In the war on cash, cash may be winning

Banks, retailers and technology companies have spent years relentlessly working to replace cash with plastic, digital or mobile alternatives. And cash has hit back hard.

In China, which has the most residents paying via mobile wallets, the government has cracked down on merchants that won’t accept cash. In the U.S., the New York City Council will conduct hearings next month on a bill that would ban restaurants and retailers from not accepting cash.

Councilman Ritchie J. Torres, who introduced the bill, views such a no-cash policy as racially motivated, leaving lower-income minorities unable to pay. Stores that ban cash say it cuts costs and improves employee safety, but the trade-offs may not be worth it; Shake Shack, for example, abandoned plans for fully cashless locations last year shortly after testing the policy at one location.

Chart: Cash vs. the competition

“The market will drive the results on cash,” said Richard Oglesby, president of AZ Payments Group and a senior analyst at Double Diamond Payments Research. “The government and/or payment processors can do all they want to try to get rid of cash, but lots of people still really like it and will continue to use it.”

Because of that, truly cashless stores “will be the exception to the rule,” Oglesby said.

Still, there are places where cash is under pressure. Most payments were cash-based in India until the government established rules and incentives for merchants and consumers alike to move onto digital payments.

So why does cash endure? “The only way to make [cash disappear] is to improve payment products until no one wants to use cash anymore,” Oglesby said. “That’s not happening soon.”

China shines as an example of the possibilities. Many Chinese consumers use WeChat Pay (potentially 980 million users) or Alipay (more than 600 million registered users) to make mobile payments in stores. Chinese merchants don’t even have to position themselves as operating a cashless store — but those same merchants have to be cautious about what the government has to say about cash acceptance.

Last summer, the People’s Bank of China formally declared that it was illegal for a merchant to block acceptance of renminbi cash notes or coins. Part of that declaration included a nationwide campaign to call out merchants who were not following the rule. Through the end of the year, 602 cases of cash refusal were cited, and 558 had been resolved through policy communication, according to Asia’s Finews.

In many ways, China is using cash as an antitrust chess piece, as part of this push to accept cash is based on the government’s desire to prevent Ant Financial’s Alipay or Tencent’s WeChat Pay from dominating the country’s payments landscape. Chinese mobile payments reached 120 trillion renminbi in 2017, or double from the year prior, Finews reported.

India offers a different type of case study in that, until 2017, somewhere around 90 percent of transactions occurred through cash payments, according to the card networks. That has changed relatively quickly, in part because mobile payments are catching on, but also because the government made moves to discourage the use of cash.

Mobile wallet developers in India and the U.S. can’t boast the numbers that WeChat and Alipay report in China, but Paytm CEO and founder Vijay Shekhar is targeting 500 million users by next year. And here’s another rub: Nearly 50 percent of Paytm’s ownership is listed under a unit of China’s Alibaba Group.

The Reserve Bank of India has been providing incentives for merchants and consumers to move away from cash with bonuses for not accepting cash and running transactions through the QR-code-based Bharat Interface for Money app.

Where cash is losing ground
Cash may not be at risk of disappearing on a global scale, but there are some niches and demographics where it hasn’t fared as well. Unsurprisingly, younger tech-savvy consumers are among those most comfortable with digital payments.

“With more cashless consumers transitioning to mobile devices to make purchases, it’s clear this trend shows no signs of slowing, especially as we have already discovered during this past holiday season,” said Steve Villegas, vice president of partner management for U.K.-based PPRO.

PayPal and Citigroup invested last year in PPRO, a cross border e-payment provider delivering acquiring, collecting and processing for payment service providers through a single contract across 175 countries.

“The shift to a cashless society is imminent, and we have the mobile generation of millennials and Gen Z’s dubbed as those ‘transforming the way we bank’ to thank for that,” Villegas said. “Beyond the shift of mobile-first banking experiences, we are even seeing charities changing their approach to collecting donations.”

The Salvation Army’s Red Kettle Campaign is a longtime holiday goodwill program that has taken a hit in recent years due to the shift to a cashless society, Villegas added. “The truth is, consumers are not giving less, but rather are not as likely to carry spare change and loose bills to donate,” he said.

In response to this shift, the charity kicked off the holiday season by offering digital payments through QR codes, allowing consumers to donate with their smartphones.

That’s another indication that fewer people are carrying cash, but it is difficult to assess what sort of staying power that paper bills and coins is enjoying in the U.S. The Federal Reserve’s 2018 Payments Study indicated that the largest banks in the country reported a 2.8 percent decline in ATM withdrawals from 2016 to 2017. By itself, ATM access with a debit card is a common way to obtain cash, but it provides only a partial indicator of the tender’s popularity, the report said.

PPRO’s data from 2018 indicates that nearly 50 percent of transactions in China took place through mobile wallets, while only 10 percent were handled with cash. India is making significant strides since its government intervention, with 32 percent of payments coming through cards, 26 percent through mobile wallets and 16 percent through cash.

Still, e-commerce makes up only 4 percent of India’s total retail. Illustrating what India is facing in its war on cash, nearly 80 percent of Indians have a bank account, but only 3 percent have a credit card, according to PPRO.

And apparently the problem of what to do about cash isn’t viewed as too big or too small to tackle, regardless of the size of the country. As such, it isn’t surprising to hear bank officials in a country like Turkey say the target for a cashless society there is 2023.

The country launched Troy, its first major national payment card program that is also accepted globally, two years ago. It also initiated the BKM Express digital wallet last year, bringing the country into the digital payments space for e-commerce, m-commerce, one-click payments, P2P and digital contributions.

In addition to tax benefits and economic gains, the advancements in digital payments also allow more consumers to participate in financial services compared to cash-heavy counterparts, Soner Canko, CEO of the Interbank Card Center in Turkey, said in a blog post.

“It was not long ago that Turkish society was highly skeptical about embracing the move away from cash-heavy commerce, and now we’re leapfrogging into the future and heading toward becoming a fully cashless society,” Canko said.

It’s an example of yet another front for the war on cash. But whether any of it can truly take hold is difficult to assess or even imagine at this point. It is far easier to envision that cash, like most any other form of tender, will never completely go away.

“There will always be the need for a completely fungible, universally accepted form of value transfer — and that’s cash,” said Thad Peterson, senior analyst with Boston-based Aite Group.

As much as governments wish to track all financial transactions to optimize tax revenue, cash fills a critical category in the economy regardless of demographics, Peterson said.

“There will be opportunities for merchants focusing on certain demographics and geographic locations to eliminate cash from their businesses with little negative impact,” he added. “But in many cases, refusing to accept cash creates friction in the transaction — and friction is failure in payments.”