Show us the money – why less attention should be paid to rumours of cash’s demise
Endless references to the rise of electronic payment systems ignore the fact that hard currency is widely used around the world for many different reasons
It would be easy to assume that the headlong rush towards electronic payment systems might signal the death of cash. However, the case for cash has an equally compelling narrative.
From its introduction in 700BC, cash has proven itself the great survivor, and remains the most popular payment system across the globe. More cash is in circulation now than ever before. Rumours of its demise, therefore, should be treated with some caution.
There is a view that societies that have not yet climbed on the digital bandwagon are somehow lagging behind, when they may simply be responding to the needs, values and choices of consumers at a comfortable pace. The references to electronic payment systems inexorably replacing cash are inconsistent with reality.
Sweden, the Netherlands and China, where e-payment systems are dominant, are outliers. Although migration to electronic payments may be gathering pace, there is data that suggests it is not at the expense of cash. Rather, payment systems are finding their own levels, meeting different needs, and there is room for all.
The degree to which electronic systems gain traction depends on the different social and cultural imperatives in different communities. For many, cash is used as a convenience for small purchases, as a budgeting tool, and as a way to control the individual’s financial information.
The dynamics propelling the use of cash and the adoption of electronic payment systems are themselves illuminating.
In Hong Kong, a close-knit city, cash has a social dimension to its use in neighbourhood stores. In Taiwan, the popularity of ATMs makes for a high “cash spend” ratio.
Germany, among its European peers, is one of the highest users of cash. Its fondness for hard currency doesn’t emanate from a resistance to the use of plastic – it is influenced by concerns over trust, privacy, and government control.
The USA’s size, the disparate nature of its banking system and the lack of card use in a sizeable proportion of the population all contribute to the part that cash still plays. Across all demographics, most people always hold cash in their wallets, either for small transactions or for emergencies, or a mix of both.
In Britain, cash accounts for around 40 per cent of total payments. Recently, the chief cashier of the Bank of England indicated her reluctance to use contactless cards because of a basic distrust of the technology and its exposure to risks of abuse through the likes of hacking.
Fraud related to contactless cards has significantly increased and now exceeds that of cheque fraud, one of the reasons why the limit of £30 (HK$332.71) for contactless cards is unlikely to be raised any time soon. Credit bubbles are another potential challenge.
On the other side of the coin, Sweden and the Netherlands, with high degrees of trust in their governments and seeming unconcern surrounding privacy issues on data gathering, have reached a point of almost being cashless.
In China, the penetration of mobile phones and the popularity of online sales have made the adoption of electronic payments convenient and universal, and this has spilled into more mundane everyday shopping for necessities.
Vendors, especially small- and medium-sized enterprises, must weigh the costs of investment in QR readers against the commissions charged by credit card providers versus the cost of handling cash. On the whole, cash works out cheaper, easier to manage and control.
Even as technology and commercial considerations appear to be the driving forces behind the push to eliminate cash, it would be folly to ignore the human element. To fulfil consumers’ expectations, all forms of payment will more than likely have to be accommodated, at least for the foreseeable future.
Against that background, it would be wise not to write off cash just yet.
Gordon McKie is global chief executive of Cashmaster International, a company specialising in cash management solutions