ECB data shows that cash in circulation has increased since the onset of the financial crisis – while electronic payments have decreased: Is this an indication that the war on cash is being lost, asks Duygu Tavan
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European Central Bank (ECB) data shows that cash in circulation has increased, while electronic payments have decreased. With the fear of another financial crisis rising from day to day, it seems unlikely that cash will make room for electronic payments anytime soon.
Francesco Burelli, partner at consultancy Value Partners, who presented the data at Vendorcoms quarterly Though Leadership Conference in Brighton, UK, on 6 September, said:
During an economic crisis the resurgence of cash is a typical phenomenon, due to two key factors. The first concerns the payer: consumers tend to revert to cash as it is considered to be the payment method that provides the easiest and most intuitive way to control spending and manage personal budgeting.
"On the payee side, merchants may have a growing preference for cash as this enables underreporting of sales and hence the avoidance of tax. Tax is a cost to a business and whenever the economy shrinks there is a tendency, stronger than in times of economic prosperity, to avoid taxes and see a bigger proportion of the business moving into the unofficial economy.
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By GlobalDataBurelli pointed out that that e-money, among all payment methods, is the only one that is showing consistent growth in value of transactions, despite accounting in 2009 for only 0.01% to total European electronic payments value. E-money is growing from a low base, but it has keep growing for the last seven to eight years at double digits rate.
Cash still mainstream
According to the ECB data, most of the decrease is affecting credit transfers, while it would appear that payment cards affected the fall of total spent value by a much lesser degree.
In all likeliness, given the mainstream role that cash still has in the majority of the European economies, it is unlikely that cash will see it disappear in the next 10-20 years, at least in a majority of countries. This continues to offer an untapped opportunity to the card industry.
Payment methods have different roles and capture different degrees of preference from payers, leading to varying volumes and value of flows of transactions going through an economic system. Different payment methods capture varying shares of the transaction flows in a market, Burelli said.
Over time a payment method may be replaced by another, as can be seen with declining cheques volumes in some European markets being replaced with direct debit and payment cards transactions. In general terms if a payment method is growing at a higher rate than GDP growth, this may be an indicator that the payment method in question is gaining share over the others.
A decrease in the volume of electronic payments and increase of cash in circulation is likely to indicate a resurgence of cash, and the latest statistical data from the European Central Bank (ECB) for 2007, 2008 and 2009 seems to point to this type of scenario, leading to the question about the war to cash? Is cash really on the way out when the total value of electronic payments appears to be decreasing, and cash in circulation is growing at a much higher rate than inflation based on ECB statistics?
Industry players from the cards and payments sector came together at the Vendorcom conference to share thought leadership and discuss the trends in the market. What may have come as a surprise to some, if not many, is that despite all efforts to migrate to electronic payments, cash is still on the rise – and it is unlikely to be replaced anytime soon.
Speakers at the event included the European Director PCI SSC, Jeremy King, Chris Harris, head of partner and channel development at Barclaycard, Charlie Craven, vice president at American Express (AmEx) and Francesco Burelli, a consultant at Value Partners.
It was Burelli who brought the attention to the rise in cash in circulation to the conference participants, while Craven discussed AmEx’s ambitions in the NFC contactless payments space and Barclaycard’s Harris emphasised the importance of brand image and recognition.
