No Cash, Plenty Of Compromise

By Matt Pillar, chief editor

The Danish Parliament just proposed a law, backed by the Danish Chamber of Commerce, that would allow retailers to refuse to accept cash payments.

In light of that country’s cash use statistics, it doesn’t seem like such a radical move. Close to 40 percent of Denmark’s population uses MobilePay from DanskeBank, which facilitates money transfers between people and purchases in both stores and online. Nearly two million Danes had downloaded the app within a year of its 2013 launch.

Note to our friends in the cash handling hardware and software businesses: steer clear of Northern Europe. Cash accounts for a total of just six percent of payments made in Scandinavia, and if the Danish law passes, retailers in Denmark could rid their stores of the cash wrap as we know it as early as 2016.

The proposed legislation in Denmark might seem reasonable at the surface. Merchants have the right to choose whether or not they accept credit and debit cards, Apple Pay, Google Wallet, gift cards, and checks. As cash usage declines, why not allow them to make an educated decision about whether the cost and risks associated with handling cash is worth the return? Others point to the benefits of reduced cash handling and transport costs. Bon Voyage and farewell to the Brinks truck.

Cash usage is declining here in the U.S. too, but we’re still a long way off from going cashless. According to a Diary of Consumer Payment Choice (DCPC), by the Boston, Richmond, and San Francisco Federal Reserve Banks, at 40 percent, cash made up the single largest share of consumer transaction activity in 2012, followed by debit cards at 25 percent and credit cards at 17 percent.

Of course, that was three years ago. Nilson research indicates the amount spent via Visa and Mastercard debit cards in the U.S. has risen nearly nine-fold since 2000. But, are we ready for a cashless society? Not until a few major issues are addressed:

• Digital transactions are prone to fraud and security risk. Even in Europe, where EMV has been in play for many years, total card fraud grew 15 percent to $1.4 billion year-over-year from 2011 to 2012.
   
• Many cohorts, including the elderly and our growing immigrant population, have limited access to electronic banking and payments.
   
• While consumers are trending toward the convenience of electronic transactions today, there’s a real chance they’ll balk at the control they stand to lose—and the penalties they likely face—in the cashless society of tomorrow. For instance, the Financial Times posited last year that “the introduction of a cashless society … makes things like negative interest rates possible … and … transfers absolute control of the money supply to the central bank.” In other words, consumers could be charged for saving money, and they would effectively be letting the fox guard the henhouse.
   
• And then there are the not-so-far-fetched musings of Scott Shay, founder and former chairman of the board of directors at Signature Bank. In an online Op-Ed he wrote last week, Shay posited:

“Technological advances have led to the creation of algorithms that can instantaneously review financial transactions, determining the nature, location and even the appropriateness of a purchase decision. These have been freely used by credit- and debit-card companies.

Cardholders already encounter this technology when they receive fraud alerts after a transaction that looks out of kilter with the particular consumer's normal purchasing patterns. The technologies can thus serve to protect consumers. That said, they have already been used to control consumer behavior. In 2010, Visa and MasterCard, bowed to government pressure — not even federal or state law — and banned all online-betting payments from their systems. This made it virtually    impossible for these gambling sites to continue operating regardless of their jurisdiction or legality. It is not too far-fetched to wonder if the day might come when the health records of an overweight individual would lead to a situation in which they find that any sugary drink purchase they make through a credit or debit card is declined.”

When and if U.S. retailers are given the choice to forego cash acceptance, careful consideration must be given to whether that decision results in a backlash over the protection of consumers’ personal freedoms. I don’t think diabetics should be drinking Mountain Dew. I also don’t think it’s the responsibility of an algorithm on a server in a bank to monitor that.

Proponents of the eradication of cash are quick to point out societal benefits of the elimination of the underground economy. If the taxi driver has no cash, why mug him? If cash is outlawed, how will drug dealers peddle their wares? Personally, I think those arguments are short-sighted and awfully naïve, and in light of Shay’s comments and the Financial Times’ prognostication, I think equal attention must be paid to the societal repercussions of going cashless.

Eliminating cash won’t eliminate the underground economy. The digital underground economy is alive and well. Eliminating cash from your stores will merely invite enterprising criminals to seek far richer digital rewards than the cash and coin booty they’d score at the cash wrap. Yes, cash usage is declining, but until some major wrinkles are ironed out, don’t ditch those cash drawers just yet.