It is starting to make sense for cities worldwide to prepare for a cashless society.
Children in Iceland bake cookies to sell on the street, a tradition similar to American kids’ first taste of business selling lemonade. The difference is their choice of payment: While in the US, kids selling lemonade only take cash, Iceland’s children are armed with debit card readers. This way they don’t have to worry about counting change, accounting, or safekeeping the money.
When you start looking at the real cost of cash transactions, it is considerably expensive for businesses and governments to ensure that ATMs, cash registers, and banks in every municipality have correct change; whereas all you need for electronic payments is electricity and a phone hookup.
Nowadays, you don’t even need that phone connection anymore; most POS payment terminals used by stores, restaurants, and services in Europe are handheld, battery-operated wireless terminals that work over WiFi and cellular networks. They can process any kind of credit card — magnetic stripe, chip-and-pin, and contactless.
Contactless adoption is exploding in Europe. According to Finextra, a leading financial news service, “contactless is the new normal in Europe, with more than a billion tap-and-go purchases worth €12.6 billion on Visa cards in the last 12 months.” By 2020, both Visa and MasterCard will require that all point-of-sale terminals are equipped to handle tap-and-pay transactions. Spain alone has more than 593,000 contactless terminals, many more than the US.
Cash transactions actually cost some businesses more money than accepting cards. Consider a large grocery store: Apart from the time used to ring all customer purchases, a typical cashier spends three times as much time processing a cash transaction than one with a debit card. Use a contactless card and the time could be further reduced. If you add the time spent counting and processing cash, security, transport to the bank and paperwork, the cost of cash piles up. Also, large grocery stores can negotiate extremely low fees for debit cards, making cash an inconvenient and expensive form of payment for them.
Using less cash also allows banks to be more efficient. Handling bills and coins is probably their biggest expense, next to processing checks. Add in all the security involved in safekeeping hard currency and moving it around town.
Using cash is expensive for customers, too. Apart from the inconvenience of having to carry enough for everyday transactions, there are the trips to the ATM, the possibility of theft, receiving incorrect change, and being given counterfeit money. Reliable figures indicate that the average American can waste up to 30 minutes a month on ATM cash withdrawals.
In London, a police escort, paid for by taxpayers, is available to elderly ATM users on pension day to deter thieves and cons from stealing or scamming retirees when they withdraw their money.
Cashless Public Transport
Another cost for cities is handling cash on public transport. Most vending machines in European cities accept credit cards to purchase metro and bus tickets. But those machines also accept cash, and the transport authority needs to send people, usually expensive security services, to collect the money daily and deposit it at the bank.
In the UK the transition to cashless transit is underway; London buses have not accepted cash since July 2014. People can use the Transport for London (TfL) contactless Oyster cards or any contactless bank card. If the same credit card is used several times during the day, the fare collected will not be more than the equivalent “day travelcard,” same as with the Oyster cards. The system also supports NFC enabled smartphones and, starting this month, Apple Pay.
In the long term, Transport for London’s strategy is to reduce the use of Oyster cards and have most passengers use their credit cards or smartphones for payment. This way they can eliminate cash handling at stations, reduce the expense of ticket vending and Oyster reloading machines, and save money on security.
Here in Barcelona, the TMB transport authority recently told me that only 2% of the transactions on buses are in cash, especially because bus drivers can only sell single fare tickets, which are much more expensive than traveling on a 10-trip card. TMB has no plans to go completely cashless anytime soon, but they could re-evaluate the situation after the new T-Mobilitat contactless system (similar to London’s Oyster) starts operating next year. [Editor’s note: the introduction of T-Mobilitat has been delayed to 2018]
In study done by Accenture, three out of four transit users in major cities say electronic ticketing would make travel easier, and 90 percent of Barcelona’s public transport users say they will use a ticketless solutions if a remote purchase system is available. Also, 76 percent believe that a ticketless mobile solution will encourage more car drivers to switch to public transport.
Frequent travelers already know that using your credit card abroad is easier than carrying cash. While you may need to convert a few US dollars into euros for small purchases and tips, almost everything can be paid for with a credit card.
Most experts agree that the transition to a cashless society is inevitable. One step is the elimination of multiple national currencies, such as lira, pesetas, francs, and other currencies that were replaced by the euro. Contactless cards and mobile payments are now helping to eliminate cash for small transactions, and instant payment systems such as PayPal and Google Wallet make it easy to split the bill at a restaurant or pay for your coffee and donuts.
In their paper “The Economics of a Cashless Society,” authors Robert W. Hahn and Anne Layne-Farrar conclude: “We find that when all key parties to a transaction are considered and benefits are added, cash and checks are more costly that earlier studies suggest. In general, the shift towards a cashless society appears to improve economic welfare.”
I believe cities should encourage retailers, financial institutions, and residents to reduce the use of cash. This will reduce the need to truck money around, reduce crime, and increase the efficiency of retailers and services.
Also, cities should help people with the new payment systems — creating programs for seniors, for instance, that teach them how to use the new systems and become comfortable with them.