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Silvan Frik

The digital revolution has already claimed multiple victories: we listen to digital music rather than vinyl or cassettes; we take digital pictures instead of developing them from film.

Converting to a world of cashless, digital payments is taking longer.  Why should that be?

Many people still believe that cashless payment systems are more expensive than using cash.  This is because in previous times – a decade or more ago – costs for credit card transactions were relatively high, perhaps £1 each per transaction.  Today, these costs have been dramatically reduced.

Silvan Frik

Silvan Frik

Retailers and small businesses are sometimes reluctant to adopt cashless payment systems because they see only the costs: the new technology such as terminals that they have to buy, or the cost of joining a payment scheme.

They are less aware of the many costs of cash, and the many savings of cashless payments, which can yield multiple benefits to them and to their customers and to the economy in

Here are some of the main disadvantages of using cash in today’s economy:

  • It takes up stock which cannot be used elsewhere.  Retailers need to keep relatively large amounts of cash in their tills to service customers.  This amount is ‘dead’ money, earning no interest and depleting business cashflow.
  • There is an administration cost of handling money, whether bringing it from a bank or paying it into an account, distributing it to retail outlets, counting it and securing it.  Many businesses fail to take this cost into account, but when compared to the administration cost of cashless transactions, it is significantly higher.
  • The risk of theft is very much higher where a business holds cash deposits.  This carries a cost to the enterprise not only where there is an incidence of theft, but from the cost of extra security, hiring agencies to transport cash, paying additional insurance fees and installing additional equipment such as grilles and safe boxes.
  • The incidence of errors is higher with cash transactions.  It is far easier to miscount cash than for errors to occur where (for example); items are scanned and then paid for in a cashless transaction.
  • Everything takes longer.  In a supermarket, you will spend longer in the queue if customers are paying by cash.  Depositing cash payments takes longer than transacting cashless payments.  Getting money from an ATM takes longer than cashless payments, and so on.
  • People without bank accounts have to pay disproportionately high fees to access cash, whether from ‘payday’ lenders or from specialist money shops.  In some societies this is a minor issue, but it is increasingly troublesome for many.
  • Governments lose out on tax revenue, since there is widespread under-reporting of income in a cash-based economy.  Recent figures show that at least $100 million per year is lost to the US government each year in this way.  Although this may seem less relevant to consumers or businesspeople, everyone has to pay higher tax and social security contributions to compensate for this loss.

By contrast, there are many positive advantages to customers, businesses and governments of cashless transactions:

  • There is far greater flexibility.  When setting out on a shopping expedition, you don’t need to know exactly how much you will spend (and therefore withdraw a set amount of money).  You can buy items or services dependent on your needs or wishes, rather than a fixed budget.  Spontaneous shopping becomes easier.
  • You are unrestrained by currencies.  Cashless transactions work across almost all currencies and customers are increasingly offered a choice of currencies in which to pay.  This reduces the transaction costs of currency conversion and is more convenient.
  • Retailers and customers save time.  For many large retailers, checkout queues are the most important bottleneck in their commercial operations: slow queues mean reduced turnover and lower profits.  Where they can promote contactless payments for small amounts, taking just a few seconds, or cashless payments which are also very fast, they reap significant benefits.  Customers get their goods and services more quickly and waste less time standing in line.
  • There is greater accuracy and traceability.  This means that accounting systems can be simpler and work more quickly, calculating elements such as VAT more easily and cutting down on general accountancy costs.
  • Businesses can take advantage of all the new consumer relationship management programmes such as loyalty schemes, m-commerce and reward schemes.  There is an increasing trend towards integrated payment and loyalty cards, increasing the benefits to both customers and businesses of cashless transactions.
  • This feeds into the Big Data debate, since the information that can be gathered from such card transactions allows retailers and other businesses to more accurately tailor their range of goods and services to the buying patterns of their customers.  This can increase profitability and induce greater loyalty and higher spending from customers.
  • Customers can take advantage of the many special offers and discounts that are now available online, from cheaper airline flights to theatre tickets or household goods.

So, given the wealth of disadvantages in cash payment and advantages of cashless payment, what further steps should be taken to promote a cashless economy?

As Silvan Frik, Head of Marketing and Communications at European payment services company SIX notes: “It is partly a question of cultural behaviour.  In some countries, nobody would blink an eye at buying, just a loaf of bread, using a credit card, whereas other countries are less advanced. In Switzerland for example, there is still a little bit of suspicion if someone buys something on a credit card.

“In the UK and United States, by contrast, your credit score is a status symbol.  People are proud that someone will offer them credit, and they use credit even when they don’t need to.”

As a provider of cashless transactions, SIX is a strong proponent of the many ways that new technology can improve the lives of customers, retailers and enhance the general economy.  “It is also a question of education,” adds Frik.  “We need to show that cashless transactions no longer cost more and the fact that cash is expensive has already been proved. Indeed, in Sweden, there are moves to develop a cashless society, relying more heavily on advances in technology such as hand scans and mobile phone authorisation and ultimately removing the need to carry money at all.

As the proportion of commerce migrating online continues to rise, cashless transactions are clearly in the ascendant.  In the physical world, things are moving a little more slowly.

But the era of old crumbled notes and rattling coins, like that of audio cassettes and camera film, is surely coming to an end.

Global Banking & Finance Review


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