[Dave Birch] At the “Trash your Cash” seminar at the Roskilde festival last year, I saw an excellent presentation by Anders Molgaard Pedersen from the Danmarks Nationalbank, who gave a high-level view on retail payments in the Kingdom. (He apologised for making his presentation too technical and boring, but he shouldn’t have done, because it was excellent.) He gave detailed data from a variety of studies to conclude that the magnitude of the cost of cash to society is surprising (surprisingly high, that is) but that for very small payments — by which he meant payments under 30 DKK (about £3) — is is still cheaper than cards. Anders gave some useful benchmark figures for the total social cost of cash payments excluding household costs as a fraction of GDP:

  • Denmark (2009) 0.27%
  • Norway (2007) 0.12%
  • Sweden (2009 0.28%
  • Netherlands (2002) 0.46%
  • Belgium (2003) 0.58%

Denmark’s figure seems reasonable at first glance, but Anders noted that if you include household costs, the total social cost of payments in Denmark is calculated at 0.55% of GDP, of which 0.35% is attributed to cash and 0.15% to the domestic PIN debit scheme. He said that there remains a “substantial” cross-subsidy from more efficient electronic payment instruments to cash in banks and he said that he thought the introduction of NFC would change the picture again, by reducing the cost of electronic payments still further so improving the case for retailers and driving down the cross-over point further. I can see why this would be: reduced issuing and management costs, reduced fraud and so on, but I don’t think it much matters whether the next generation of payment systems are NFC or not. The mobile phone is certainly central to cash replacement, but the details of local interface are not.

Privacy, security, and convenience are all important factors in the adoption of electronic payment technology. New technologies which balance and address these factors may enable the elimination of cash.

[From Is cash becoming obsolete?]

Well, to be fair, NFC might have a bearing on convenience. It doesn’t really matter which technology is used, agreed, provided it delivers the right combination. This is why I do still think that NFC has a future in retail payments despite the slow start because it does deliver a little extra when it comes to convenience.

The second big problem with NFC is that there is no evidence that NFC is actually more convenient than cash or credit. Handing out cash at the register or giving out a piece of plastic and signing is very convenient.

[From BII REPORT: Only Apple Can Make Mobile Payments Real – Business Insider]

Having sat through a fantastic, detailed and interesting presentation about the cashless Sziget festival in Hungary, I can say that this is categorically not true. NFC was faster, safer, more convenient and (and this is the kicker) more profitable than either cash or chip and PIN cards (the merchant charge on contactless transactions was lower than chip and PIN transactions). But that wasn’t the point I wanted to make.

As we’ve been discussing recently, with or without NFC it is the retailers who are likely to shape the next generation infrastructure rather than banks (as has “traditionally” been the case) or mobile operators. This is, in fact, why I was thinking about that “Trash Your Cash” seminar again. At the same event, the Danish Chamber of Commerce made a presentation on the retailers’ perspective. Apparently, there is a big problem with shops being robbed (I think because it’s harder to rob banks these days) and so many retailers want to go cashless anyway, as is the case in Sweden too as I understand it.

There was something else though. I think I picked up that the “honest” retailers are not happy about competing with the “dishonest” ones who use cash to evade taxes. This is another excellent reason for making cash reduction an element of national policy. Getting rid of cash would mean a level playing field. I hadn’t thought about this much, but I heard the same thing on a radio phone-in in the UK a couple of weeks later. The phone-on concerned the remarks of UK Treasury minister David Gauke that paying tradespersons in cash was morally wrong and that

home owners who allow workmen to evade VAT or income tax were forcing others to pay more.

[From Middle classes who pay cash in hand ‘morally wrong’ and aiding law-breaking, says minister – Telegraph]

This is self-evidently true. If a quarter or so of the economy is operating off the books, the rest of us are having to stump up to cover them. Even more interestingly, the Chamber of Commerce said that they thought that Danish retailers would be prepared to contribute to the cost of the development of the next-generation, new technology retail payment systems. Their view was that retailers are keen on electronic payments as an integrated part of an electronic shopping environment (I think they meant integrated beyond simple loyalty and coupling, I think they meant discovery, receipts, warranties and so on beyond the POS transaction) and see them as a route to increased revenues alongside the cost-savings afforded by getting rid of cash.

I was surprised and delighted by the Chamber’s agenda. They are asking the government to change the law so that shops can refuse cash and they want to start by refusing cash at night. Go for it guys! Why aren’t the British Retail Consortium as forward thinking and innovative? There’s a win-win around getting cash out of retailers and reducing the total social cost of payments, and there are some retailers who see it.

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


  1. As usual a thought provoking commentary. You state that ‘NFC was faster, safer, more convenient and more profitable than either cash or chip and PIN cards’. No argument on cash, however I’m not sure how NFC is safer than chip and PIN? Also interested to know how it is more profitable than chip and PIN if you are an issuing bank? Great if you are a merchant as acceptance is cheaper (than chip and PIN) and the consumer experience is super convenient.

  2. Which law is it you want to change? Presumably a Danish one as in England it’s not clear that there is any general law requiring acceptance of cash – other than for payment of a debt, such as for a meal after you have eaten it. Maybe something sector specific?

  3. Disclosure: I am a dane smile

    Denmark is an interesting case. If we begin to look at it from a societal viewpoint then we are aware of quite a bit of disadvantages that cash has; it’s costly, it’s slow, it’s dirty, it’s a source of crime and it’s a burden on the environment…
    We also know that Danes overall prefer to pay with cards. The national debit card scheme is widely used and accepted.

    BUT we have some strange legislation. We have a paragraf in one of our laws that prohibits a merchant from going cash-free. If they have “manned sale” (i.e. not automated) then the merchant has no choice but to accept cash.

    In Copenhagen Finance IT Region (http://www.cfir.dk) we looked into this paragraf and the story it tells is interesting. It has it’s roots back in 1984 when we first got the national debit scheme. It protected cash from a discriminatory viewpoint: cards were few and far between so politicians were afraid that “cashless stores” would leave the public without a means to pay (i.e. they were discriminated against – why a store would want to exclude the majority of its customers is beyound me). Well, the paragraf has largely gone unchanged for almost 30 years. With one exception: it used to include the posibility for and excemption – that you could aply to be cashfree. This posibility does not exist any more, so the law has actually gotten tighter in the defense of cash.

    This is interesting for two reasons. One is that society has changed quite a bit in the last 30 years. Cards are now the norm, yet they are not “protected” by law. Cash is to a larger and larger extend a rarity.
    Two, we have several other laws in place that, in spirit, highly promote a cashfree society:
    – we have a law that states that all persons and businesses in Denmark must have a publicly registered bank account (nemkonto) used in payments from the government. No checks or cash handouts anymore.
    – the public (govt) will only receive and pay bills electronically (efaktura).
    – and lastly an addition to our tax laws that state, that if you pay a handyman more than 10.000 DKK in cash then you are liable for him paying his taxes on that amount. If he does not then they can prosecute you (the customer). If you wiretransfer it then you are off the hook.

    So we have some clear societal benefits that most all agree on, but legislatively we are being pulled in opposite directions.

  4. Hi Dave,

    I think the impact of going cashless varies greatly between countries. In the example of countries above their wealth structure I hazard a guess is somewhat
    different to the UK.

    Anedocotely it was put to me the other day that more tax money is used supporting those in work in the form of state benefits than that granted to the non-working.

    So in the UK we appear to be in this bizarre market distortion of letting a minority of employers (large multinationals) hire people at below minimum wage knowing that they are going to get their income topped up by the state to survive, or better still their accommodation is subsidised linked to their poor income. Would it not be better just to stop tax companies – period. To create a level playing field for national companies v international tax scammers? Then up the minimum wage.

    Back to cash, so the majority of real wealth generation (and JOB CREATION) in the UK is undertaken by small companies below 10 people. You now cannot grow a company beyond this point because of the health and safety and pension liabilities etc etc. To get to the next stage, you are better off getting mega sucessful and doing tax scams off-shore. So as a small business person, unless I was a city trader and I had the where withall with 10 other mates to make that jump – I wouldn’t go there.

    So you take a sole trader, they’ve done Job Seekers allowance, they do Small Business start up and for the first five years they bumping along, both bloke and misses on tax credits (or state support in some flavour). Year six, Bob the plumber is now ineligible of tax credits… The reality is he’s been taking cash for a few jobs since day one. Now it’s the cash that’s now saving this family with the tax credit on his income gone (their dual income now cuts tax credit on the whole household). Now several years down the line he’s doing quite well and declaring everything for his SA302 to get a mortgage…

    The bottom line if the benefits system in the UK is not reformed before digital money, companies that do REAL things (create non-minimum wage jobs), that
    actually pay into the UK tax system and create REAL growth in the UK maybe buggered through the transition to the cashless society. (My thoughts, takes cover back under the duvet)

    My real point is that thinking about removing cash from the system, requires a different benefits system in the UK than we do at present. Without reform the effects on job creation and growth would I think outweigh the perceived “cost of cash on a spreadsheet”.

    We live in a post-Keynesian world where we are on a pause to get to Thorium style based energy production, meanwhile we are dealing with the debt created by his hogwash caused by not addressing underemployment created by mechanisation.

    The contraction of Western World economies for 15-20 years really won’t be helped by us going cashless, I believe quite the opposite. I’m not advocating the madness of the non-floating Totnes Pound. But the fact of the matter is that it’s hard to find a pundit economist/trader who doesn’t believe that the US is not going down 1 trillion a year for the foreseeable future. So by 2015/16 they’ll be at Greece’s levels of debt and they’ll have 65M+ people on food stamps.

    With the collapse of the Western economies as a result of this, I cannot sell cash being abolished in the UK anytime soon – it just doesn’t seem practical?

    Lets campaign to reform the UK’s broken tax and benefits system to actually allow the roll out of digital money / the cashless society?

    “UK Treasury minister David Gauke” – most have never had a conversation to someone in the real world outside his office.

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