[Dave Birch] At the “Trash your Cash” seminar at the Roskilde festival last year, I saw an excellent presentation by Anders Molgaard Pedersen from the Danmarks Nationalbank, who gave a high-level view on retail payments in the Kingdom. (He apologised for making his presentation too technical and boring, but he shouldn’t have done, because it was excellent.) He gave detailed data from a variety of studies to conclude that the magnitude of the cost of cash to society is surprising (surprisingly high, that is) but that for very small payments — by which he meant payments under 30 DKK (about £3) — is is still cheaper than cards. Anders gave some useful benchmark figures for the total social cost of cash payments excluding household costs as a fraction of GDP:
- Denmark (2009) 0.27%
- Norway (2007) 0.12%
- Sweden (2009 0.28%
- Netherlands (2002) 0.46%
- Belgium (2003) 0.58%
Denmark’s figure seems reasonable at first glance, but Anders noted that if you include household costs, the total social cost of payments in Denmark is calculated at 0.55% of GDP, of which 0.35% is attributed to cash and 0.15% to the domestic PIN debit scheme. He said that there remains a “substantial” cross-subsidy from more efficient electronic payment instruments to cash in banks and he said that he thought the introduction of NFC would change the picture again, by reducing the cost of electronic payments still further so improving the case for retailers and driving down the cross-over point further. I can see why this would be: reduced issuing and management costs, reduced fraud and so on, but I don’t think it much matters whether the next generation of payment systems are NFC or not. The mobile phone is certainly central to cash replacement, but the details of local interface are not.
Privacy, security, and convenience are all important factors in the adoption of electronic payment technology. New technologies which balance and address these factors may enable the elimination of cash.
[From Is cash becoming obsolete?]
Well, to be fair, NFC might have a bearing on convenience. It doesn’t really matter which technology is used, agreed, provided it delivers the right combination. This is why I do still think that NFC has a future in retail payments despite the slow start because it does deliver a little extra when it comes to convenience.
The second big problem with NFC is that there is no evidence that NFC is actually more convenient than cash or credit. Handing out cash at the register or giving out a piece of plastic and signing is very convenient.
Having sat through a fantastic, detailed and interesting presentation about the cashless Sziget festival in Hungary, I can say that this is categorically not true. NFC was faster, safer, more convenient and (and this is the kicker) more profitable than either cash or chip and PIN cards (the merchant charge on contactless transactions was lower than chip and PIN transactions). But that wasn’t the point I wanted to make.
As we’ve been discussing recently, with or without NFC it is the retailers who are likely to shape the next generation infrastructure rather than banks (as has “traditionally” been the case) or mobile operators. This is, in fact, why I was thinking about that “Trash Your Cash” seminar again. At the same event, the Danish Chamber of Commerce made a presentation on the retailers’ perspective. Apparently, there is a big problem with shops being robbed (I think because it’s harder to rob banks these days) and so many retailers want to go cashless anyway, as is the case in Sweden too as I understand it.
There was something else though. I think I picked up that the “honest” retailers are not happy about competing with the “dishonest” ones who use cash to evade taxes. This is another excellent reason for making cash reduction an element of national policy. Getting rid of cash would mean a level playing field. I hadn’t thought about this much, but I heard the same thing on a radio phone-in in the UK a couple of weeks later. The phone-on concerned the remarks of UK Treasury minister David Gauke that paying tradespersons in cash was morally wrong and that
home owners who allow workmen to evade VAT or income tax were forcing others to pay more.
This is self-evidently true. If a quarter or so of the economy is operating off the books, the rest of us are having to stump up to cover them. Even more interestingly, the Chamber of Commerce said that they thought that Danish retailers would be prepared to contribute to the cost of the development of the next-generation, new technology retail payment systems. Their view was that retailers are keen on electronic payments as an integrated part of an electronic shopping environment (I think they meant integrated beyond simple loyalty and coupling, I think they meant discovery, receipts, warranties and so on beyond the POS transaction) and see them as a route to increased revenues alongside the cost-savings afforded by getting rid of cash.
I was surprised and delighted by the Chamber’s agenda. They are asking the government to change the law so that shops can refuse cash and they want to start by refusing cash at night. Go for it guys! Why aren’t the British Retail Consortium as forward thinking and innovative? There’s a win-win around getting cash out of retailers and reducing the total social cost of payments, and there are some retailers who see it.
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