[Dave Birch] In their report on “Payments Innovation and the Use of Cash“, the Market Platform Dynamics team pull together some very useful data and structure an even more useful background for discussing the use of cash. It is well worth a read, and I say that not because it is in broad agreement with the report that Consult Hyperion were commissioned to prepare for an international cash-based business a couple of years ago (phew!) but because anything that encourages more detailed analysis of the relationship between cash and electronic payments is very helpful in the strategic planning process for many of our clients (sorry to be so selfish!). I very much liked the way that report categorises a variety of influencers and uses them to consider market trajectories. I will remark only the first two of them here:

  • Governments and their interest in and need to sustain cash, which will differ country by country. For instance, there could be efforts undertaken in countries to clamp down on the shadow economy thru tax policies that make it harder to shield cash from the taxing authorises, like is being done in several European countries today.
  • Banks and their interest in and cost to support cash. For instance, banks may make it easier or harder for customers to access cash based on their cost of handling it; some countries have also made it harder to access cash by eliminating the ability to get cash over the counter or by consolidating ATM networks.

Later in the report, they talk about another influencer…

One influencer that bodes well in favour of cash in the UK is the economy.

This reflects the British Retail Consortium (BRC) annual survey figures that were available to the authors.

Cash was used in 5.7 per cent more transactions in 2011, accounting for 58 per cent of all transactions. But the cost of the average shopping basket fell to £10.45 in 2011 from £12.93 in 2010.

[From Cash Use Up In Tough Times – BRC Publishes Annual Payments Survey ]

It looked as if consumers were shunning cards and returning to cash in difficult economic times. I never understood why this would be the case, since it is much harder to track your cash spending than your debit card spending. However, the new figures have just been released, and they show a different picture.

The BRC’s Cost of Payment Collection Survey 2012 shows that, while over half of transactions (54.4 per cent) are paid in cash, use has declined as a percentage both of number of transactions (down 6.7 per cent) and money spent (down 9.7 per cent). This is the first time in the survey’s 13 year history that both measures have seen a decline.

[From British Retail Consortium – Policies & Issues Content ]

I went off to the Bank of England and had a look at the the latest figures for notes and coin and reserve balances where you can see that while the use of cash fell 10% at retailers last year, the amount of cash in circulation rose another 6%. This is a consistent pattern. On the one hand, we hear that “cash is king” because the amount of cash in circulation keeps increasing but on the other hand its use to support commerce keeps falling. So what is all that cash being used for? If you look at the UK figures, you will see (as with comparable European figures) that the bulk of the growth in cash in circulation is in large denomination notes. These are not used in retail transactions (indeed, a great many retailers will not accept them) but they are used in a variety of underground transactions: money laundering, corruption, tax evasion and so forth. The figures look clear to me: cash is a subsidy from the law-abiding to the criminal.

As an aside, I was thinking of dropping David and the team a note to ask if they might include another factor in the pro-cash column: life expectancy…

The software also detects obscure correlations. People who frequent ATMs so they can make cash payments tend to live longer than those who prefer writing cheques or paying with credit cards, it turns out.

[From Insurance data: Very personal finance | The Economist]

I find this utterly astonishing, particularly since cash usage correlates strongly with income level, but what do I know. There must be underlying causation since the mere correlation seems implausible. I wonder if they have it the wrong way round though. Maybe it is older people, who have already lived longer, who are more likely to go to ATMs? Either way, I hope the MPD team will add life expectancy to one of their columns in the next version of the report!

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. I suggest the correlation between ATM usage and early death is not such a great mystery. The poor often prefer cash because it is real, doesn’t incur charges, and you can count it. People who write cheques or pay on credit have more confidence that their accounts will not bounce and are therefore rich. The poor die sooner.

    If you want to take away poor people’s freedom to transact in private, its quite simple, just put all the discounts on internet and credit card transactions. This is happening already. Prefering legal tender payments as I do (of course bank credit is NOT legal tender) I am penalised by price and excluded from certain things. But its all good for Consult Hyperion’s business!

    [Dave Birch] You’ve got it the wrong way round – the correlation is that people who use ATMs live _longer_ than people who do not.

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