[Dave Birch] That Dispatches programme with Harry from The Telegraph is still bothering me. It was so fundamentally wrong about the subject matter, the diagnosis and prognosis that it needs detailed comment, but I’ve been really busy recently and haven’t had a chance to go over it. But when I was last stuck at an airport waiting for a delayed flight, I started to think about the issues.

Exclusive research for Channel 4 reveals how families are now realising the value of a ‘return to cash’, drawing out more from cash machines than at any time in the last five years.

[From Dispatches – Beating the Recession – Cash vs Cards – Channel 4]

Setting aside for a moment the question of who it is that pays for all of these ATMs, security guards, cash-in-transit trucks and so forth, I’m curious why the issue of “Credit vs. Prepaid Purchases” got immediately (and stupidly) reduced to “Cards vs Cash”. As far as I’m concerned, these are very different issues. Prepaid electronic money accounts of one form or another are excellent ways to manage budgets and far better for people who are less well-off than cash. This is why I don’t accept the basic premise of the programme. For one thing, getting people to work in cash instead of with a convenient prepaid instrument (an O2 Wallet, for example, with companion O2 Money prepaid Visa card) imposes considerable extra costs on them.

A particular issue seems to be the idea (which is true) that people spend more a card than they do if they only have cash. But those figures tend to be based on credit and debit card use. And I do think that some of the statistics are misread. For example… 

The [MasterCard] study also found that after the first contactless transaction, users spend an average of 25 percent more online, 64 percent more abroad and 20 percent more in recurring payments

[From Contactless Payments–Bad News for Consumers? – Forbes]

At first glance, this would suggest that cards are an invitation to profligacy. But that’s not what is meant here. What MasterCard are saying is that the ease and convenience of a contactless card means that consumers are more likely to carry that card around and therefore use that card for other payments as well (which makes it more likely that they will use that card for cash replacement in small transactions).

The PayPass Adoption Study also noted significant lifts in top-of-wallet behaviors such as Recurring Payments, e-Commerce and Cross Border spend

[From New MasterCard Advisors Study on Contactless Payments Shows Almost 30% Lift in Total Spend Within First Year of Adoption | MasterCard Social Media Newsroom]

This doesn’t mean (although it may, of course) that customers spend a third more than they would have done with cash. It means what it says: they spend a third more on the card that they use for contactless transactions. I know this to be true from personal experience, because on the days when I am out and about in London — two or three days in average week — I only carry one card with me, and that is my splendid Barclays OnePulse card that has both contactless payment and an Oyster card built in. Since this is the only card I have with me (not strictly true, because I have a Barclaycard MasterCard in my Orange QuickTap phone) it is the card that I use to buy my train ticket at the station and incidentals during the day. Now, it is entirely true that I may choose to spend more on these incidentals because my OnePulse is a credit card. But that’s my choice. If I want lobster and chips for lunch instead of fish and chips, it’s up to me.

This is a different issue to the well-known sales uplift on cards. If I pop round to the fish and chip shop and I fancy some mushy peas but I don’t have enough cash in my pocket, then no sale. If the fish and chip shop takes cards (ours does) then I get my mushy peas and the shop gets a sale. The presence of the card does not encourage me to spend money that I do not have: I have the money, the card provides a means for me to deploy it on some delicious food that I would otherwise have gone without.

In the past, food trucks were cash-only operations. But today, they wield tablets and smartphones capable of accepting credit card payments and e-mailing receipts to customers at the point of sale.

“We figured that given our price point, we were going to have to accept credit cards from the beginning,” Doug Povich, co-owner and operator of the Red Hook Lobster Pound Truck says. “People really get excited when they come to the truck and see us using the latest technology. It’s not the typical POS that they see in a restaurant.”

[From Payment Industry Insights: Food Trucks: Where Mobile Payments Meet Mobile Food]

If I was worried about spending money that I didn’t have, I would still use a card, just not a credit card. I would only use cash under duress: at the end of the week, how would I know what I’d been spending it on? Cash isn’t better than cards for budgeting or for tracking. Unless, like the family in the show attempted to do, I kept a journal and wrote down every little expenditure, which I know from experience is impossible. But if you were to do this, you should be sure to note down the additional costs associated with cash as well: the extra costs of utilities, the ATMs fees and all of the other incidental costs.

So for one month, Choi went about her life as usual — minus her bank account. She took her paycheck to a check-cashing service and used prepaid cards, and in the process, she spent $93 in fees, which, added up, works out to be about $1,110 a year.

[From Living without a bank account]

But the cost of cash is only part of the story. When it comes to cash and cash replacement, my central argument is always going to be that the costs of cash are not merely high (even when invisible) but are distributed so as to put the burden on the honest poor.

The poorer you are, the higher the costs and risks of cash become.

 [From The End of Cash by David Wolman – WSJ.com]

How true. It is the poor who get robbed (and have no insurance), the poor who have to extra for everything from DVDs to holidays because they can’t buy online, the poor who pay extra for utilities because they don’t have accounts for direct debit. And so on. In the US, where the number of unbanked people is even higher than in the UK…

Over a lifetime, the average full-time, unbanked worker will spend more than $40,000 just to turn his or her salary into cash.

[From Beyond Payday Loans – WSJ.com]

That’s not right. A national payment environment that imposes the highest transaction costs on the poorest people is just plain wrong and I, for one, would like to see this recognised in the National Payments Plan. Naturally, I don’t expect them to adopt the most obvious and straightforward way to reduce the burden on the poor, which is to get rid of cash, but I don’t regard it as unreasonable to have an action plan to start to reduce it.

Like euthanasia, proposals to do away with physical currency could remain controversial for a long time to come

[From Tim Harford — Article — Could we live without cash?]

That’s an understatement. Just take a look at some of the comments underneath articles about David Wolman’s book o various newspaper and magazine websites. A broad spectrum — from utterly bonkers conspiracy theorists to campaigners for the excluded (with misplaced concerns) — oppose any attempt to bring rational calculation to cost/benefit analysis for notes and coins. And ss time goes by I’m beginning to think that these arguments about the general uselessness of cash won’t be the knife to its jugular. Governments, by and large, don’t seem bothered about the cost of cash to the poor (especially when balanced against seigniorage income). They do, however, care about its impact on their own income.

There are growing pressures for governments to reduce the use of cash because it is used to facilitate crime and tax evasion more than because it is inefficient.

[From The technology of money]

There are weak signals for change all around, and I’ll be writing more about this shortly because it interests me so much, and it may be that we are close to a society-wide change of perspective — shared between government and other interests — that will transform a selection of weak signals into a couple of strong signals for change. In summary, I agree with the Swedish banking union.

“Cash has played out,” according to Maria Löök of the Swedish banking union, who also says that two out of three Crowns in circulation is “black” (this figure accords with a more detailed study from Norway that we discussed recently).

[From Digital Money: War on cash: a report from the European front]

We don’t need cash. The cash that there is is expensive, anti-poor, pro-crime and a deadweight on society as a whole. We need, in the UK, a new version of the National Payments Plan that makes a quantifiable reduction in the total social cost of payments an explicit goal for the UK payments sector and targets a reduction in the use of cash as a key way of achieving it. Tough on cash and tough on the causes of cash, that’s my slogan.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers




  1. Don’t forget that cash is legal tender and bank credit is not. Cash is theoretically limited in issuance, and bank credit is not. As banks reduce the cost of handing bank credit they aggregate their own power to issue credit from ether and penalise users of legal tender.
    Governments have abdicated the money issuing power and the rest is fraud. By providing a ubiquitous payment infrastructure the banks get to hold all the real money all the time, just like they now hold all the gold while the rest of us circulate paper.
    If you were really concerned for the poor you wouldn’t be coaxing them into the vampire squid banking matrix, but helping them build and manage their own banking services.

    [Dave Birch] You say that “Cash is theoretically limited in issuance” but how so? The UK government just printed another £325 billion. And by the way, not once in that post do I suggest that poor people should be made to have bank accounts.

  2. The machinations of money creation are somewhat outside the purview of this blog, but suffice to say that the money creation is limited in theory only by the amount of interest that borrowers are willing to pay. However, in the TBTF era, even this doesn’t apply because interest rates are at zero and bad debts are covered by the taxpayer. Positive Money are covering this matter lucidly. Our whole money system has been thinned out to vapour.

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