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The Cash Menace up North

By davebirch posted May 23 2006 at 9:57 AM

[Dave Birch] Linkdump points me to a speech by the Governor of the Swedish Central Bank who was (correctly) moaning about cash. Interestingly, given my proposed tabloid campaign, he specifically factors the cost of criminality into the cost of cash. There can only be one (cost-based) conclusion: end the unfair cross-subsidy of cash and make it compete with e-payments fairly and squarely!

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Stefan Ingves (the Governor of said Central Bank) said that Sweden has “many more” cash transport robberies than its neighbours because, essentially, cash withdrawals from all ATMs are free (despite the large costs entailed in cash handling). This means, in turn, that Swedes use cash far more than Finns, Danes, Norwegians and (especially) Icelanders. Iceland is the most cashless country in the world (ie, the country with the lowest proportion of retail transactions made in cash) and, astoundingly, almost 80% of consumer expenditure there is on Visa cards.

In the US Banking Association's survey of consumers, 37% said that they still preferred to use cash at POS. (Who are these people? Haven't they ever heard of air miles or cashback?) Would this figure remain so high if they had to bear the full cost of their choice, if it cost $5 to withdraw cash from an ATM or across a counter? Dr. Laura Rinaldi's estimates are that cost-based pricing would boost debit card usage from one in every 25 transactions in Europe to one quarter.

The European Payments Council (EPC) reckon that cash costs around 50 billion euros per annum, approximately 0.5% of Europe's GDP. More than 30 billion euros of this cost falls on retail banks (ie, on the customers of retail banks). Mondex, VisaCash, Proton and all of the other e-purse schemes never made a dent on these costs, but that was a decade ago. Now we have pervasive IP networks, 100%+ mobile phone penetrations, contactless and NFC interfaces, surging pre-paid markets and people other than banks (eg, mass transit operators) issuing payment cards in the consumer mass market. Is an “inflexion pont” finally on the horizon?


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It's important to realise that the subsidy of cash handling paid by the banks is quid pro quo for a protected banking industry. If the subsidies are dropped and banks are allowed to compete against cash, then the protection drops as well.

Banks probably don't want the second part, so they shouldn't complain too much about the first part. There is a reason that all the new payment systems work is happening outside the banking field, and it is the same reason that all innovations happen outside the banking field. Cooking someone else's golden goose is risky, once you've got the taste for it, you can't hold back from cooking your own.

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