The Future of Ca$H: Will Digital and Mobile Money Work For All?
Is cash king? Or, is cash following the same path as Blockbuster and the Yellow Pages, replaced by digital methods?
It depends. Depending on who you ask, where you are, what purpose the transaction is, etc. Cash has a long history making it comfortable for people to use, is universally accepted, requires no middleman, and is private. It really is your money, you can hide it under the mattress if you want, or spend it as you see fit, with little oversight or interference until you hit thresholds. In general though, the thresholds are quite high and designed to thwart money laundering, not normal transactions.
The Cost of Cash
However, ironically enough, cash is expensive to use, especially for poorer segments of the population. For those without a bank account, there are fees to convert to cash, such as check cashing fees. There are also withdrawal fees, and in many cases people are charged twice, both by the ATM provider and their own financial institution. There is also travel time to consider, the cost and inconvenience to get to a cash distribution point.
For merchants, while there aren’t specific fees assigned to handling cash, there are costs. Costs in time to count and sort the money. Costs to secure and transport the cash. And, costs of theft and other forms of loss.
There’s an increasing abundance of different ways to pay, most either fully digital or highly reliant on modern networks. The list includes credit cards, debit cards, mobile payment apps, mobile payment platforms, and cryptocurrencies. The promise of these platforms is to make payments easier, quicker and more seamless; each has advantages and disadvantages, as well as different backers and use cases, making apples to apples comparisons difficult.
In general, merchants need to have the proper equipment/terminal in place, pay transaction fees and have a payment gateway in place. While the costs and burdens are on the merchant, they provide a convenience to their customers, hoping for increased business to offset the expense.
Cash, by the Numbers
Just four years ago (2013), cash accounted for 85 percent of all transactions. However, in 2016, for the first time, card payments surpassed cash accounting for $23.1 trillion in transactions and is growing at 6.6 percent vs 1.3 percent for cash. Even more dramatic is the growth in mobile payments, which is at 23 percent.
While demonstrating a definite trend, it also illustrates the fracturing of payment methods, with multiple methods holding a significant share of transactions. Cash use, as a global percentage, is shrinking, but in some markets, it’s almost gone.
Sweden, for example, is a world leader in eliminating cash. Over half of all Swedish banks don’t have cash on hand or take cash deposits. Cash is used only ~ 20 percent of the time and accounts for less than two percent of all the value of payments. While cards are currently the main form of payment, Swish for P2P payments and iZettle for micro-merchants are increasingly popular.
It’s not only modern, digital-friendly countries that are moving away from cash. African nations such as Kenya, with its M-Pesa platform are also quickly adopting mobile payments. In seven Sub-Saharan nations, over 40 percent of the population is actively using mobile money.
On the other side of the coin, there are some countries that still are highly reliant on cash. For example, in Saudi Arabia, Egypt, Malaysia and Peru, 99 percent of all transactions involve cash. Some of the issues are technological; there aren’t the terminals, infrastructure, platforms or products to enable wide-spread adoption.
The Comfort of Cash
But a lack of technology is not the only reason that cash still is the transaction medium of choice. For example in Japan, a high level of personal safety makes it normal to have large amounts of money. Putting money into an account to earn negative interest doesn’t hold a lot of appeal to them.
There’s also cultural reasons for wanting to use cash; some people aren’t comfortable using digital money and prefer the tangibility of cash. Last year in India there was a massive move to demonetize by invalidating 500 and 1,000 Rupee bank notes. While digital money use did take off —Paytm, a digital payment provider gained over 100 million customers since November— digital transactions dropped 27 percent upon removal of cash withdrawal restrictions.
According to Rethish Varma, a researcher at MarketSmith India, “Governments across the globe want to curtail cash transactions to curb the shadow economy, but cash is not showing any signs of becoming obsolete anytime soon, even with all the digital payment channels.”
It is the proliferating payment channels that is the real story. Merchants should look to adopt as many forms of payment as possible. There will be early-adopters that prefer a new app or platform; offering those options can expand your customer base. Having payment flexibility delivers more convenience to the customer and in this era of multiple buying options, it makes sense to not let a lack of payment options stop a sale.
For the foreseeable future, there will be people who want to pay with cash. For those of us in fintech, while we are enamored with the latest digital money possibilities, in the end it’s about the customer and their needs. If people want to pay in cash, why not take the money?