[Dave Birch] Recent events in New York have been used as a stick to beat us e-payments chaps around the head. The general point of view being that when the power goes out, cash is the only way to effect transactions and that without cash food will rot on the shelves and society will decay to the state of hunter-gatherers. It’s no joke, of course, but a serious issue.

Many of the low-income residents receive cash and supplemental nutritional assistance from the state electronically through what the New York State Office of Temporary and Disability Assistance calls Electronic Benefit Cards (EBT)… but since Hurricane Sandy hit, most Lower East Side stores don’t have electricity to run credit card transactions and are only accepting cash

[From Without Electricity, New Yorkers on Food Stamps Can’t Pay for Food – COLORLINES]

This is why low-value payment systems ought to be able to operate in a limited off-line mode. Of course, if the stores were using smartphones to accept payments, and the residents were using smartphones to make payments, then the problems would be alleviated. You can’t run a regular POS terminal without power, but if you charge up smartphone you can use it to take payments for a day or more!

Early warnings from the Red Cross and other emergency response groups echoed three critical recommendations – “stockpile at least three days worth of food, water and cash” – not food, water and credit cards / debit cards / smartphone payment apps.

[From Cash – The “Sticky” Payment Technology — Counting On Currency]

 Well, smartphone payment apps might be a better idea. But even if they are not, why cash? Why not some other means of exchange that has additional value. I note that certain enterprising groups in the US have already begun to explore the topic of alternative stores of value that can function as exchange mechanisms.

“There’s no serial numbers and it’s impossible to track,” said Detective Larry Patterson of the Somerset, Ky., Police Department, where authorities have seen a huge spike in Tide theft. “It’s the item to steal.”

[From Tide is the new currency on the criminal underground, can be exchanged for meth – Boing Boing]

Are you serious? Why on Earth would criminals barter huge bottles of detergent rather than, say, cigarettes? Maybe it’s harder to make counterfeit Tide. Or maybe they don’t smoke as much as they used to! Anyway, back to disaster recovery. David Evans made a similar point recently, again making the assumption that cash is the best back-up (rather than, say, Tide or toilet paper or cartons of Marlboro).

Yet cash is probably the best backup payment system available to insure against catastrophic risk. It is a payment system that is completely dependent on pre-IT revolution technology. Printing presses, paper, vaults, armored cars, and guards with guns. But so long as the government can print it, distribute it, and make it secure it can keep on chugging in the wake of most catastrophic risks.

[From Commentary – System Down: Dealing With Catastrophic Risks In Payments | PYMNTS.com]

I’m not sure this is true. If there’s no power, there’s no ATMs and people will run out of cash very quickly. See the case study of the Irish bank strikes. The printing presses and the armoured cars are not throwbacks to the pre-industrial age that the zombie apocalypse presages: they depend on electricity, petrol, supply chains and the rest of the infrastructure of modern life. A real return to basics would mean going to back to Babylonian grain banks and a priesthood to manage the agricultural surplus!

David is, of course, absolutely right to suggest that more strategic thinking goes into the overall national payment strategy (which doesn’t exist in the UK or, to the best of my knowledge, in the US either) to ensure fallback. But I doubt that cash is the solution, which I suspect will be more to do with distributed identity / reputation management. Why? Because if there are floods, fires, meteor strikes or a zombie apocalypse, there simply isn’t enough cash in circulation to support the economy. And as the Japanese tsunami example showed, in certain kinds of catastrophes the people who kept their wealth in cash were the ones who ended up worse off!

Banks hustled to make cash available as persistent power outages in New York, New Jersey and Pennsylvania from superstorm Sandy kept hundreds of ATMs offline just as the same woes left many businesses demanding cash payments.

[From Scramble for Cash In Sandy’s Wake – WSJ.com]

Why would businesses demand cash when people don’t have it? Surely it makes more sense to shift to identity as the basis for transactions in these circumstances. If I was a business, rather than miss sale I would, for example, just write down someone’s card details and run it as a CNP transaction later. Or ask for ID, say a driver’s license, and issue an invoice for later payment. Or take an IOU. I would want business to continue, and it seems to me that has much more to do with obtaining certainty of payment, even if delayed payment, rather than asking for a commodity that is in short supply.

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

1 comment

  1. Note that the zombie apocalypse describes scenarios in the USA. In proper countries after a natural disaster, it is observed that communities come together, grieve together, recover together and work together. Not a lot of opportunities for innovative payment systems!

    But in a Zombie apocalypse, anyone could be infected, we should fear everyone. Once the surveillance stops and the money goes away our savage nature would be laid bare, and it would be every man for himself. Without a means of payment, humans would be unable to cooperate.

    Yes this is the message that the banks want to hear.

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