Wednesday, 21 February 2018

Show me the money

In 2016, the latest year for which information is available, cash was used for 44% of all consumer transactions in the UK. That was down from 50% the previous year and from 68% a decade earlier. Victoria Cleland, Chief Cashier at the Bank of England says that the value of notes “in circulation” has been increasing year on year for the past decade or so and that “we are still seeing growth in total demand for cash.”

What on Earth are these notes being used for if they aren’t being used to buy things?

A couple of years ago I was at an event where the Chief Cashier said that only about a quarter of the cash the Bank put’s into circulation is for “transactional purposes" (i.e., used). They have an interesting categorisation of the rest of it, saying that it is either shipped overseas (i.e., exported), kept outside of the banking system (i.e., hoarded) or used to support the shadow economy (i.e., stashed). In other words, not in circulation at all but stuffed under mattresses. I wrote a comment piece on this for The Guardian, looking at what the key drivers in each of them might be. The first, cash that is used, is easy. We know that the driver is technology but that the impact is weak. In other words, new technology does reduce the amount of cash in circulation, but very slowly.  Moving on to the next category, I know it’s a rather simplistic analysis, but if the amount of cash that is being hoarded has been growing then that would tend to indicate that people have lost confidence in formal financial services or are happy to have loss, theft and inflation eat away their store of value while forgoing the safety and security of bank deposits irrespective of the value of the interest paid. If, on the other hand the amount of cash that is being stashed has been growing then the Bank of England is facilitating an increasing tax gap that the rest of us are having to pay for. In this context cash is a mechanism for greatly reducing the cost of criminality while it remains a penalty on the poor who have to shoulder an unfair proportion of the cost of cash. In this case, we should expect to see a strategy to change this obviously suboptimal element of policy.

The amount of cash that is being exported is hard to calculate, although the Bank itself does comment that the £50 note (which makes up a fifth of the cash out there by value) is “primarily demanded by foreign exchange wholesalers abroad”. I suppose some of this may be transactional use for tourists and business people coming to the UK, and I suppose some of it may be hoarded, but surely the strong suspicion must be that these notes are going into stashes. Note “primarily”. This accords with the Germany figures as well.

My personal feeling is that stashes have grown at the expense of hoards. In a fascinating paper by Prof. Charles Goodhart (London School of Economics) and Jonathan Ashworth (UK economist at Morgan Stanley), they note that the ratio of currency to GDP in the UK has been rising and argue that the rapid growth in the shadow economy has been a key cause. If you look at the detailed figures, you can see that there was a jump in cash held outside of banks around about the time of the Northern Rock affair, but as public confidence in the banks was restored fairly quickly and the impact of low interest rates on hoarding behaviour seems pretty marginal, there must be some other explanation as to why the amount of cash out there kept rising. Two rather obvious factors that do seem to support the shape of the curve are the increase in VAT to 20% and the continuing rise in self-employment (this came up a couple of times in comments to The Guardian piece), both of which serve to reinforce the contribution of cash to the shadow economy.

There are a awful lot of people not paying tax and simple calculations will show that the tax gap that can be attributed to cash is vastly greater than the seigniorage earned by the Bank on the note issue. Cash makes the government (i.e. us) considerably worse off. <p >In summary, I think think that the Bank’s view on hoarding is generous and that it is the shadow economy fuelling the growth in cash “in circulation”. There’s something wrong about this, especially when we know that the cost of cash falls unfairly on the poor. It is time for Bank of England to develop an active strategy to start reducing the amount of cash in circulation. For a start they could take a look at what’s been going on in Sweden where a broad alliance between the government, banks, trade unions (it is their members who get beaten up and stabbed in cash robberies) and Bjorn from ABBA has made it the first country in the world where the amount of cash “in circulation” is falling.

New Payment Trends for 2018


Retailer wallets for both ecommerce and instore payments start appearing in sectors such as supermarkets, fuel and quick service restaurants, emulating the success of Starbucks and Walmart, and focused on a slick checkout process using biometrics

From New Payment Trends for 2018

I think Jeremy is right about this.

The Amazon Prime credit card will start giving 5 percent back on Whole Foods purchases - Recode


Starting on Tuesday, Whole Foods shoppers who pay with the Amazon Prime Rewards Visa card will earn 5 percent back at the grocery chain’s U.S. stores.

From The Amazon Prime credit card will start giving 5 percent back on Whole Foods purchases - Recode


Tuesday, 20 February 2018

Homeless Robin increased his sales thanks to contactless card reader | UK | News |


FED up with missing sales in an increasingly cashless society, an enterprising… Big Issue seller Robin Fabian bought a contactless card reader to increase his sales So the 50-year-old bought a contactless card reader just before Christmas, which he said paid for itself on the first day. 

From Homeless Robin increased his sales thanks to contactless card reader | UK | News |


Monday, 19 February 2018

Amazon and Bank of America partner for lending program but growth has stalled


The program is not oriented around making money from interest payments, but to support merchants selling on Amazon's marketplace and to boost Amazon's overall sales growth

From Amazon and Bank of America partner for lending program but growth has stalled


Sunday, 18 February 2018

POST Payee names and privacy






"Payment identity relates to the issue of the correct identification of payment counterparties. Personally, I think this is much more complicated than it sounds… This raises real issues to do with privacy and these need to be carefully thought through to avoid a Chernobyl of personal information downstream"


From "World class coffee morning with PaymentsUK | Consult Hyperion".





I noticed that one of the comments on that thread contained the obvious and sensible suggestion that people be allowed to create payment identifiers that are unrelated to to other personally identifiable information.

Indeed. Back in 2015 I said that “my personal preference would be to start work on looking at the idea of ‘payment names’ so that someone could send money to £dgwbirch”. It wasn’t a new idea even then. Back in 2012 I even explained how to fund the system

In the general case, payers should enter the payee’s “Pay Name” (e.g., £dgwbirch or £ or £donations@oxfam or whatever) rather than a mobile phone number. The Payments Council should sell vanity Pay Names to fund the development of the system and to keep it free to users. I’m sure some far eastern oligarch will cheerfully stump up a million or two to own £007 and I’m sure that even in these straightened time the forward-thinking finance director of Consult Hyperion could be persuaded to spend a few quid on £ and so on.


Bank push for new digital identity regime |


The development of a digital identity strategy was a recommendation of the 2014 financial system inquiry, which found a "fragmented, unco-ordinated ecosystem of digital credentials creates high costs to government and taxpayers". 

From Bank push for new digital identity regime |