Next month I will be 36 years old – so 15 years of working done and probably another 25-30 to go, meaning that I’m about a third of the way through my career. Having worked in cards and payments for the bulk of that, I have to admit, I’d love to see the day where cash is consigned to museums and the albums of numismatists. However, no matter how worthwhile or innovative alternative payment solutions are, the reality remains that ‘cashless’ Europe is contrary to the interest of large sections of society and will likely continue to be so for the foreseeable future.
Clearly the first societal grouping are those living in the ‘black economy’, using purely cash on an anonymous basis to circumnavigate taxes and anti-money laundering measures, or just to retain the notion of privacy. With an approximated 85% of cash used for unexplained reasons (i.e. for non-tax raising transactions), and therefore circulating exclusively within the unregulated space, the ability to move 25,000 euro in a cigarette packet is part of the fundamental economics of the black economy. And while this represents a considerable cost to society, around 300 EUR per family if you believe the EU’s own figures, it is also a benefit of a kind due to the principle of seigniorage, in which the value of cash in circulation is essentially an interest free loan to the issuer (usually the National Bank on behalf of the Government).
Cash remains important to consumers as it is has a tangibility and is still perceived as tokenised gold (the bank promises on demand to pay the sum of…) despite the fact that the Gold standard was abolished a long time ago. Proof, if any were needed, that perception is often stronger than reality. Looking at the ECB euro note cash issuance figures demonstrates this perception – on the day of the collapse of Lehman Bros. there was a HUGE upsurge in notes in circulation as a large number of Europeans converted their savings to cash. Cash which, of course, was still backed by exactly the same institutions that they’d removed it from – but that perception of the security of paper versus electronic drove a considerable change.
The absolute convenience of cash is also a winner for consumers when compared to the ‘selfishness’ of electronic payment methods. Cash can be saved, split, passed on, shared, put in the mail (although not recommended), piled together to be used in a restaurant to pay a part of a whole bill, or simply combined to create a kitty for a group night out – all of which electronic still can’t manage. Cash has woven its way into our daily lives for over 3000 years.
And finally, cash has just been built into the future of a European payments landscape by the recommendations of the Euro Legal Tender Expert Group (ELTEG), recently adopted by the European Commission (see here) which enshrine the legal acceptance and non-surcharging of cash within the eurozone. Cash will remain part of the payment mix going forwards.
What is clear, however, is that the number of cash transactions that are recorded by national banks is falling – by about 1% per year – and that many EU countries have recorded greater levels of debit card transactions than cash at retailers. This is positive and should be comforting to cash alternatives – but shows that the big money still rests in finding solutions that remain anonymous, transferable and above all, tangible in times of crisis. Today, cash is the only method of payment that can do this.