Advocates of a cashless society would do well to remember Mark Twain’s famous quote upon learning that his obituary had been published and acknowledge that the demise of cash has been greatly exaggerated.
UK Finance’s latest payment markets report shows that the number of cash payments made last year was almost 7% higher than in 2021 as fears about inflation and the rising cost of living encouraged greater use of cash as a way of managing budgets.
More than 70% of respondents to a YouGov/Payment Choice Alliance survey conducted in June supported making it a legal requirement for businesses to accept cash.
The ECB’s December 2022 study on the payment attitudes of consumers in the euro area notes that cash remains the predominant payment method at the point of sale and for person-to-person payments in the Eurozone (used in 59% of transactions).
These figures should come as no surprise since nervous consumers have turned to cash in the past. In the month after the bankruptcy of Lehman Brothers in September 2008, for example, the net value of euro banknote issuance was equal to the total for the previous 12 months.
It is perhaps ironic that Sweden has been in the vanguard of cashless payments given that it was the first European country to issue bank notes.
The Swedish central bank’s 2022 payment report notes that 34% of the consumers surveyed had paid with cash in the past month, down from 50% in 2020 and 79% in 2016. Only 8% paid in cash for their most recent in-store purchase compared with 40% in 2010.
However, the report also acknowledges that not everyone has access to digital payment and that the ability to buy vital goods and services using cash must be protected.
Dr. Martens accepts cash in all its retail stores in the UK and EMEA. But when the company decided to open its first retail store in Stockholm it was deemed an ideal location for conducting some on-the-ground research around retail payment methods and preferences.
“Sweden is one of the few economies that has moved rapidly towards cashless – in fact, it is almost there,” explains Mark Hirst, Group Treasurer, Dr. Martens. “However, after canvassing a large population of retailers in Stockholm, we decided to launch with cash on opening and monitor usage/uptake for the first three months.”
He observes that the cost of accepting cash in Sweden is an extreme outlier – in other words, it is off-the-scale expensive when compared to other payment methods.
Hirst says Dr. Martens is having an internal dialogue with its retail colleagues about moving towards cashless in markets where non-cash payments are well established and cash is not mandated by local regulations or legislation.
“At the moment we are undecided about whether to launch cashless in markets that allow it, such as the UK and Sweden,” he says. “We believe in giving customers choice at the checkout and often customer behaviour is a reflex when it comes to payment. They will express a preference for a particular payment method and while we see cash declining in all stores year-on-year, we wish to avoid creating negative friction for customers when it comes to their checkout experience.”
Hirst also makes the point that a degree of friction is positive and can be deliberately inserted or engineered to serve a purpose or use case, such as the additional information provided at checkout on fees relating to BNPL.
“It is becoming increasingly difficult to work with banks and security companies when it comes to handling and processing cash,” he adds. “Bank branches are closing and security companies are unreliable due to staff shortages. Costs are rapidly increasing and we are finding that many banks can no longer be bothered with the hassle of dealing with cash.”
Patricia Arvanitakis, Global Head of Cash Management at CA-CIB agrees that individuals want to have the freedom to choose how they will pay for transactions.
“Clients with retail activities have the greatest need for cash handling services and it is quite painful for them since it is only a very small part of their cash flow but they have to pay a lot for the service,” she says. “A cash handling policy is critical for businesses to maintain accurate bookkeeping and minimise the risk of waste, fraud and abuse.”
Bank of America refers to two trends in the US that are related to the current inflationary environment. The first is an increase in the average value per deposit, and the other is an increase in demand for solutions that reduce costs and provide security for employees who handle cash.
“This has accelerated the movement of cash handling services away from branches to smart safes, or cash vaults and cash automation solutions,” says Liba Saiovici, Head of Global Receivables at Bank of America. “Cash vaults and cash automation solutions support large transactions and as average deposit value goes up, these solutions become more cost beneficial – especially when considering wage inflation and higher fees for armoured carriers.”
She says the bank works with business customers to find the best solution for their cash handling needs, taking into account the cost of transporting cash to a branch versus the cost of alternative deposit solutions, the value of deposits, the need for change orders, security considerations and the hours of operations of the client’s business.
Responding to consumer demand for cash payments while also reflecting the growth of other payment methods is an important challenge for NatWest according to Chief Payments Officer Mark Brant.
“Though the cost of living will certainly be contributing to some customers using cash, we expect cash to remain a vital payment method over the longer-term,” he says. “Recent customer research we have undertaken shows that its use is sustained across a broad range of income and age groups, challenging conceptions about cash users.”
NatWest’s cash handling services differ according to the type of customer. Large national retailers arrange for deposits to be securely transported directly to its cash centres, whereas the bank offers cash centre solutions for smaller customers including ‘Bank to You’, a collection and delivery service which negates the need for customers to contract separately with cash carriers.
Simon Kaptijn, Director Cash Advisory & Structuring at ING Transaction Services refers to regional variations within Europe, with higher demand for cash handling services in southern and eastern Europe.
It is important to note that while some countries might have realistic aspirations to become almost entirely cashless, cash is still extensively used for in-person payments in major markets such as North America.
However, all these markets face similar challenges in terms of banks reducing the number of branches they operate and not wanting to handle cash deposits in those branches that remain open while maintaining a high level of service for their business and commercial clients.
This was one of the factors that led Clip Money to develop a network of self-service kiosks in shopping malls, big box stores and grocery chains across North America where businesses can make deposits to any bank account using RFID embedded deposit bags with a unique code without having to visit a bank branch or use a cash pick-up service.
“We have developed the only multi-bank deposit system in North America, enabling businesses to deposit and receive next day credit into their bank account of choice,” explains Joseph Arrage, CEO at Clip Money. “Prior to this, business customers of a particular bank would have to either make their deposit in-branch or use an armoured carrier service, which is an expensive, long-term commitment.”
With a shared system, multiple businesses can make deposits to accounts in many different banks. This is important because the fragmented nature of the US banking market means large companies could have hundreds or even thousands of separate accounts across many different banks, a set-up which is costly and difficult to manage.
Customers can assign permissions to employees authorised to make deposits and make changes to these permissions via an online dashboard. They also receive reports if a store does not make a scheduled deposit.
Clip recently signed a partnership agreement with NCR that will make its services available across over 2,500 ATM locations. “This is an important milestone for us because we are on a mission to build the largest deposit network in North America,” says Arrage, who is keen to stress that the company is partnering rather than competing with banks.
“Our deposit network reduces bank cash processing costs per transaction, which is important because as cash usage declines, the unit cost of delivering cash handling services will rise,” he adds. “It also accelerates business cash flow as funds are secured and processed once the money has been deposited.”
Zennan Green, Global Director of Thought Leadership & Content at cash technology solutions provider Glory Global Solutions, agrees that there will always be people who want (and need) to use cash.
“In the current environment people are turning more towards cash as a budgeting tool to help them keep track of spending,” he says. “This is especially true for smaller value payments in convenience stores, grocery and discount stores and food service outlets, but we also see high levels of cash usage in pharmacies and even among some of the clothing chains.”
One of the reasons why businesses seek to reduce the amount of cash they take in is that it is effectively worthless until they can get it banked and release the liquidity, which is why having access to a bank branch locally is so useful.
“Banks need to scale and right-size their branch networks to match the volume of the business going through them, but that can make it harder for businesses to bank their money quickly,” says Green. “One solution that reduces the impact of unbanked cash is local cash recycling. Enabling consumers to access cash over the counter means businesses can offload some of the cash they have taken. Not only can this help to reduce costs, but it can also help with access to cash and increase the circulation of money in their communities, especially where access to bank branches or even ATMs may be limited.”
Enabling consumers to access this cash creates a local cash cycle, increasing the ‘velocity’ of cash between each transaction by reducing the time, costs and distances compared to moving cash between businesses, banks, cash centres and ATMs. Such a local cash cycle also brings associated environmental benefits.
“We have also seen the emergence of shared infrastructure solutions such as OneBanx, Clip Money, and services offered by post offices, which allow customers to deposit and withdraw cash regardless of which bank their account is held with,” says Green. “In addition, many of these facilities are available outside regular bank opening hours, making them more convenient for businesses.”
