Don Quijones: Consumers Stubbornly Cling to Cash, after Multiple IT Fiascos & Payment Systems Outages

Jerri-Lynn here. Latest instalment in the war on cash: Consumers display a healthy skepticism towards cashless transactions.

By Don Quijones, of Spain, UK, and Mexico, and an editor at Wolf Street. .

The last month has been an unhappy time for daydreamers of a cashless nirvana. Following weeks of disruptive tech failures, payment outages, and escalating cyber fraud scams, much of it taking place in Britain, consumers have been reminded of one of the great benefits of physical cash: it is accepted just about everywhere and does not suddenly fail on you.

The findings of a new study by UK-based online payments company Paysafe, partly owned by US private equity giant Blackstone, that consumers on both sides of the Atlantic continue to cling to physical lucre.

For its Lost in Transaction report, Paysafe surveyed over 5,000 consumers in the UK, Canada, the US, Germany, and Austria on their payment habits. One of its main findings is that 87% of consumers used cash to make purchases in the last month, while 83% visited ATMs, and 41% are not interested in even hearing about cash alternatives.

“Despite the apparent benefits of low-friction payment technologies, these findings suggest many consumers aren’t ready to lose visibility of the payment process,” Paysafe Group Chief Marketing Officer Oscar Nieboer. “It’s clear that the benefits are not unilaterally agreed upon, with cultural and infrastructure trends at play, and it may be some time before adoption is widespread.”

Although consumers continue to cling to cash, they appear to be carrying less of it: 49% overall in the survey and 55% of U.S. respondents said they carry less cash now than they did a year ago. The average American consumer carries $42 today — that’s $8 less than in 2017. In the UK the average amount carried in 2017 was £33; that has now fallen to £21.

But that does not mean that the amount of cash in circulation is dwindling. On the contrary, this year’s G4S cash report, the world average ratio of currency vs GDP continues to rise, reaching 9.6% in 2018. “Currency in Circulation vs. GDP is increasing on all continents, indicating a consistent, growing demand for cash across the world,” says the report. South America has by far the highest cash dependency relative to its GDP, with an average ratio of over 16%.

The study that in 17 out of 24 advanced economies studied, cash represents more than 50% of all payment transactions. Data drawn from the ECB’s Diary Study shows that in Europe cash represents 79% of all transactions in volume and 54% in value.

That’s not to say that alternative payment methods — debit and credit cards and other forms of electronic payment — are not growing in use. In the UK less shopping is the most popular payment alternative, with 54% of consumers using it in the last month – compared to just 3% of US shoppers. It was largely thanks to this predilection for less cards, coupled with the reduced use of cash, that UK consumers were by the recent 12-hour outage of visa payment services in Western Europe.

Most consumers are still loath to use so-called “frictionless” payments — i.e. invisible transactions that take place ‘behind the scenes’ in apps — for in-store purchases. While 50% of respondents to the Paysafe survey said they had used a digital wallet such as Skrill or NETELLER for online purchases, just 9% of them currently use one for shopping in-store. Only 23% of consumers reported using frictionless payments in apps such as Uber, while 65% think voice-activated systems are not secure.

The two biggest concerns consumers have with mobile payments are privacy and fraud. “Closer examination of the reasons for this low and slow adoption of frictionless payments shows that, once again, fraud is the most widely mentioned barrier, cited by 50% of respondents,” the study . “But data security is also a major concern, expressed by 48% of respondents.”

Given the number of recent scares, it’s a justifiable concern. Shoppers in Canada and the UK, two of the world’s most cashless economies, reported a rise in fraud in 2017, of 7% and 6% respectively. It’s a reminder that the more consumers come to rely on technological solutions in the payment sphere, the more exposed they become to the attentions of highly sophisticated cyber criminals.

In Mexico, a haven for the black market of stolen data, reports of data theft have by 25% last year, yet the country’s government and banks are determined to with plans to harvest — and store — the biometric data of all bank customers.

A recent survey from international law firm Osborne Clarke showed that 79% of the 2,000 people surveyed said they worry they would be sharing too much data if cash were entirely replaced by mobile payments. Respondents to the Paysafe survey also about being charged for things they didn’t buy (47%), losing control of their spending (31%), or making inadvertent purchases (28%).

The message is clear: for the moment, most consumers are unwilling to accept a wholly cashless economy. And their reservations may have grown in recent weeks, following the in Europe, which left millions of customers across the region unable to make payments using their cards. In a statement, Visa said the problem was caused by a “hardware failure”, which hardly inspires confidence it could never happen again.

Until a cashless system can be created that is 100% safe from the threats posed by natural disasters, accidents, cyber criminals and basic human incompetence, consumers in most countries, including even less-casheconomies like Sweden, the UK and Canada, would prefer to hold on to their grubby notes and coins. By .

A virtual paradise for real bank heists. Read… 

 

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33 comments

  1. XXYY

    Another case where an unwelcome change is being forced on society by elites with a strong interest in a particular outcome. The failure to eliminate cash is widely portrayed as some kind of Bad Thing in the business press.

    The two biggest concerns consumers have with mobile payments are privacy and fraud. “Closer examination of the reasons for this low and slow adoption of frictionless payments shows that, once again, fraud is the most widely mentioned barrier, cited by 50% of respondents,” the study said. “But data security is also a major concern, expressed by 48% of respondents.”

    These concerns are well taken in my experience. The ability to reconstruct every aspect of a person’s life, not only preference but location, using data that’s available to any and all entities in the financial system, seems horrific. Little needs to be added about cybercrime; my family has had 100x more stolen via credit card fraud (most of it eventually refunded after much effort) than robbery or burglary in the last several decades.

    Other concerns of a cashless system not mentioned here:

    o The requirement for a third party (e.g., a bank) to approve the transaction and the parties involved.

    o Inability of certain classes of people, e.g., those with poor credit, unbanked people, homeless, etc., to participate in transactions.

    o Reliability and availability, especially during times of stress. Power or network outages make transactions impossible. IT problems, as we see with TSB, can render one effectively penniless.

    o The need for the seller to have all kinds of equipment, connections, subscriptions, and accounts to process electronic transactions, and for these all to be working seamlessly for the sale to go through. These are particularly problematic for person-to-person transactions.

    o The imposition of fees on every transaction.

    o The inability to store wealth, even for emergencies, outside the banking system, e.g., in the proverbial mattress.

    o The essential privatization of the currency system. Issuing and maintenance of currency is traditionally a state function, not something to be lightly delegated to unaccountable, criminal, and above-the-law actors.

    Of course, the sudden urgency to eliminate cash on the part of banks and their cohorts makes one extremely suspicious in general.

    Reply
    1. Larry Motuz

      The ability to reconstruct every aspect of a person’s life, not only preference but location, using data that’s available to any and all entities in the financial system, seems horrific.

      Well, I’d say that the loss of privacy this entails –coupled to the the very real likelihood that this information can be abused, misused, and used to target people, and will be (based on no transactions ever being anonymous) IS horrific already. And, in the hands of malicious actors, this privacy loss may be able to be used to discriminate prejudicially in manners we cannot even begin to imagine.

      Reply
  2. The Rev Kev

    Maybe one of the reasons that banks like the idea of cashless societies so much is that when it becomes widespread, they can then start closing most bank branches as being unnecessary and save on personnel as well as bricks & mortar. Of course you have to accept the fact that a small number of corporations are responsible for all payments in your country and that you have to hope that they are resourcing their IT departments properly. Sure a country like Sweden is the most furthest along in going cashless but even they are encountering all sorts of problems. It seems that whole segments of their population are being cut out of the day to day economy but its not like they are important or anything.
    If this was applied to the US there might be tens of millions cut out as well but they are not profitable for banks anyway so there would be little loss. But here is the thing. It mostly works for Sweden, mostly, but that is because the Swedes still have a high level of trust in their government. Now how would that translate for a country like the US? For too many people, the government in the US is the enemy and not just for poor people either. I can see what the governments like about it. Apart from knowing everything that its citizens are buying down to the last cent, it would stop people hoarding money at home and get it out into the general economy and help consumerism. Yay, consumerism!
    I have read this described as herding people into digital sheep pens – just before the slaughter! Fall foul of your government and you will suddenly find that you can’t even buy yourself a mars bar. Cashless societies have several failure points such as the power supply, the internet, IT infrastructure and a host of other elements. Cash does not and is democratic as all can use it, none are excluded and if you have it, nobody can say that you can’t use it. Money doesn’t care who owns it. And if you live in a country where they are announcing that they are getting rid of cash? In that case, I would use what cash you have to invest in shotguns and cans of tinned food so that you are ready for when the power or the net falls down taking the economy with it.

    Reply
    1. Kurtismayfield

      The Banks like the idea of a cashless society because there is nowhere to hide. They will get their debts paid no matter what. Who cares if the debtor has no more money for food or rent.

      Reply
      1. drumlin woodchuckles

        They would also, as noted above, charge you some of your own money for every cashless transaction through their system, as noted above. Also, every other form of credit card company would do the same.

        And if they could abolish cash from existence, they could then charge as much as they like per transaction. They could also set a “minimum-fee’ for every transaction smaller than a certain size threshhold . . . . say a ten dollar fee for every transaction of ten dollars or less. And where would you go if cash were non-existent?

        The only escape would be back into the world of barter.

        Reply
      2. RBHoughton

        We must never relinquish cash if we are to remain a free people. The Central Banks are moving step-by-step to eliminating competition to their cartel (from the few remaining community banks) and politicians of every stripe are right up there helping. We must rely on ourselves.

        If we have no cash we will be obliged to keep our wealth in a bank – that’s the plan. It will be subject to bail-outs and bail-ins whenever the Directors get shafted for foolish gambling. It will be devalued as the Directors seek to claw-back wealth from anywhere. The general public will continue to be the last concern of their political representatives. Resist the end of cash.

        Reply
        1. drumlin woodchuckles

          This will sound like a quibble but I think it really isn’t. We should not think of money as wealth, because money isn’t wealth. Money is only spendable and/or lendable tokens of the ability to buy some stuff ( either wealth or the end product of wealth) at a price expressed in some of those tokens.

          Wealth itself is the means and substrates of production . . . including un-monetized production of subsistence consumables for subsistence consumption . . . and the service means of maintaining survival or even health.

          So perhaps people should also think of personal subsistence-survival self-facilitation and preparation as part of defending their wealth too. If you can reliably some of your own food, for example, the food you can grow equals the money or credits you don’t have to earn to spend to buy the food you don’t even have to buy, because you can grow it. That’s just one example.

          Reply
  3. Eustache De Saint Pierre

    Perhaps just me idling in fancy, but I recently viewed a video which was very informative on the large number of cables that cross the oceans, in order to service the internet. Apparently they occasionally get damaged by anchors which I find amazing as the chances of that happening, in such large expanses of ocean, I would have thought would be exceedingly rare.

    It all just strikes me as a potentially fragile support system for a basket that everybody appears to be placing their eggs in. As for idle fancy – a submarine fitted with some form of drag line featuring multiple hooks traversing the middle Atlantic would likely result in an interesting day at the office(s).

    Reply
    1. blennylips

      May I join the two of you in your idle fancy?

      I was recently amazed at the length and quality of the post on the Australian branch of businessinsider.

      Your other idle is a near reality, except that we call it “” [archive.stats.govt.nz].

      And this is [youtube]

      Near as I can find, this is now done in waters up to 1200 meters deep.

      Since you started with the wonders of the global wiring, and in the odd chance that you’ve not run across it before, allow me the pleasure to introduce you to the classic:

      Neal Stephenson
      12.01.96
      [wired]

      The hacker tourist ventures forth across the wide and wondrous meatspace of three continents, chronicling the laying of the longest wire on Earth.

      Reply
    2. marku52

      Lookup the cold war book “Blind Man’s Bluff”. A US sub scouting out the bay inside the Kamchatka peninsula noticed a sign in Russian “Undersea Cable-Do Not Anchor”.

      For several years, US subs returned to fasten recording devices onto the cable and remove the recordings. One of my retired neighbors, amazingly, was a submariner on one of those missions.

      The secret was blown by a US congresscritter, while his sub was in the bay. They were chased out with depth charges.

      Reply
  4. Eclair

    Here in economically depressed and rural Chautauqua County, NY, and neighboring Warren County, PA, cash is essential. At least if one wants to engage in and support the local small businesses. The vendors that sell at the Farmers’ Markets and the small (and some not-so-small) stands and green houses that sell everything fresh, from basil and marigold starts to local strawberries, sweet corn and pumpkins. And, if you want to indulge in the Saturday home-baked donuts and bread, freshly-churned butter, hand-loomed rugs or rustic porch rockers, that the local Amish families sell from their farms, better bring cash. If you buy half a cow, a check is acceptable. But the businesses have such a small margin that paying a 2 or 3 percent transaction cost for the ‘convenience’ cashless transaction, is just not a viable business model.

    Reply
    1. rd

      We go to our farmers market on a regular basis and almost everything is physical cash.

      We are actually reducing our debit card use because it has far fewer protections against fraudulent use than credit cards. So most of our transactions are physical cash or credit card. We use the debit card at a few stores because the machines are right at the cash register, use the chip, and are unlikely to have skimmers. We never slide our debit card through a magnetic strip reader now after the numerous IT debacles in the retail industry.

      On the underground economy and cash: I don’t think a lot of people are thinking ahead to building their earnings record in Social Security. I think one of the reasons that the average Social Security check is pretty low is because many small business people and tradesmen who can deal with cash don’t declare all of it.

      Reply
    2. rd

      Our farmers market is nearly all cash. Very few vendors have Square on cellphones.

      We have actually significantly reduced using our debit card for security reasons after the numerous problems over the past few years of skimmers, retail staff stealing card info, and retail data breaches. We now use primarily cash and credit cards. Credit cards have much better consumer protection than debit cards against fraud and theft as well as other benefits like extended warranties. Checks still work well in the mail.

      We only use debit cards at retailers we know well who are geared to use the chip and PIN so that little data is retained in their system, and where the transaction device is next to the register inside so the card does not leave our hands and their is little likelihood of a skimmer being installed.

      Reply
    3. jrs

      well not very practical if you are living off food stamps (ie EBT cards), there’s a reason stuff isn’t just cash.

      Reply
  5. Ook

    This point about 2-3% commission is good
    China controls its banks, who are limited to charging a tiny fraction of what is normal in the west.
    And China has enough trouble with counterfeit currency that the electronic version is safer.

    Reply
    1. drumlin woodchuckles

      And in China, they either can or soon-will-can ban you from electronic platforms if you have a “bad social credit score”, thereby starving you to “death” ( in the Irish Potato Famine sense of “death”. So they can protect Chinese society from Bad People ( like Uppity Tibetans and Uighurs) with the push of a button and the slide of a mouse.

      Reply
  6. sd

    Just recently, Bank of America refused a cash deposit as well as cash payment on a credit card bill. According to the teller, it was a new policy. Anyone else run into something similar?

    Reply
    1. Clive

      Unfortunately under US law, .

      However, you can then, in turn, refuse to pay in any of the ways they mandate. In order to recover the debt, they’d need a court to intervene, where you could offer to settle but insist on cash.

      But that is so long winded and time consuming ( if the court ruled that you’d been deliberately obstreperous they could make a costs order — U.K. courts would probably blame the creditor rather than the debtor but I get the distinct impression US courts are way, way more “business friendly”) it is, of course, not worth the bother. So it goes unchallenged by most.

      Reply
      1. Larry Motuz

        Thank you for the link.

        One could argue that this ability for private institutions to refuse cash for deposits or the discharge of debt provides a solid reason for establishing state banks which cannot do this.

        Reply
      2. Anon

        Unfortunately under US law, they can do this.

        I think the Treasury is saying the opposite:

        This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.

        The distinction is whether the payment is for a debt that was already incurred, or for the purchase of goods or services (where the vendor has the ability to refuse the transaction and, effectively, return both sides to their original position: the customer has their money and the vendor hasn’t provided anything). A credit card balance is obviously a debt that was already incurred, so BofA has no legal basis to refuse cash payment on it; they can accept the cash payment or write off the debt. I have no issue believing that BofA would try to play games (that’s their reputation), but I’m sure if the customer made enough of a fuss over it, they’d accept the payment like they’re supposed to (and maybe close the account if they didn’t want to have to accept future cash payments).

        Reply
      3. paul

        I thought the basic idea behind cash, which is only legitimately issued by government, was that it was valid for all resolutions, either public or private.

        Reply
        1. Clive

          In most jurisdictions yes, that’s exactly what it is.

          The US is one of a rare bunch that give this kind of wriggle room to private enterprises, because we can’t have the mean old interfering federal government telling people (and corporations are, of course, people) what to do, now, can we?

          Reply
    2. drumlin woodchuckles

      People who consider this a problem could move their money ( if they have any) to another bank or credit union in the area ( if there is one). But they’d better do it so fast and hard as to cause visible comparative pain and loss to Bank of America compared to its competitors in that region . . . before all the competitors ban cash deposits in order to leave you with no where to go.

      Reply
  7. lyle

    Folks can not forget how Hurricanes and storms as well as electric grid effects can bring down the payment system, while good old cash still works. Consider that Mr Robot had a show where the hackers managed to bring the entire payment system down (and the banks in the process). Older folks remember stories of the bank holiday of 1933 where the payment system of the time was down for at least 2 weeks and sometimes longer. Of course if you are a doomsday prepper, silver dollars may be the ideal thing to hold, (gold coins would be hard to get change for)

    Reply
  8. flora

    edit for the headline ;)

    Don Quijones: Consumers Stubbornly Sensibly Cling to Cash, after Multiple IT Fiascos & Payment Systems Outages

    Reply
  9. drumlin woodchuckles

    I would not say that government “is” the enemy. I would say that government is currently in enemy hands, under enemy occupation, etc. So currently the Enemy Occupied government functions as part of a FIRE-Sector GovernDustrial Complex. And as such wants to exterminate cash so as to drive all exchanges of “measured value” onto its spiderweb of toll-gate choke-points.

    Every cash transaction delays that day from reaching us by just a little. And many cash transactions delay that day from reaching us by a lot.

    Reply
  10. Ken Murphy

    I’ve long held that if someone else can tell you what you can or cannot do with something that you “own”, then you don’t truly own it.

    Years ago, I remember making a cash payment on a credit card bill at Citibank, where I was notified that it could take up to five days to post to the account (during which time the balance would be accruing interest). Boy did I pay off and cut up that card quick.

    After I had my identity stolen, I went cash only to the greatest extent possible. It is such a relief, with much less worry about having to give my money to other people.

    The first words of the instructor in the Advanced Credit Analysis training class were: “Cash is King”. These words were oft repeated during the training. In financial (or any other) terms, it is the final arbiter.

    In the words of the eternal Wu-Tag Clan:
    “Cash rules everything around me, C.R.E.A.M.!
    Get the money; Dolla dolla bill y’all”

    I’ve conducted cash transactions during power outages, because all you need is pen and paper to record pertinent details and the consumer is on their way. Some folks still remember how to do the old-fashioned card and carbons shunk-shunk slider machine way, but that way would be so fraught with error (and identity theft issues) as to scare the piss out of management, especially given the appalling lack of mathematical literacy in the general populace (and training of employees).

    I have zero interest in a cash-free consumer system, and will not support it. If the bank or some other actor can decide for some reason to block my access to funds in “my” account, then are those funds truly mine? And why should unknown actors have the right to shave pennies from my transactions?

    Cash is King
    .

    Reply
  11. Scott1

    So what do you tell children about currency, cash, and money? Long as you have cash in the paper form or as coins you will be way more secure when it comes to food. You probably need 3 thousand in cash to avoid being trapped and hungry in times of emergency.

    The title of the report says it all. Consumers Stubbornly Cling to Cash, after Multiple Fiascos and Payment Systems Outages.
    I first read the last word as “Outrages”.

    In Paulette Jiles dystopian novel the hero heads to “Lighthouse Island” to be reunited with her lover. Getting food and water from the machines with a card is for her very tricky. She has to navigate within a system that is pretty much what Jerry-Lynn Schofield reports as the new Chinese citizen’s currency control system.

    For something described as “Frictionless” electronic card “credits” the systems sure look to have plenty of friction.

    James Boy the Captain pilot I worked for at FLL carried 5 thousand in American Dollars Cash all the time. It was primarily in case he needed to pay cash for airplane fuel. Of people I have known he commonly carried more cash than anyone else I have known.

    I have said that I could not live in China. They signaled me so when my writings on line were blocked in China. “If your writing doesn’t get you in trouble, you’re probably not very good.” RSD. Ramon Econo Ebale became an “enemy of the state” for his cartoons. Gold is money and is the thing most used to bribe border guards I read once.

    According to Interpol in the late ’70s 7 percent of cash in the world was counterfeit.
    Counterfeit US Dollars made by the DPRK were the most desirable for being so well made. “If the North Koreans made everything as well as they make counterfeit cash they would excel in exports on the world market.” Is a paraphrase of something I remember from research of those days and the work I was doing.

    To be trapped and lost are the two most terrible conditions to find yourself in. The less you are able to travel at the drop of a hat, the dime, the more trapped you are.
    Far as lost, knowing where the sun rises and sets is helpful.

    Reply
  12. DolleyMadison

    I have posted this before but it bears repeating: When Ocwen tried to illegally foreclose on my home (I never missed a payment) I promptly sent them a printout of my BofA online bill pay proving I never missed a payment. Within 3 days BofA DELETED said record of my on time payments and refused to restore or to provide other record of my payments.

    I do not do direct deposit (which enrages my employer) and cash my check at the bank it is drawn on. (which enrages said bank).

    How long and hard do these criminals have to scr#ew us before people wake up.

    Cashless=Banks get to decide if/when you have money, regardless of how much you actually “have.”

    Reply
  13. sharonsj

    Seems to me a cashless society has two aims: (1) control of the not-rich populace and (2) the creation of many new means to separate the not-rich populace from what’s left of their money. I could speculate on all the terrible ways this will affect people trying to survive and all the ways corporations can make money from misery, but all that would do is make me rage–as usual–about how this country needs a genuine revolution.

    Reply
    1. drumlin woodchuckles

      A cold rage would be better than a hot rage. . . . the cold rage which congeals into bitterness lasting down the decades. Better because it has a chance of leaving the mind clear to focus on the objects and causes of the rage and how to dismantle those objects and causes if enough other millions of people shared the same clear-brained cold rage and the patience and energy to do the survey and analysis of objects and causes. If the political/social climate changed enough to generate political movement ice sheets of grinding change, moving slowly but unstoppable, then the enough-millions of cold-raging people could grind everything in their way to glacial rock dust.

      Ideally we could become a “thousand points of hate” to paraphrase George H. W. Bush’s smarmy phrase about people doing things right where they are at in pursuit of some larger goal. With a head full of plans and a heart full of hate, we can make things happen. Revenge is a dish best served over and over and over again.

      Meanwhile, what can Two Hundred Million non-rich Adult Americans who have a little bit of money apiece do to keep cash in use? How much cash can they separately carry around where they live and work without fear of robbery? That sets a ceiling on how much of their daily and weekly survival and maintainance purchases they can make in cash. And they could make some of their bigger purchases with checks instead of with credit cards. And they could avoid those bussinesses who “don’t take cash”. Leave that sort of bussiness to the digital fools who believe in supporting the cashless vision.

      Koan of the moment . . . what is the sound of four hundred million feet dragging?

      Reply

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