POST Banning cashlessness

The US is behind some other parts of the world, perhaps, but it is trending in the same direction. According to recent research, almost a third of American adults use no cash at all for their weekly purchases (it was a quarter back in 2015). Conversely, a fifth of Americans says that make nearly all of their purchases in cash. Against this backdrop, it is no surprise that some retailers, in some locations, are starting to go cash free. Now, as far as I am concerned, that’s up to them. Writing in the CATO Journal last year — "Special Interest Politics Could Save Cash or Kill It" CATO Journal 38(2): 489-502 (Spring 2018) — Norbert Michel said “it seems risky, at best, to give the government so much control over the form of payment citizens choose, but that is exactly what many policymakers are hoping to do”. He was talking about laws to ban cash, but the argument applies both ways. Should regulators care whether a retailer is cashless or not and, if they do care, what should they do about it?

Well, some regulators think that retailers should accept cash and that they should do something about it. The Bank of China has already warned that rejecting cash is illegal, on the grounds that creeping cashlessness could lead to a "loss of confidence in physical money” and that is could be "unfair to those not accustomed to electronic payments” (although the last time I was in China I never once saw anyone pay with anything using anything other than a mobile phone). Some US legislators apparently share the Bank of China’s concerns and are now considering laws force shopkeepers to take cash whether they want to or not.

There are some shopkeepers who have to accept cash but don’t really want to. An example is the bakery in Barcelona where I had breakfast during Mobile World Congress 2019. Handling dirty cash is problem here because it means that the staff have to stop to wash their hands all the time and it also adds time cashing up at the end of a shift. So they have a machine at the counter to deal with cash so that they don’t have to touch it or count it other than, presumably, to load the float at the start of the day and empty it at the end of the day.

Other retailers, in other parts of the world, instead of installing expensive machines and taking up counter space to deal with cash, would prefer to simply refuse to accept it.

Now, some of the legislators' objections to cashlessness are basically emotional and some are basically wrong, particularly those that invoke the phrase “legal tender”. As the Bank of England themselves put it, “legal tender has a narrow technical meaning which has no use in everyday life”. Quite. Yet even the US ATM Industry Association say in their 

There is no US law on the subject. I see in Payment Law Advisor that the US Treasury Department has guidance on the issue, but it states that refusing cash may be allowable “on a reasonable basis, such as when doing so increases efficiency, prevents incompatibility problems with the equipment employed to accept or count the money, or improves security”. Security and efficiency are precisely what the factors causing retailers to shift to cashless operators as far as I can see, so the Treasury guidelines seem to be working. That does not seem to matter to the State and City legislators who rising to the challenge of dragging America back into the 1950s, when the payment card was a notion restricted to future fiction and the concept of a mobile phone so alien as to be unimaginable.

At the State level there is a patchwork of regulation. Massachusetts apparently has a little-known 1978 law requiring retail stores to accept both cash and credit although it does not seem to be enforced and the legislature has yet to say whether it applies to restaurants. Restaurants are in the vanguard elsewhere, such as in Pennsylvania, where the head of the Pennsylvania Restaurant and Lodging Association says that there are lots of restaurants (as well as other businesses) that want to go cashless because "places that handle cash are less safe than those that don't have cash on hand” and that in a cash business "taxes aren't always paid".

Those seem like pretty good positive reasons, for not all legislators are convinced. So are more retailers and restaurants go down this, there is a growing pushback. The argument is that cashlessness amounts to racial and class discrimination against people who do not have bank accounts and there may be some merit to this argument. However, access to a cheap, reliable and universal electronic payment system is not the same as access to a bank account. My bumper sticker version of this, which is that “unbanked is not the problem, and banks are not the solution”, originates in observations made in emerging markets many years ago. To be specific, I noticed that M-PESA was an incredible success delivering financial inclusion at population scale and began to wonder if it’s success (in contrast to to a great many other failed schemes) might be somewhat related to the fact that it was provided by a telecommunications operator and not a bank.

P’d Off

While I think that nostalgia for simpler times, genuine fears about exclusion, nonsense about legal tender and fears of competition might all be swirling around here, I think I can distill the issues down to three specific objections to cashlessness that I have noticed recurring throughout the reporting the legislators’ attempts to attach a boat anchor to the digital economy. I have written about all of these at considerable length elsewhere but I hope it will be a useful aid to discussion and debate to look again at these (perfectly correct) objections and ponder potential means to resolve the key issues.

1. The first is this issue of preclusion. What is to be done to help people who either do not have or do not want a bank account? In New Jersey, for example, the New York Times reports that one of the sponsors of the bill State Senator Nellie Pou, says that she had asked Amazon (which has physical stores there)  "to come up with ideas for how they could serve those without a bank account, but that she had not heard back”. As I understand things, you can already load Amazon Cash with physical cash, but more interestingly Amazon already has a service to allow customers to pay with cash in countries with low bank account penetration, a QR-based scheme called Amazon PayCode. Right now it is in Africa, and Asia and Latin America but there’s no obvious reason why they couldn’t do something similar in America. The barrier to providing a low cost payment account for the mass market is regulatory, not technical.

   (Hence while I agree that everyone should be entitled to a basic, inexpensive and functional payment system, it does not necessarily follow that I think it should be provided by banks. And I must also observe at this point that one of the reasons that people do get excluded is because the legislators themselves impose onerous regulation that makes it expensive to provide services to those marginalised groups.)

2. The second is the issue of privacy. Here I share the concerns of many commentators that the issue of privacy and anonymity in payments has not been properly considered by society as whole, and there is no informed debate about the way forward here. As I have repeatedly pointed out, we technologist as perfectly capable of implementing digital money that is perfectly anonymous if that’s what society wants. Whether that would be good for society is not at all clear to me.

3. The third is the issue of profit. This is a point made repeatedly by deranged anti-cash anarchist agitator Brett Scott (eg, here in The Guardian). I don’t have a problem with this. If not taking cash saves retailers money and makes a profit for banks then, well, whatever.

   We've discussed this more than once, including on the BBC as show in this picture. Brett's fears are well-founded but to my mind the solution is to provide regulatory space for competition. Then what economists refer to as "the big problem of small change" will re-appear: the profits to be made from small transactions will be driven down to the marginal cost of production at which point, if history is any guide, no-one will make a living and the State will step in to provide a transaction mechanism as a public good. This is what happened with coins. Thus, the end point here might well be something like M-PESA or ZCash but operated by the Bank of England with a statutory duty to provide service to anyone and everyone.

I think it’s time for a serious discussion about these key issues because time is marching on. The first US city to actually go ahead and pass laws interfering in commercial transactions in this way is Philadelphia. I think this approach is wrong, and imposing the costs of accepting cash on retailers without compensating them is simply a tax on certain kinds of business. And like all taxes, lobbying and exemptions will make the impact of the economic distortion that they cause to be distorted to point of perversion. Look at Amazon Go to see what I mean. I see an obvious (and reasonable) point made in The Atlantic about Amazon’s clever "grab and go" outlets. You can’t get in without a smartphone and an Amazon account, so in essence they are creating public spaces that "all but bar” the poor. So will a ban on cashlessness help the poor through the turnstile to browse $20 tubs of alfalfa sprouts or whatever it is they sell in there?

Well, of course not. And there's

Slipping or Sliding? 

These issues are not confined to our American cousins. The UK is well on the way to cashlessness but, as John Detrixhe wrote in Medium, has absolutely no plan for what happens next (in this as in so many other things, frankly). Less than a third of transactions are cash already and inside the next fifteen years this will collapse to a rump 10% at the most. Kids entering school now will never see cash from one week’s end to the next. Right now, however, the UK’s 2018 “Access to Cash” review (by ATM operators) found cash is an “economic necessity” for 25 million people. MP Matt Warman recently commented on this noticeable bifurcation in payment habits, says that "Given the choice and an ideal world, I’d abolish cash tomorrow and have done away with cheques a decade ago. But in the absence of an ideal world, cash does remain a lifeline for many vulnerable groups… Government has a profound responsibility to those vulnerable groups to smooth that transition, and to find creative ways to hasten it so that nobody is left behind."

 

I completely agree with the Honourable Member for Boston & Skegness on this one and have long said that we must plan for cashlessness, not simply slide into cashlessness as Sweden has done.

So how to we get from here to there? John writes that “some people think Sweden serves as an example of how not to get rid of cash”. He’s absolutely right. And, indeed, I’m one of them.

Get a Grip? 

In Denmark, the Business Minister Rasmus Jarlov has, in typically Scandinavian fashion, called for reasonable debate and compromise on the issue, saying that “fewer people use cash today, so we think there should be a balance between the difficulty and security risks placed on business owners and the benefits of accepting cash”. Spot on.

A few years ago I drew up what I’ve found to be a useful diagram for thinking about the issues around the transition to a cashless economy. I used this in my book “Before Babylon, Beyond Bitcoin” to structure a discussion of these issues in the context of the technology drivers. I think that if we persuade the legislators, the retailers, the industry and the public to engage in this kind of structured discussion then the outcome ought to be an actual plan to shift to a more efficient, lower cost and inclusive cashless infrastructure for retailers.

 

It’s not the point of this post to examine each of these issues, but to make the point that we need to have a national strategy to address these issues. I think that strategy should be a well-managed transition to cashlessness

 

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