial Times, not only is cash in circulation increasing more rapidly than national income but the total volume of notes in issue is equivalent to £1,000 for every man, woman and child in Britain. This is even higher in countries like America and the rest of the Eurozone.
A large factor in the continued need for cash, including the vast amounts accounted for by the Bank of England and US Federal Reserve, include the manifold societal barriers to cashless economies. As the Telegraph reported, not least of these is the effect of cashlessness on the elderly, very poor and homeless. For those with no fixed residence or who need to keep tight control of their finances, using cash is more than a skills issue. Instead it means they already have extreme difficulty maintaining a bank account or phone contract. Removing cash could scupper this further, making the poorest more dependent on government handouts and charity than ever before.
Similarly, paper money costs nothing to hold. It carries no incremental risk (other than physical theft). However, converting cash into bank deposits comes with fees, often earns negative interest, and exposes savers to substantial losses if the bank collapses. This is why keeping hard cash is beneficial for those on low incomes, despite the array of new banking options.
While it is important that innovation is not quashed, the fact is there are reasons for why both cash and new forms of payment are beneficial.
It is about ensuring no part of society is excluded or entrepreneurialism hampered.
It is about allowing individuals and businesses to be at their most nimble and most financially aware at all times.
This is only possible with cash in the modern society.
About Jenny Campbell:
Jenny Campbell is an ex-career banker turned business owner and entrepreneur. She is the owner and CEO of YourCash Europe, a pan-European business that provides cash machines to the retail market. Today YourCash handles over 77 million ATM transactions, while processing over £3 billion in cash value across the United Kingdom, the Netherlands and Belgium, with new territories set to open in the future as well as the innovation developments on the ATM to combine m-commerce payment services with cash. She is also Vitalise Business Woman of the Year 2014.
As the countdown to Christmas begins, Jim Wadsworth, managing director at Accura, pinpoints five ways businesses can prevent fraud and avoid targeted risks.
Payment terminals have stayed the same over the last 10 years, with steady advances in contactless and mobile wallet transactions. Retailers and brands are making a conscious effort to get closer to consumers.
Insurers went online a long time ago, but one of the major challenges has been creating an online experience that can handle the relatively complex insurance “form-filling” process. Jonathan Attwood, CEO of Fospha, explains how his company's toolset can help insurers more accurately track their customers' behaviour.
In this guest post, Lee Britton, commercial director of Prepaid Financial Services, contrasts the fortunes of fintech startups that choose to scale with the backing of major banks with those that opt to go it alone.