Why commercial banks are lobbying in favor of a cashless economy

Banks are eager to press on towards cashless societies, with increased efficiency and margins in sight. The abolition of cash, however, will generate new hidden costs for the public, and place economies under a high risk, with all eggs in one basket.

Banks have long been complaining about the burden of cash. “ATM maintenance runs $165 a month, according to Deloitte. And each new ATM costs $15,000 to $65,000, depending on how sophisticated the technology, says Diebold Inc (DBD.N), which sells the machines to banks and other businesses. Those costs may seem insubstantial, but with millions of customers and tens of thousands of ATMs, they add up – even for a bank that produces $6.2 billion in quarterly profit, as JPMorgan did in the second quarter”, says Reuters Dan Freed.
Between the securing, the management, the replacement, and the distribution, banks have to cover the costs related to cash, which they then pass on to the customer as bank fees. Global Market insights considers that the “Global ATM Market size is set to exceed USD 25 billion by 2024; according to a new research report by Global Market Insights, Inc. The installed base is forecast to exceed 4 million units by 2024.” As such, banks are eager to suppress these expenses, arguing that the much-desired cashless revolution would make them more efficient and reduce bank costs for customers. Whether they would indeed reduce banking fees, or keep the save for themselves, is anyone’s guess.
Suppressing cash will indeed delete this expense for banks, but it will quickly be replaced with another, as banks pay themselves with a discrete fee for electronic transactions. Transaction fees will be mirrored by the merchant to the customers, resulting in increased prices, hence Visa’s cashless campaign. “Visa launched its “cashless challenge” last year, promising thousands of dollars in rewards to shops committing to refuse cash from their customers”, says Medium Luke Andersen. “On average, however, credit card transaction fees on a $100 charge would amount to between $2.50 and $3”, says Instore Matt Niehaus.
There is inherent danger in having no tech-free backup solution such as cash, and little true incentive. No cash means instant destruction of the economy in case of natural disasters, power outages, cyber-attacks, etc. The daily management review analyzes that: “suppressing cash would not be immune from consequence for users. This economic shift would benefit banks and – to some mild extent - governmental institutions more than it would benefit the public. And it wouldn’t even benefit banks and governmental institutions all that much, in fact.” Cashless payments carry their own costs, though they are less visible to the public and yield more marketing power to the bank. DMR writes: “Amazon, Apple, Google, Facebook, all want you to get rid of your cash; digital payment industrials and banks as well. The reason is simple, in a cashless society, each and every one of your transactions could benefit them. The ‘utopian fantasy’ of a cashless world may not be for tomorrow but it is a plan shared by the major actors of today’s digital economy.”
The true costs of cashless payments are high, deceptively discreet and will inevitably end up being shouldered by consumers. CashEssentials indicates how, in most cases (daily, small operations), cashless payments yield a higher transaction cost, and writes: “Cash is not always the most efficient payment instrument but in some cases it is. And this is particularly true for low-value transactions which represent the bulk of retail payments. In the case of the Netherlands, the cheapest instrument, irrespective of the transaction amount, was e-money but the Dutch Chipknip scheme was abandoned in February 2015.”
Finally, the risk of living in a cashless society would be unacceptably high for citizens. “May it be in Japan, New Zealand or Ecuador; in a post disaster situation, where an entire region is on its knees, people realize how cash is essential to their lives. Access to physical currency is an immediate priority in times of national emergency, even in a country where 75% of transactions are normally made with electronic payments. In fact, when electronic retail payment systems are not working, electronic payment becomes a vulnerability, not a strength” said Alan Boaden, Head of Currency at the Reserve Bank of New Zealand after the Christchurch earthquake, the DMR reports. Whatever amounts are invested in securing the banking system, it will leave citizens at risk.
Arguments towards a cashless society are in some way valid, in the sense that they would indeed increase bank efficiency. But basing a reform on the short-term interests of private parties would amount to missing the forest for the tree: economies are meant to serve the public’s interest, not private ones. Creating a society which could be destroyed with a cyber-attack, for instance, is perhaps not worth increased bank margins.

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The cashless society from an ethical point of view

The debate about the move towards a cashless society has been at the center of the scene for several years, now. Various angles have been taken by economists, politicians, banking institutions and sociologists. Beyond the technicalities of the debate, lies the question of freedom, of inter-citizen solidarity and of governmental responsibility. The debate cannot remain in the hands of financial specialists, it is first and foremost an ethical, political and societal issue.

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