War on cash: a report from the European front

[Dave Birch] I have said, a few times, in a variety of forums, that I think that the e-payment industry should be more aggressive. Instead of listening to regulators complain about the cost of e-payments, we should complain to the regulators about the cost of cash and ask for a level playing field. The good people at European Financial Management and Marketing Association (EFMA) have invited me to speak at their October conference on Cash Processing in Paris. They say that

In 2009, euro banknotes in circulation grew by 6% to reach € 806 billion in December; this followed the exceptional growth of 13 % experienced in 2008 in the wake of the financial crisis. In these times of high financial uncertainty, cash remains an element of stability and contributes to consumer confidence in the financial system. This continued growth in cash emphasizes the importance for banks to pursue their efforts to further optimize the cash cycle

[From EFMA - Upcoming event]

Well, if the amount of cash in circulation is going up at a time when the economy is contracting and government tax revenues are falling, I think I draw a slightly different conclusion, and this is what I'll be talking about in October.

Here are a few topical examples from Europe to illustrate what will be the general theme of my talk.

First of all, the Netherlands. I heard Gijs Boudewijn from the Netherlandse Verenigin von Banken (Banking Association) give a superb talk on the Dutch path to reducing cash. He said that they have decided to adopt a traditionally consensual approach, bringing together the banks and the retailers to adopt a common strategy. Some of the supermarkets want to be cashless by 2014, but for the smaller retailers there are some problems (I will blog about one particularly unusual Dutch example of small retailers later). Surprisingly, 70% of retailers are still on dial-up, so there is a POIP (Payments Over IP) project underway to move them to broadband. One of the most radical aspects of this deal is that it will offer the retailers a flat fee all-you-can-eat deal for debit transactions, which strikes me as being a way of breaking a log-jam in low-value (30% of the growth in Dutch debit transactions in the last year has come in the under €10 category).

Incidentally, he also reminded the audience in the talk I saw that three of the most popular payment mechanisms at retail POS in the Netherlands (cash, PIN debit and e-purse) all lose money -- together, the Dutch banks lose about a billion euros per annum on them! Hold on... e-purse? Yes: ChipKnip is still alive, and still accounts for 8.1% of retail transactions (mainly at unattended POS such as parking meters). Both PIN debit (the national scheme) and ChipKnip will be phased out and in 2012 EMV debit will replace them.

Meanwhile, further north, all is not well in the state of Sweden.

"Bargeld hat ausgespielt," sagt Maria Löök von der schwedischen Bankgewerkschaft trocken.

[From Kampf um die schwedische Krone: Böses Bargeld - SPIEGEL ONLINE - Nachrichten - Wirtschaft]

Whoops, it's in German. But via the magic of Google translator, we can pick out a few key points from this article in Der Spiegel.

"Cash has played out," according to Maria Löök of the Swedish banking union, who also says that two out of three Crowns in circulation is "black" (this figure accords with a more detailed study from Norway that we discussed recently). The article goes on to say that

• There has been a sharp increase the number of robberies, and a broad alliance of trade unions, business associations and government agencies blame this on the continued use of cash in Sweden. So they want to get rid of it.
• 25 percent of employees in the Swedish retailers have already become victims of robbery and violence. Some of them several times, which is key reason why their unions are on board.
• The impending ban on cash is directed mainly against small shops run by foreigners, says Maroun Aoun, who is chairman of the small business association IFS. "We're not criminals." He raises some reasonable concerns about the cost of switching to cards, but says that he is not optimistic because of the power of the anti-cash lobby.
• The police are behind the proposed crackdown. "Cash is the blood in the veins of the crime," proclaimed the President of the Stockholm police, Carin Götblad, who says that there is no alternative to a comprehensive limitation of cash transactions. She has not used cash for years, saying that she only pays by card or mobile phone, and notes that "A cashless society is a less criminal society."

The "power of the anti-cash lobby" is music to my ears!! It is very interesting, to me, just how quickly things are beginning to change. Mikael Sjöberg. The Director-General of Sweden's Ministry for Labour, takes a particularly robust line, saying that "anyone who has cash has something to hide". Not my words, but those of a Swedish bureaucrat. "Anyone who has cash has something to hide". Hhhmmm... not sure that's completely true, but it's a good slogan.

"By 2050, using cash could well be a minority activity, much more the preserve of informal transactions. With around a billion bank notes created, distributed, collected and destroyed every year, the production and secure transportation of notes is an expensive and environmentally costly business paid for by the tax payer. A progressive move away from cash could hold many benefits," says the report.

[From Finextra: Cash no longer king as Brits turn to debit cards]

Not my words. The UK Payment Council's. And I also notice that in Italy, the government has reduced the limit for cash transactions.

A deficit cutting package due to be approved by Italy on Tuesday will ban cash transactions for more than 5,000 euros ($6,188) in an effort to crack down on tax evasion

[From XE.com - Italy to ban cash transactions over 5,000 euros]

Hopefully this will benefit the Italian economy in other ways as well, since as Visa Europe point out

In Italy, managing cash costs the country approximately 10 billion euro per year. Of this amount, two-thirds are met by companies while one-third weighs on the banking system. To this sum, the high costs met by the public administration every year must be added.

[From Untitled]

I imagine that in Greece the government must be considering reducing the limit on cash transactions to about 10 euros, given that so much income in unreported in that country.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

costs, notes and coins

Comments

[Trent Lagoria]

I'm not a fan of doing away with banknotes. I think there is always a place for the physical represenation of wealth in some paper form.

[Gijs Boudewijn, Amsterdam]

For those interested: the loss figure from the Netherlands David mentions comes from the 2006 McKinsey study commissioned by the Dutch banks. It can be downloaded (English version) at http://www.nvb.nl/scrivo/asset.php?id=533968 . Of course the biggest bleeder was cash, accounting for about 90% of the loss. And to avoid misunderstandings: the overall net loss on payments was 23 million, not taking the cost of capital into account. The loss was almost entirely compensated by interest income on current account balances. Not very transparent and heavily relying on cross subsidisation between products and customer groups. One could wonder if that is a healthy business model for SEPA, which calls for transparency and consumers making informed choices, thus fostering efficiency in payments. But who has the political courage to explain to the electorate that cash cannot be free and that in the end it would be good for all to make the hidden cost of cash visible and charge for it like for any other payment instrument?

[Dave Birch]

I had no idea about those figures, thanks very much Ronnie. Will definitely blog on this in the future!

[Ronnie O'Toole, Dublin]

David,

Quite apart from security, there is the environmental cost. The UK payments council has put the carbon footprint of a direct debit at 0.76g CO2 per payment, compared to 49.3g CO2 for every cheque (or 65:1). Apologies if you have blogged on this before, but any estimate of the environmental impact of payments systems in aggregate would be very helpful.