Can Cash Usage Reduce in Europe – A Travellers Perspective

Why is cash so still so strong, surely retailers love cards and would be keen to drive customers to use them?

Last year I wrote about a town called Middelburg in Holland, a main tourist location where simply you could not change foreign currency, in fact the nearest place was a one and a half hour drive away, writes David Parker.  Great you say everything on cards, except that a lot of places did not take Visa or MasterCard – horrible credit brands only VPay or Maestro.

We are though always being told that cash is dead or dying, after all it is 2,500+ years since the first use of coins as payment tokens but if one looks at the numbers:

  • Banknotes across the Euro zone is increasing by 9% per annum
  • 40% more dollar bills available than at the beginning of the millennium
  • 70% of all consumer transactions globally are cash by volume, but less than 15% by  value 

So why is cash so still so strong, surely retailers love cards and would be keen to drive customers to use them. The argument though, despite what the card schemes may claim is not that clear. 

  • IKEA state that cash costs €0.03 per transaction (with the exception of France, which is higher because of cash handling charges) in direct costs, but they don’t count costs such as having to build safes in each store.
  • The British Retail Consortium state that the cost of a typical cash transaction in 2012 was 1.5p per transaction – although no clear if indirect costs are considered
  • Cash accounts for 54.4 per cent of transactions – yet only accounts for 10.3 per cent of costs;
  • Debit cards account for 30.0 per cent of transactions – and account for 35.1 per cent of costs;
  • Credit and Charge cards account for only 10.6 per cent of transactions – but account for a staggering 50.1
  • per cent of costs;
  • Non-cash non-card payments now account for 5.0 per cent of transactions and for 4.5 per cent of costs.
  • The average cost to handle a transaction based as a percentage of total sales turnover for that payment type is:
    • Cash – 0.16%
    • Debit Cards – 0.32%
    • Credit and Charge Cards – 1.04%

 Parker 31Jul Image1

Other sources though place it higher, when direct and indirect costs are considered:

  • The Swedish Central Bank has estimated the cost per transaction €0.25
  • McKinsey place cost of cash at 1.3% cost per transaction

It is argued though by many that accepting cards offers the retailer the ability to obtain higher transaction values, and this seems to be borne out by the BRC research that shows the average card transaction in the UK is double that for cash.

Parker 31Jul Image2

And this is recognised by retailers it is claimed as the charge below shows retailers see the benefit of accepting other payment in that it can increase sales:

Parker 31Jul Image3

This is all great in theory, but as I travel at the moment through France I note on toll booths it says no VPay or Maestro, as I go to tourist locations the signs like those below are all too common – no cards, cheque or cash only.

Yes cheques are very welcome, and in fact as a stand in the queue at the supermarket it takes forever as out of the three people in front of me two decide to pay by cheque.  In the UK cheque usage is almost dead, in France it is still it seems very strong.  But as for French retailers, even in highly tourist location recognising the value of accepting cards it seems there is a long way to go.  They still believe cash and cheques are cheaper, they do not recognise the potential increase in tourist spend that may come from accepting cards.

So what is it like around the rest of the world?

Sweden

  • The number of bank robberies in Sweden plunged from 110 in 2008 to 16 in 2011—not because security has dramatically improved, or the Police are better or even the jail terms are long, simply most Swedish banks simply don’t handle cash anymore.
  • Cash transactions are down to just 3% of the national economy (compared to nine per cent in the Eurozone and seven per cent in the US); public buses don’t accept cash; and  three out of four of Sweden’s largest banks are phasing out the manual handling of cash in bank branches. Need to donate money at church? No worry there is a POS machine, pay by taxi card machine, in fact on a recent trip I never even changed any money.

Norway

  • Some 11% of the population not carrying cash at all.

Somaliland

  • Cash is disappearing and there is no need for credit cards because even street vendors accept payments by mobile phones. A survey in 2012 found that the average customer made 34 transactions per month on their mobile phone—higher than almost anywhere in the world.

Kenya

  • The biggest African user of mobile money is Kenya, where there are 18 million subscribers to M-Pesa equivalent to more than two-thirds of the adult population with around 25% of the country’s gross national product flows through it.  The challenge is as a traveller you don’t have access to it.  So it is often back to cash.

Canada

  • As of January 1, 2013, no more new Canadian currency is being printed. Why? Firstly, there has been a decrease in demand for new bills. Secondly, the plastic bills have a longer life expectancy.   Payment by credit, debit and bank cards is almost 70 per cent compared to a world average of 40 per cent.

South Korea

South Korea introduced a preferential VAT treatment for consumers who pay with cards, moving the share of cash from 40 per cent to 25 per cent within four years from 2002 to 2006. So getting your card accepted is easy as you travel, almost everyone accepts it.