The convenience of credit cards and slimming consumer wallets may suggest that hard cash is slipping away as a preferred method of payment. But appearances can be misleading.
At least that’s what Ron Delnevo, executive director of the ATM Industry Association (ATMIA) in Europe, suggests. A true indicator of the global demand and usage of cash, Delnevo said in a recent interview with PYMNTS, is the rising number of ATMs. “There are more ATMs than ever before. There's 3 million-plus now installed, so that's a positive,” he said.
Looking at this global trend, China and India are emerging as the two economies – despite their rapid growth rate – that are becoming more invested in keeping their cash flow strong and running. China, which has close to 700,000 ATMs, and India, Delnevo explained, are two countries that see cash usage as a way of improving financial inclusion and boosting access to other services.
In Europe, however, the state of cash seems to be taking an interesting turn, with several countries showing positive growth, and others negative. The situation is further complicated by the looming possibility of Brexit, the proposed exit of Britain from the European Union. Even though the outcome is yet to be seen, Delnevo said, cash usage is expected to go up.
“When people are worried now about economic consequences, they tend to fall back to relying on cash,” he said. “It gives them that sense of security that you don't have otherwise.”
The curious case of cash in Europe
While certain countries in the Eurozone appear to be moving toward becoming cash-free economies, the remaining majority of European countries show positive cash growth, according to analysis conducted for the inaugural PYMNTS.com Global Cash Index™, in collaboration with Cardtronics.
The public affinity for cash is particularly visible in Belgium, Italy, Malta and Portugal — all of which are projected to show double digit total cash growth between 2015 and 2020. In Germany — where, until recently, about 50 percent of eCommerce transactions were paid for by Cash on Delivery (CoD) — consumers are also continuing to choose cash over credit cards. Today, cash accounts for 21.4 percent of all transactions in Germany, which is one of the highest rates across WU-15, the Global Cash Index analysis found.
According to Delnevo, the high percentage of cash adoption in Germany underpins how Germans inherently prefer to be upfront with their payments. When shopping online, Germans would rather have their bills delivered to their homes and pay by cash-on-delivery rather than via cards and internet banking, Delnevo said. “That's the kind of love that Germans place on cash.” There is (also) still a strong allegiance to cash in countries like Spain and Italy and so on,” he said.
The cash scene in some other European countries, however, is very different.
The slow, but growing trend of moving away from cash is something that is increasingly less driven by consumer demand for electronic payments. “Particularly in Sweden, we have had a real assault on the availability of cash carried out by vested interest,” Delnevo said.
In a 2014 survey, about two-thirds of the Swedish population voted that using cash to shop should be an “inalienable human right,” Delnevo noted. Yet the current state of cash in Sweden indicates otherwise. According to the Bank for International Settlements, in 2014, Swedish vaults held close to 3.6 billion kronor in hard cash, which was less than half of the 8.7 billion kronos the country held overall in 2010.
Delnevo isn’t the only advocate who thinks the Swedish banks and credit card companies are discriminating against cash to make way for fee-generating credit card companies.
“I don’t think that’s something they should decide on their own,” said Bjorn Eriksson, head of the Association of Swedish Private Security Companies, a lobbying group that provides companies security for cash transfers, in an interview with The New York Times. “Should they really be able to use their market force to turn Sweden into a cashless society?”
ATMI, Delnevo explained, has recently tasked itself with opening communication channels with governments to educate and “pursue them to take steps and safeguard for public access to cash.”
Why is cash still important?
Does the ubiquity of cash overshadow its importance? It’s actually a lot more nuanced, Delnevo said. The advent of electronic payments has made tracing back every single transaction to its point of origin a reality, thereby giving governments and third-party companies the tools to leverage private data for marketing and other purposes, which fringes upon violating consumer privacy.
Last month, Indonesia announced plans to track down all credit card transactions in an effort to curb rampant tax evasion. The result? An instant decline in credit card usage.
According to reports from the Indonesian Central Bank, the credit card transaction volume dropped by 4 percent (or 2 million transactions) from the month before, reverting to a volume last seen six years ago.
Agus Santoso, deputy head of Indonesia's Financial Transaction Reports and Analysis Centre, argued against the government’s motion. "I don't think they're all avoiding taxes, but some did say they feel
their privacy disturbed – they're not comfortable," Santoso said in an interview with Reuters.
Bank Central Asia, the largest credit card provider in the region, reportedly saw a 15 percent decline in card transactions and a 50 percent increase in credit card cancellations following the Indonesian government’s announcement. Most of the cancellations, Santoso said, came from self-employed individuals.
When consumers use cash, it gives them more control and guarantees better freedom and privacy going forward, Delnevo said. The privacy component is something that should not be overlooked, he added, because once it’s gone, it’s unlikely to ever return.
Privacy aside, the tangibility of cash also seems to give consumers a stronger sense of security, which goes missing when their money is stored electronically in a debit card. “I don't think one can understate that people want security, people want the freedom, the privacy, the independence that cash brings,” he added.
The evolution of cash and ATMs
Globally, cash may be less popular these days overall, but with its growing usage, there’s little to no chance of it disappearing anytime soon, as suggested by findings from the Cardtronics Index. However, with changing times, the 3,000-year-old cash-based system seems to be on its own path of evolution – although that path is intertwined with other types of payments and related technologies. Contactless technology, for example, is currently being integrated with ATMs.
Earlier this year, several U.S. banks began rolling out cardless ATMs. Big players like Bank of America (BoA) and JPMorgan Chase & Co. are among financial institutions implementing these machines, as they’ve established cardless ATMs that enable consumers to withdraw cash, cash checks, pay off credit card bills and request funds in specific denominations, all through their mobile phones.
“I think, bringing those two together can be really big for the industry,” Delnevo said, of the partnering of contactless technology and cash. The development, he said, has the potential to almost completely eliminate the need for individuals to carry cards. “You used to see ‘carry cash in an emergency,’” Delnevo said. “Well, why not only carry one card in an emergency, and if you want to use cash as your choice – easy, use your smartphone to get it out of an ATM. No worries about remembering PIN numbers, passwords or worrying about your card being scammed – your smartphone will do it for you.”
The rollout of cardless ATMs in the U.S. is coming at a time when banks are increasingly looking at shuttering their physical branch locations to save on real estate expenses, and are instead replacing them with ATM machines, which have added banking capabilities.
In 2015, BoA shuttered 2.65 percent of its branch locations, bringing down the total to 4,789. The same year, in place of the shuttered branches, it increased its ATM count by 1 percent, bringing the total to 16,038 terminals.
The bank also reduced its full-time workforce by 2,979 employees. The trend is similar across Europe, Delnevo said.
Another type of ATM machine, which has been used in Japan since 1982, is fast gaining traction in the European market. These ATMs recycle cash by reutilizing money fed into them by depositors for cash withdrawals by other customers. They also remove the costs incurred in re-feeding ATM machines with fresh cash, Delnevo said. Instead, they utilize the cash fed into them by depositors for dispensing it to others.
ATMs and security
Fraudsters “jackpotting” ATMs through cyber attacks is an activity that’s become all too common. According to FICO, between 2014 and 2015 alone, ATM skimming saw a 546-percent increase in reported worldwide cases. The problem has gained such global momentum that it’s resulting in an annual loss of over $2 billion, U.S. News & World Report reported.
“They (banks) have these little chinks in their armor that let people infiltrate their software ... criminals will always find that crack,” Delnevo said.
While a shift toward EMV ATMs might seem to be a viable solution to combat rising ATM fraud, he said it may be a while before the payment industry sees a concrete change.
What might actually help bring down ATM fraud in the next four or five years, according to Delnevo, is the use of smartphones to withdraw cash from ATMs. “That means you don't have to use a card, and you don't have to use a PIN number at the machine, so the opportunity for scamming more or less disappears. I can see that becoming really big,” he said.
If the ATM printed its own fortune, what might it say?
With double-digit negative cash growth being reported in European countries like Sweden and Ireland, they seem to have set their sights on turning their economies cash-free. On the other hand, with positive cash growth occurring in countries like Belgium, Portugal and Spain, it’s obvious that some nations are striving to keep physical currency in circulation.
As adoption of mobile-powered, cardless ATMs increases, cash is expected to evolve into a safer form of payment, and maintain its ground in the WU-15 economy.
At the end of the day, Delnevo pointed out, the consumer should not lose the option or choice to pay with cash.
“I think people should have the choice to use cash, apps, bitcoin, whatever. Basically, we should have choice. My worry is that choice is being stripped out. That's my main concern, I don't actually spend all my time saying cash is wonderful,” Delnevo said. “If it's a choice and people choose to use it, great, and if they don't, great too. But we've got to give choice to the public.”
To download the 2016 Q2 PYMNTS.com Global Cash Index™, a Cardtronics collaboration, please fill out the form below:
About the Index
The PYMNTS.com Global Cash Index™, a Cardtronics collaboration, focuses on the use of cash for making payments and as a payment method that equally plays a role with cards, checks, direct debit, and other methods of settling up between consumers and businesses. Unlike most reported estimates of cash, our proprietary data analysis focuses on the use of cash for making payments rather than hoarding.