It was many years ago when electronic payments pioneer Dale Reistad proclaimed we were on the verge of a “Cashless Society”. Widely regarded as a prophet of the time, Dale appeared at numerous industry events where he presented a payment geek’s utopian vision of the future in which then prevailing and seemingly clunky forms of payment would cease to exist as electronic forms prevailed. We were just beyond the dawn of credit cards and ATMs. Progress was slow but steady and Dale’s prognostications were widely heralded as the truth!
Unfortunately for some, the demise of cash and checks never came and they remain today as important and indispensable forms of payment. Over the years, the Federal Reserve improved the efficiency of handling cash and checks, the latter of which while still somewhat clunky enjoyed one of the biggest boosts in efficiency with landmark reform titled “Check 21”. Still, electronic card payments grew as their ubiquity and efficiency attracted more issuers, merchants and consumers. During the first several decades after their introduction, most payments stakeholders agreed that card payments represented a good deal for everyone. As telecommunications and electronic computing grew less expensive and commoditized, most payments stakeholders started to realize significant economies of operation.
Today, most merchants have come to regard card payments as a huge cost burden, although they feel the marketplace requires them to continue acceptance. Costs of card acceptance have tripled or quadrupled as the big bank issuers banded together and insisted on more merchant fees and transferred more and more of their costs of operation to merchants. Merchants have become disenchanted with nearly every facet of card acceptance from the outrageous costs to having to protect the big banks from the deficiencies of the banks’ own card products.
As the US’s EMV transition stumbles along a path ordained by the networks, now comes a public relations ploy by Visa to somehow convince merchants that they really want to get rid of cash, instead of complaining about the ever-increasing fees for accepting Visa’s card products, PCI and the rest of the payments opportunists that follow the networks around picking up whatever crumbs remain on the floor after the networks, the banks and their buddies get through feasting at the merchants’ expense.
In a statement focusing on the out-of-control costs associated with card acceptance, National Retail Federation Senior Vice President and General Counsel Mallory Duncan states, “Over the past several years, credit card companies have raised fees and shifted costs to the point that the stress on the bottom line for many Main Street businesses is almost unbearable. Only the smallest and least informed merchants would be likely to fall for this proposal from Visa. In general, merchants will take almost any form of payment that doesn’t create a burden for their business, and most are glad to take cash. The idea that merchants don’t want to accept cash is a myth probably being pushed by the banks so they can convince more consumers to use plastic and get to collect fees on more transactions. Each business makes its own decisions, but for most cash is still king. When a customer pays by cash, the merchant gets 100 cents on the dollar and doesn’t have to give up a share of the sale to the bank. That helps hold down prices and is a win-win for retailers and their customers. When a customer pays with a credit or debit card, the fees charged by the bank take money out of the hand of the retailer and drive up prices for the consumer. That’s a lose-lose.”
And from the Food Marketing Institute, “the grocery industry is a hyper-competitive market with a less than 2% profit margin. Grocers compete for every customer who walks through the door including those who want to or have to pay with cash. This competition drives grocers to find efficiencies and savings throughout their operations including payments.
Today, cash and checks are still the most transparent and predictable form of payment for grocers. If a customer presents a check or pays with cash for a $100 purchase, the grocer knows he is collecting the full $100 and knows how to price products, unlike situations in which the customer uses a credit card, which could cost the grocer up to $4 to accept for the same purchase – a cost that will be unknown until the bank statement arrives. Instead of providing false incentives for merchants to go ‘cashless’, FMI hopes to work with the industry to foster true innovation, reduce costs and improve the security of our payments system.”
Other proponents of cash hasten to point out that a War on Cash will also have unintended consequences for Americans who are unbanked and underbanked. Consumers without access to bank accounts rely on cash, often as their only means to transact. According to the Federal Deposit Insurance Corporation, approximately 9 million households, comprised of more than 20 million people were unbanked in 2015 (another 67 million people were classified as “underbanked”). And more than 60% of unbanked households use cash to pay their bills. In contrast, more than 70% of fully banked households pay bills via electronic payment from a bank account. If people find it increasingly difficult to pay with cash, some people will find it increasingly difficult to pay at all. Americans who are the most vulnerable, the most strapped for time, the least able to adjust their shopping habits, could be impacted the most by a premature shift to a cashless economy.
There may be more enthusiasm for substituting electronic payments for cash in some countries outside the U.S. since merchants and consumers outside the U.S. have electronic payment options that offer far better terms than those available domestically. Examples are Nordic countries as well as Canada where domestic payment schemes offer options to U.S.-based networks, as well as in Europe where networks have been limited in their ability to impose U.S.-like interchange. Meanwhile, U.S. merchants have few alternatives to access economically priced electronic payments aside from offering their own in-house options or the ACH.
While today, most of us still agree that electronic card payments represent a huge advance in convenience and efficiency, most merchants would argue cards don’t represent a good deal for everyone. For banks and their networks, cards have been a huge money-maker, but for merchants and their customers, they are at best a mixed blessing.