In part one of our global cashless society debate, we discussed all the wonderful ways a cashless society will raise equality, empower people to fulfil their professional potential and stop tax avoidance. Today we flip the script and look at the sinister side of a cashless world.
Who’s Likely to Suffer from a Cashless Society?
Power in the hands of a few is a dangerous thing, and it can result in a lack of competition, which is, unfortunately, the case with card transactions. Visa and Mastercard dominate the card transaction market (41.6% and 48.9% respectively) and the giants of plastic charge retailers and service providers for the pleasure of processing payments through their electronic funds’ transfer system.
In 2015, in an attempt to curb fees added for debit and credit card transactions, the EU government introduced a cap on these charges. The average fees on transactions in Germany before the cap was 1.8% credit cards; after the introduction of the new legislation, fees dropped to 0.2% for debit cards and 0.3% for credit cards across the EU. These costs, hidden from consumers, had to be covered by retailers.
During 2015, retailers highlighted how they have carried the burden of card payment fees for quite some time and welcomed the proposed change. Banks, however, warned that consumers would now be hit with upfront banking fees they would introduce to fill the revenue gap. A cashless society, therefore, increasingly puts control in the hands of the few who process card transactions. And the costs don’t stop there.
In January 2018, the UK introduced a further ban on all extra charges added to card transactions at checkout. These additional charges covered what’s called a merchant service charge of which part is paid to the banks involved in the transaction and part to the card transaction company. Part of this merchant service charge included a “card scheme fee” which has, since January 2018, increased substantially. While retailers can’t charge extra at checkout, they can raise the price of their goods to cover the higher card scheme fees, which are hidden from customers. Regardless of whether you’re paying cash or card, thanks to the giants of cashless payment you still lose. Those with the keys to the card payment kingdom are so integral to our increasingly cashless world, they simply cannot fail.
A Blow to Those on the Fringes of Society
Apart from seemingly costing more, a cashless society also has the potential to further marginalise those who have not been integrated into the modern banking system. Elderly customers are still largely dependent on local bank branches, and those on the fringes of society still depend on cash transactions for casual work, not to mention the loss of jobs that result in local bank branch closures.
A Single Point of Failure
From a logistics standpoint, few companies being responsible for a significant proportion of the world’s transactions has already had ramifications; Visa’s 2018 outage saw millions across Europe unable to pay for goods and services. This handing over of power to a few companies was highlighted as potentially problematic by Professor Niklas Arvidsson, Associate Professor at Stockholm’s KTH Royal Institute of Technology in a BBC World Service’s Business Daily podcast:
“That is a risk, and this risk has several different dimensions; one is to look from a system point of view, we have the risk of a single point of failure; if all transactions depend on few services, like card payments for instance, if they fail, then there are few alternatives… We might end up in a situation where a few banks have a lot of power.”
The problem may be especially poignant for Sweden, where less than one out of five transactions are cash: “The practical use of cash in Sweden is going down rapidly and will be, I’d say, in seven years from now very marginal.” continues Arvidsson.
Avoiding the ‘Pain of Paying’
There are also implications regarding consumer psychology. The so-called pain of paying is not felt as acutely when purchasing with plastic; now consider that average citizens carry around large proportions of their money in their bank cards and the equation for spending once again heavily favours both the banks and the card payment companies. According to the Guardian’s Patrick Collinson:
“Moving to a totally cashless society is therefore only likely to accelerate the vast build up in personal debt witnessed over the past four decades – unsurprisingly the same period in which cards have become ubiquitous.”
Tracking Your Purchases
Finally, there’s the tracking data banks are gathering from cashless transactions. The combination of Google (via online browsing, GPS and G-Pay) and banks (via cashless transactions) means there’s little left to the imagination of those who want to target potential customers. Back to Professor Arvidsson:
“We are giving away too much of our power to one of two entities, who can always increase tariffs. The other is data – who is collecting this digital footprint of mine? Who does it belong to, and what will they do with it?”
Cash allows your average customer to stop that flow of information, and it’s therefore in the banks’ interest to eliminate cash as a possibility for future transactions. We’re told a contactless, cash-free world is more convenient, but if that world results in higher costs, technical failures, increased tracking and makes us spend frivolously, shouldn’t we be questioning the value of this ‘convenience’?
Thanks for joining us for part two of our discussion of the global cashless society. Next time we’ll be looking at a cashless solution that may just work for consumers. Before then, tell us what you think in the comments; does cash still have a place in our world, or is it time we said goodbye to our dosh?
Want more content like this delivered directly to your inbox? Subscribe to UKCBC’s HND and AAT newsletters for weekly updates.