The War on Cash – the Phony War?
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18 November 2011Gareth Lodge
I’ve been attending the EFMA conference “The Future of Cash” in Frankfurt this week. As someone who has spent the majority of their working life in the cashless space, I felt somewhat an intruder at times in the conversations (though I have to say by no means unwelcome – my thanks again to my hosts). That’s because of this perception, at least in some quarters, that there is a war on cash, and that its being waged by the cashless industry. As one wag put it, I and the speaker from MasterCard, were the foxes in the hen house, and we were scaring the chickens with our mere presence! I think what was interesting that all sides, including the pure cash people went to great lengths to point out that cash was not going away any time soon, and that the war, if one did exist, was on the cost of cash, not cash itself. Yet no consensus really exists on the actual comparative costs. One speaker repeated a rumour that the European Commission sponsored study on just this had been pushed back because it was unhappy with the results. I have no insight into the truth of this, but having tried to do such an exercise previously just for electronic payments, I can attest to the complexity of undertaking such a task, where assumptions and their treatment can make significant differences to the end result. So, should we give up just because it’s difficult? No, but I do believe that this is not the only question to be addressed and indeed, nor is it the largest. One point I made in my presentation is that electronic payments types are not just productized but also owned. They had to have been to stand a chance of being adopted. That in turns a requirements for a value propositions, advertising, etc. things which are lacking for cash The key here is that cash seemingly doesn’t seem to be owned or managed. The Central Banks were very clear that they were neutral to all payment types. As we have seen in the last year, this position can create consequences that pose risks to the Central Bank in the short term and a challenge in the long term. In particular is the case of Brinks in Belgium. It’s a complicated case, as these articles show here and here , complete with diamonds being held as ransom! In short, Brinks got into financial difficulties, not least because of the competitive nature of the business in Belgium, losing $10m in 2010. For a period of time, many ATMs supplied by them ran dry simply because Brinks were unable to fill them. Brinks chose to go into bankruptcy, and the other main player, G4S stepped in and fulfilled the contract. This raises a number of issues, including standards and interoperability – each bank and ATM manufacturer often has its own standards. But the largest is a “what if”. I do not suggest that G4S are, or plan to, pull out of the market. But they are a business. If sufficient profit cannot be generated, their duty to the shareholders would be to leave the market. Which leaves the banks and the Central Bank with a huge problem. The contracts may exist with the banks, but its fundamentally a Central Bank problem. Indeed, the Central Bank would almost certainly have to step in and take-over the running of the process, something which it isn't geared up todo nor necessarily has the competence to do so. So in being neutral, the central banks are in effect creating their own issues. Whilst regulation probably has a part to play, more importantly, a managing oversight role and a strategic view on each and every payment type is absolutely critical. They may argue they have , but recent events and public positioning suggests that this requires much more attention from all concerned. The reduction in use in cash and the focus on the cost of cash has consequences. And the Central Banks, it could be argued, with seiginorage are the only people making money from, well, money. And furthermore, there needs to a European view to, or at least co-ordination. It exists on half of the equation - the EPC and ESTA for example are doing great work - but I'm not aware of any activity on the other side. If cash is to have a future, it should be by choice rather than the current situation where it seems to be unloved and misunderstood. Not so much a war on cash but the neglect of cash.
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