This summer so far has certainly been an interesting time for the credit card companies. The recent Visa outage raised issues for those intent on a cashless society. What is the fallback solution in the absence of cash? At the same time, as we have mentioned elsewhere, questions have been raised by the central banks in Sweden and the Netherlands regarding the speed of such change and its implications for more vulnerable sectors of society.
Meanwhile in June the British Retail Consortium commented that 'the Payment Systems Regulator needs to investigate Visa and MasterCard for their abuse of a dominant position'. A recent article in The Guardian highlights hidden costs to consumers that have been introduced following the January ban on surcharges and Mark Falcon, former director of regulation and strategy at PSR, is quoted as saying 'the cost of accepting card payments is 5 to 10 times greater than cash and the interchange regulations were to eliminate the difference. Instead the money has been distributed to scheme fees, which go to Visa and MasterCard as profit, and the regulator should take action '.
The claim is that the credit card companies ' actions have led to a price hike we all have to pay, regardless of payment method.
Against this background it was interesting to see MasterCard group vice chair Ann Cairns making fairly bullish comments regarding the move to cashless payments in a 2 July Express article. She is quoted as saying 'cash can often have higher production, transport, insurance and security costs ' and cash costs a lot of money, it costs a country between half a percent and 1.5 percent of its GDP and so governments are waking up to the fact they could really benefit their economy by getting rid of cash'. I'm not sure that coincides with my understanding of the Riksbank's comments, for example.
Perhaps more importantly, she goes on to talk of cash 'damaging, hurting the poorest people in the economy' and this is followed by 'how can you fly around, how do you order an uber if you don't have a means of digital payment?'.
For now let’s just ignore the fact that Uber does in fact accept cash in many countries and, as the recent Money20/20 payments race demonstrated, it is perfectly possible to pay for any number of flight tickets in cash. Whether or not Marie Antoinette actually said 'let them eat cake’, the phrase has been interpreted as being an inappropriate response to the needs of the poor. I'll confess that was my first reaction to the Express article.
Bearing in mind there are currently 2 billion unbanked individuals worldwide, the 'let them have cards' proposal seemed a little odd. As we've already stated, among the arguments put forward was that people are missing out on discounts when ordering flights or that they do not have access to Uber. Are these issues top of the mind for people on limited incomes or would they be more concerned if their local shop suddenly stopped accepting cash and thereby excluded them? (And here I am mindful of Visa's recent attempts to encourage businesses to stop accepting cash). To put the unbanked issue in context, in 2015 9 million US households were unbanked and a further 19.9 million were categorized as under banked. Figures quoted in The Times of India (15 June 2018), sourced from the Global Findex database help explain how big an issue this is. 191 million Indians over the age of 15 have no bank account, compared with 224 million in China. Elsewhere, there are 62.7 million unbanked in Nigeria, 48.4 million in Brazil and 78.7 million in Pakistan. This last figure includes 93 percent of women.
Of course it's not just about the unbanked lacking access to financial services and certainly not everyone would be happier with a prepaid card (and incidentally who pays the fees?). People continue to use cash for all sorts of reasons, whether it's for budgeting purposes or it gives them a sense of well-being or whether they lack confidence in the security of other payment methods. Perhaps just because it always works. It all comes down to personal choice.
I’m equally puzzled by Ms. Cairns’ comments that 0.5-1.5% of GDP attributed to costs of cash will be “saved” with cards. The majority of these “costs” are related to the salaries of workers in the cash handling industry, the vast majority of whom are domestic employees in every country. These jobs are good for local employment, and lead to more local spending, positively effecting GDP. Since most countries would prefer their GDP to rise, delivering benefits to workers and their local economies, it is not clear why we should want to “save” GDP. Perhaps she means to say that costs of cash are a significant part of the cost of goods in a transaction, and that card system costs are lower. In fact, cards are not free. They have their own costs, which today exceed the costs of cash, as Mark Falcon pointed out. Moreover, it is likely that a significant percentage of card system costs will leave a country, resulting in lower GDP in that country.
The operational efficiency of the traditional card consortium is quite low relative to newer digital payments solutions, such as AliPay, WeChat, or the longer-standing mPesa. Those systems, which do not require intermediaries like Mastercard, are close in efficiency to cash. If we are to consider improving the payments marketplace, shouldn’t we do it with the least amount of infrastructure: the ubiquitous, universally open, light on technology infrastructure of cash payments, plus the ultra-efficient technology infrastructure of digital wallets, rather than a legacy digital payments system so inefficient that it needs multiple third parties to work together to make a simple payment?
At the end of the day the answer can't just be 'let them have cards!'. As Marie Antoinette discovered, we all like to have balance in our diet, including the less affluent in society.
