[Dave Birch] At the New Payment Channels conference in London, Julian Niblett gave a presentation about contactless from the major retailer perspective. He is head of cash for Boots, one of the U.K.’s largest retailers. They are a good case study, I think, because there are parts of their operation where contactless would work, but other parts where it would not. Therefore, they have to develop a sophisticated strategy and understand carefully where to make investment.

Their average transaction size is under £10, but that disguises a wide range range (from, say, cosmetics to snacks). So it’s not a simple case of converting big stores or small stores, high street or out of town. Within a store, some departments might benefit but in other departments it would be a waste of money. But how confusing would it be for customers to try and figure out where they could use contactless or not? And how much would it cost to train staff to handle customers properly in these circumstances.

The key figure that Julian gave that will be of interest to people here was that Boots banks £2.5 billion in cash every year and it costs them £1.5 million whereas they bank £2 billion in card transactions and it costs them £14 million. Hence he asks, quite reasonably from his point of view, why cards (that should be electronic and efficient) cost ten times as much as cash. He also gave an excellent insight into the way that retailers think when he said, and I quote, “we’ve had our fingers burned with chip and PIN”. I’m going to do what I can to persuade Julian to make a Digital Money podcast to explore his perspective further.

I would ask Julian’s question the other way round though: since cash clearly costs banks more to handle, how come they charge only £1.5 million? Something is wrong here. Boots are happy that cash is cheap because someone (ie, banks, or more properly, bank customers) are losing money. So where is the right balance here for society as a whole? Should Boots get a 1p MSC and the banks eat the cost? Should Boots get a 2p MSC and the banks get a subsidy from somewhere? How are we to go about deciding what’s right?

Why not let the market decide? Price has to play a role and by making it transparent we can let consumers choose. I’ve just been reading a comparative study of the Dutch and Norwegian markets that concluded that transparent pricing speeds the transition to non-cash by about 20%: in other words, if customers have to pay the real costs of using cash then they will use the alternatives. I’m pretty sure that this means that the use of cash will fall significantly: the attributes that people say they value (eg, anonymity) just aren’t worth that much to them.

It isn’t just techno-determinist e-money monomaniacs like me that spend their time wondering what will happen as cash dies out. Business people, too, are starting to think about it too. Here’s Andrew Mullins, MD of the Evening Standard, talking about their decision to introduce the contactless Eros card to pay for the newspaper:

But cash, at least, may soon be on the wane in affluent, early adopting places like London, Mullins at The Standard said. “The motivation for the introduction of the card was that we believed that central London was going to become a tap-and-go society,” he said.

[From Cashless purchases at the newsstand – International Herald Tribune]

If you potter around London for more than five minutes you’ll notice it isn’t yet a tap-and-go society, but I’m sure we’re heading in the right direction.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


  1. Implicit in product pricing should be the cost of goods sold. I’m puzzled by those who suggest and institute premium pricing for cash transactions but do not charge fees for credit/debit processing. The practical reality today is that consumers expect to be able to use plastic and the merchant must provide or perish. In handling of cash you achieve some level of economies of scale which are never achieved in the card environment.

  2. One question, is the £14 million cost for cards related to interchange fees, loss of float or something else?
    The cost of cash is, of course, subsidised by the government (and therefore by the taxpayers) but the costs of cards involve substantial profits to institutions running the business. Which may not be the same as the ones processing cash.
    So I guess the point is that the taxpayers (who are also the users of cash and cards) should insist on the reduction of cards usage costs (interchange, float etc) as, in the end, either way, it costs them.
    This, I guess, is what the EU/ ECB are trying to do with trying to push down the costs of interchange and e-payments. And they should get complete taxpayer support for this.
    No wonder the VISA IPO is doing so well…

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