Electronic Spending

Cash is No Longer King

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  • Why it matters

    Why it matters

    Germany is a country that is still attached to the idea of paying in cash, but this is going to change, and both customers and businesses will have to adapt.

  • Facts

    Facts

    • In Germany 79 percent of all transactions are made in cash, according to data from the Federal Bank.
    • By contrast, in Denmark the government wants to partly lift the obligation for retailers to accept cash, because nearly everything is paid by card anyway.
    • In China the mobile payment service Alipay already has 400 million users.
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  • Audio

    Audio

  • Pdf

Have you ever held a €500 note in your hands? Neither have I – nor indeed have most Germans. What never gets used, should really be declared unnecessary. And yet the proposal of the Social Democrat parliamentary group to do away with this premium note and restrict payments by cash is the subject of heated debates.

According to the maxim “nip it in the bud” many people fear that this will open the door for cash to be abolished completely. If you believe the joint head of the Deutsche Bank, John Cryan, this could be the case just 10 years from now – a controversial hypothesis which he presented at the World Economic Forum last week.

Ten years does indeed sound a little ambitious, but no one should be under any illusion: Cash is on its way out. Because quite independent of frenetic political regulating, there are currently many new technologies which will mean cash being completely marginalized one day – not in two years, not even in five, but certainly in 15 or 20 years. Contactless payment of small amounts, payment by mobile phone, private transfers via SMS – these have long been the rule in many countries.

It is a locomotive which is difficult to stop: In Denmark the government wants to partly lift the obligation to accept cash, because nearly everything is paid by card anyway. In China the mobile payment service Alipay already has 400 million users and in Africa millions of people without their own bank account use the mobile money transfer service M-Pesa. And Bitcoin heralds the arrival of a global, purely digital currency.

The printing, transport and storing of cash is expensive. Cash is also dirty and a health hazard.

In Germany though, many of the new technologies like contactless or mobile payments are hardly known; 79 percent of all transactions are made in cash, according to data from the Federal Bank.

There are four main reasons for this: Firstly, German banks lag behind their rivals in countries like Spain, Great Britain and Turkey in terms of new technologies used for private clients. The engineering skills and innovation of automakers and machine constructors in Germany find no like-minded souls in Germany’s banks – not least because they lack critical mass in a fragmented banking market.

Also, in this country many people feel that coins and notes give them much better control of daily expenditure – that is the second reason. Thirdly, people worry about losing their anonymity, about data protection and the associated fear of cyber-crime. Such concerns are as deeply rooted as the fourth objection – that a combination of cash being abolished and negative interest rates is aimed at dispossessing citizens.

These are all arguments to be taken seriously, and there will be much debate about them. But at the same time, payment without cash is on the increase here too and cannot be prevented – because technology is becoming increasingly practical and the advantages are a no-brainer.

Cash has many disadvantages, summed up by Deutsche Bank boss John Cryan as it being “inefficient and expensive.” The printing, transport and storing of cash is expensive. Cash is also dirty and a health hazard: 26,000 potentially health-threatening bacteria are present on a European banknote, according to Mastercard – which admittedly has a horse in the race. Cash is the preferred mode of payment for money launderers, drug dealers and terrorists. And cash is quite simply impractical, because you have to keep running to cash machines.

Although we usually take the other side in an argument, we Germans discovered the benefits of cashless payment long ago. In the last two decades the share of cash payments in retail trading has fallen from 78 percent to 52 percent, according to the EHI Retail Institute. And Germany’s upcoming generation whose active vocabulary includs ‘iPhone’ at the age of two, will certainly be no great fan of cash.

If you can’t beat them join them – but also make sure there are controls. Instead of fighting about the pros and cons of cash, politicians should be thinking about a legal framework for the inescapable post-cash era. That includes data protection, barriers against the insidious dispossession of citizens due to negative interest rates and creative ideas to prevent poorer sections of the population, for example beggars, being excluded from the circulation of money.

 

To contact the author: d.schaefer@handelsblatt.com

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