The recent reaction of the British media (and subsequently politicians) to the restriction of certain bank account holders to the ATMs of their ‘home’ bank has been a great illustration in how much we as a society take cash being free for granted. The UK bank rationale for this restriction is that these clients are unprofitable and in a market where current accounts are ‘free’ then paying other banks to use their ATMs does not make business sense. The counter argument being – it’s been free before so why isn’t it free today, after all it is ‘my’ money that I’m taking out of the bank. Countering this argument has been the work of the payment schemes for years. They have been lobbying the regulators to reveal the true cost of cash to merchants and consumers, thus proving that their electronic payment methods are actually more efficient than cash and consequently their pricing is justified. Indeed, if you google ‘cost of cash’ then the results number in the billions. Many stakeholders have tried to put a cost onto cash as a method of payment and still none can agree.
Possibly the most consistently quoted ‘price’ for cash is that used by cost-of-cash expert Prof. Leo Van Hoeve of the Vrij Universiteit Brussel that the cost of cash in Europe is approximately 300 euro per family per year – which typically is higher than the combined cost of a current account with internet banking, debit card and credit card. Part of the cost of cash seldom considered is the cost of the cash out infrastructure managed by banks with their counter service and ATM network. Typically withdrawing cash from a cash machine in your own country from your ‘home’ bank is low cost as there are no scheme fees and only direct provision of cash costs. However, if you withdraw from an ATM that doesn’t belong to your bank they have to pay these costs to the owner with an associated margin – typically recouped via the card scheme as an ATM withdrawal fee – for a 100 euro withdrawal, this can be around 60-70 cents yet for 20 euro it is around 50 cents, a considerably larger percentage of the withdrawn amount. This means that every time you take money out of an ATM that doesn’t belong to your bank, it costs them money – if you only take small amounts, the costs are relatively much higher.
This is part of the real cost of cash that most consumers never see – particularly in markets with packaged banking (first 100 ATM transactions for free) or, as in the UK case, all ATM withdrawals for free unless the Acquirer makes an additional fee to the cardholder. The original justification for these being free was that they saved banks from giving counter service. However, as the costing model for consumer banking has evolved, it is now accepted that few will use the counter service and so this is not part of the mix.
As many in the industry are now beginning to point out, particularly with increasing regulatory interference in the payments world, there is still an intrinsic lack of clarity and transparency in the costs involved – not only in cards and electronic payments, but also in cash. Perhaps it is overdue that a truly independent study into the costs of the payments world was generated – so that we can argue fees from a position of knowledge rather than inference.