Harnessing Technology to Ensure the Future of Cash

Might we be witnessing cash in its death throes at the bloody hands of coronavirus? Some who would benefit from the would-be demise of physical money see a silver lining in the most brutal recession since the 1930s.

The argument is that digital payments have grown exponentially in the coronavirus pandemic, capping a decade of sustained growth in new ways to shop and pay, from contactless cards to payment apps and the current explosion in cryptocurrencies. Cash, it is held, is under existential pressure.

But central banks have recorded exceptional spikes in demand for cash in the pandemic as consumers boost their precautionary holdings, confirming the role of cash as a crisis safe haven. Never has there been so much cash in circulation. In the US, the value of cash in circulation grew by almost $300 billion in 2020, a year-on-year increase of 16.5%. And yet public and investor interest focusses more on those seeking to displace cash than innovators intent on facilitating its use.

So, are we seeing a shift in the way we use cash, holding more of it and spending less? Perhaps. But cash remains a major payment and monetary instrument, maintaining dominant positions in markets around the world. Asia remains cash-centric relative to Europe and the US. In the euro area, 73% of point-of-sale and person-to person payments were made using cash in 2019, for 48% of the value of transactions. Significantly, a number of mature economies with the most advanced and diverse payment technology profiles, have some of the highest levels of cash in circulation (Japan, Switzerland, Germany and Hong Kong).

But what if digital could be harnessed to preserve cash — instead of working to overturn it — by making cash usage simpler, shortening the cash cycle and reducing handling costs for banks and retailers? A still little-known suite of technologies going loosely under the name, CashTech, seems to offer just that perspective.

CashTech uses software and simple communications technology to enable more efficient access to cash in the smart phone era. Comprised of start-ups, CashTech seeks through innovation to meet, rather than counter, the vast extant demand for cash. The customer who needs physical money simply switches on their smartphone, chooses a CashTech free app and goes to one of a network of partner retail outlets to obtain cash. 

Platforms work as location-based match makers, connecting those who want to withdraw with those who want to issue cash – typically, a local shop owner in an area that now has too few or no ATMs at all. As well as facilitating traditional debit card cashback services, CashTech enables a customer to deposit cash, or depending on the platform, apply for a modest loan through small retailers like mini-marts.

 For consumers, CashTech makes cash more accessible, as shops become a high-density cash distribution network. For retailers, becoming stand-ins for ATMs, CashTech means the value-add of offering new services, like cash withdrawal, with the further benefits of increased foot traffic and cross-selling. Commercial banks get an agile, essentially ready-made additional distribution network for cash, with no or little capital investment.

 At least the pandemic has served to make clear the current sectoral conundrum. Consumers continue to want cash, as banks close ATMs, arguing that cash-machines have become vastly inefficient with too many clustered in the wrong areas (idle in airports, over-used in shopping malls). In the language of economic theory, people are ‘nudged’ towards using less cash – ‘nudged’ being a euphemism for consumers loosing the option of cash, including older consumers and the vulnerable most reliant on cash.

 Cash will outdistance, perhaps ultimately be aided and abetted, by the coronavirus crisis, just as it has withstood government and corporate policies that limit its use, or make it vastly more difficult to access. The suggestion that cash is a coronavirus transmitter, put about by misleading media reports, has anyway been refuted by the World Health Organisation, to whom the suggestion was first falsely attributed.

 The march of digital is unstoppable and the persistence of cash won’t end any time soon – as a method of payment; store of value; protector of privacy; driver of financial inclusion and crisis refuge. CashTech uses digital to preserve and enhance not displace cash in a pluralist payments market. In a speech last September titled “Payments in a digital world”, European Central Bank president Christine Lagarde said: “The Eurosystem will continue to ensure that all citizens have access to banknotes at all times”. Other central bankers have made similar statements.

It would be prudent then, for all sides in the sometimes febrile argument about the future of cash, to look for business opportunities in a still cash-intensive world payments market.