In my last post I examined the growth of the electronic payments in Europe – or rather the lack of growth. While there is clearly a trend demonstrating movement towards electronic payments, overall it is a painfully slow migration and of course, the main question is why?
The logic of electronic payment methods is undeniable. They are more secure, certainly easier to use for large value transactions, and for sure fit easier into the wallet (or mobile!). From a regulatory perspective the ability to audit all financial movements made with electronic methods also makes sense from a tax, AML and FATF perspective. But in many countries, consumers just haven’t fallen in love with electronic payments.
Cash has been with us for well over three millennia in one guise or another and was one of the earliest inventions of civilised humans. It is ingrained as part of the evolution of our species. However, we seem to have stopped evolving at paper money – probably because today there isn’t a single payment method in market that can compete directly with good old fashioned cash, most notably for the instant settlement of debt and universal acceptance.
So are these the two keys to the success of cash? Universal and Immediate? Beyond Payments CEO Herman Singh believes that these are key features. In a recent interview he stated, “…solutions must be extremely simple to use and available almost everywhere at extremely low costs…”. In terms of the South African market, Singh was talking of the boom in digitised prepaid vouchers, which in essence are the closest alternative to cash in the physical world. Indeed, there has a boom in prepaid vouchers as a currency leading to ‘international airtime hubs‘ that allow you to top-up anyone’s prepaid mobile account from anywhere in the world – a kind of remittance through the back door.
Getting back to cash, it’s time to tackle the elephant in the room. The infinite, anonymous transferability of cash via a push transaction is its key feature for users. That simple handover of value at the point of contact where no record is made of the transaction unless we decide to do so. This is the reason that criminals, tax dodgers and small businesses love cash. With 20000 euro taking only the space of a cigarette packet, it is reasonably easy to transport large volumes of cash wherever they are needed to finance your dealings – and there’s very little that can be done to stop this kind of movement.
Does this mean that an alternative to cash needs to facilitate crime? Of course not – in fact the biggest reason for moving away from cash is that it refuses to be nailed down (is hard to tax and hard to prove ownership). But any replacement needs to get as near as possible to these key features – while retaining traceability to allow a modicom of governmental control. Even the ‘anonymous’ bitcoin electronic currency leaves a trace despite increasing use in illicit areas of the web such as Silk Road. However, bitcoin is not easy to use (essential for mass market) and only recently moved from cyberspace into the physical world through a highly complex POS solution.
And therein lies the beauty of cash. I want goods from you, you want payment. I take the goods, I give you money. It is simplicity itself.