In a comment on an article about mobile payments that I was reading, I noticed that someone wrote
I hate it when a retailer tells me they don’t accept cards. I feel like I have to remind them what year they’re living in. They usually prompt me to use an ATM within their store and accept a 2 dollar or more fee just to get the cash to pay for a candy bar. This results in me leaving the store and finding a 7-11 or some such thing.[From Paying by phone is insecure and unnecessary. – By Farhad Manjoo – Slate Magazine]
It seems to me that this is the market at work, and I don’t see a problem with that. If some retailers and some customers want to carry on using cash, then fine, let them, but don’t make me pay for it. So long as they are paying the full cost and I’m not subsidising them, so what? (Actually, there is a so what which is to do with the impact on society, but that’s not my point here.) But then I began to wonder why the store would need an ATM at all. Wouldn’t costs be reduced for everyone if the customer could use their ATM card to withdraw money from the retailer’s cash draw? This is the sort of thing that is going on in India.
As a part of the ambitious Unique Identity (UID) card project, a micro-ATM will be a payment platform that would make use of mobile technology and the customers’ UID will serve the ‘know your customer’ (KYC) norms required by the bank to open an account.[From Banks take to the shrinking cash machine – dnaindia.com]
The micro-ATM is a POS terminal-with-knobs-on so that customers can make “ATM” withdrawals at agents but also open accounts and carry out other basic functions. Presumably these don’t cost the merchants much more (if any more) than regular POS terminals and they must cost less than an ATM, so everyone’s better offer, except for ATM manufacturers.
Perhaps we should stop looking at these band-aids to slap over cash’s inefficiency though. It’s time to get tough. According to recent research by McKinsey and Wincor-Nixdorf (who make, amongst other things, ATMs), cash “in circulation” from the US to Europe through to Asia Pacific is increasing year-on-year,which has resulted in the global cost of handling cash increasing to more than US$300 billion, and retailers bear the brunt of those cash handling costs compared to banks, cash-in-transit operators,cash centers and central banks. As much as 61% is attributed to the cost of handling, transporting and securing cash in the checkout zone and back office of a retail store compared with 32% for a retail bank. Incidentally, I thought I remembered seeing that $300 billion figure a few months ago, and it turns out I did.
Eckard Heidloff, president and CEO of Wincor Nixdorf and Dr. Karsten Ottenburg, chairman of the management board and CEO of Giesecke & Devrient, noted that $300 billion is spent annually on cash processing worldwide. And since the euro’s introduction, the number of banknotes in circulation in euro-member countries has increased 8 percent yearly.[From Wincor Nixdorf and Giesecke & Devrient form a partnership | ATM Marketplace]
Banknotes “in circulation” going up 8%, while retail sales went up, what, 1% last year? What on Earth are people are these banknotes for? Earlier in the recession, the Bank of England put forward a theory:
As a share of nominal GDP, the value of notes in circulation declined from 6% in 1970 to a low point of 2.4% in the mid-1990s but has since stabilised and then increased, noticeably over the past two years… Rising demand for notes might reflect some loss of confidence in banks and very low interest rates, which reduce the opportunity cost of holding banknotes as a non-interest bearing asset. Andrew Bailey says that is “…pretty good prima facie evidence that there has been an increase in demand for banknotes as a store of value”.[From Bank of England|Publications|News|2009|Banknotes in Circulation – Still Rising: What Does This Mean for the Future of Cash? Speech by Andrew Bailey, 6 December 2009]
Yes, but a store of value for who? Certainly not for a normal, law-abiding taxpayer like me. Does anyone you know keep cash at home now instead of leaving it in the bank? This isn’t a purely European phenomenon, since the amount of cash has been going up in the USA as well.
The quantity of US currency in circulation in the world was $2776 per US resident in April 2009. That’s a lot of currency – the stock held at any point in time is about 6% of US annual GDP. In case you think that’s all held overseas, a study by the Bank of Canada (in the Bank of Canada Review – look it up) shows that Canadian currency outstanding is about 3% of annual Canadian GDP, and most of that has to be in Canada.[From Stephen Williamson: New Monetarist Economics: The Use of Currency]
These figures seem about right: the US has far more currency out there per person, because more than half of all US currency isn’t in circulation in the US and will never be repatriated, so in the UK, Canada and the US we see approximately the same figure, that M0 is 3% of M4.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]