Is there a hotter topic — a buzzier buzzword, one might term it — than cashless?
Ours is swiftly becoming the age of digital payments, push payments and instant payments, done by bits and bytes rather than through the conduits of coins and bills. The stats show that cash use is declining, but a decline does not presage a disappearance.
In the latest PYMNTS Beyond the Buzzword podcast, Justin Ferrabee, chief operating officer of Payments Canada, a financial market infrastructure, told Karen Webster that cash now has — and will continue to have — its place among the ways we pay. Cash will never really die, even as countries embrace real-time payments, and as their financial service infrastructures improve.
“Cashless, in our view, is a trend, and not necessarily an end state,” he said, and the move by consumers and businesses to take advantage of the convenience that digitization offers (along with a myriad of alternative payment options) will not be a perfectly linear progression.
After all, as Webster noted, the payments ecosystem is good about adding new things, but does not take many things away. Consider the fact that roughly half of business payments in the United States are still done via checks.
Moving From Analog To Digital
Ferrabee said that, as payment methods proliferate, there is still work to be tackled amid an ongoing effort to marry payment efficiencies and safety to a digital cash transformation. There are, of course, lingering concerns about data and the risks that come with moving payments 24/7 across far-flung distances, between parties who may not know each other and at greater-than-ever velocities.
As we’ve moved from the analog to digital rail, he told Webster, mistakes have happened and breaches have occurred. Yet, through an evolutionary process, “we’ve become good, over time, at mitigating those risks and exploiting opportunities,” and even counting the speed bumps. He likened the evolution to the gradual uptake of online banking, which was marked by customer (and even bank) hesitation, as well as concerns about data. Then came a firm entrenchment in the financial services landscape, fully accepted as an adjunct to or replacement of in-person visits to the branch.
Digitizing The Benefits Of Cash
Payments Canada, he said, has been examining the benefits of cash, and how those benefits might be transitioned to the digital realm. Among the biggest benefits tied to cash is privacy.
Ferrabee said, “As soon as something is digitized, everything becomes known. What we know from research is your payment information tells more about you than any other data — and it shows how you spend your money and where, and on what. That is private information, but as soon as it becomes digital, it becomes accessible, and that accessibility has to be managed.”
Cash, then, holds value as a private transaction method (gray economy notwithstanding, as both Webster and Ferrabee noted that the desire for privacy does not necessarily mean nefarious doings are afoot).
There are demographics where cash is firmly entrenched, such as with the elderly, and where it serves as a “backup” method of commerce, such has been seen in the wake of natural disasters. Cash is also a preferred means for tipping, as PYMNTS found in its own examination of cash usage.
Often, he said, those who carry cash know just how much they have to spend, so that budget depends on what is tangibly in hand or wallet. (Against that latter point, Ferrabee noted that digital banking and money management programs seek to introduce similar limits of “friction” into the online spending process to help consumers save money, learn financial literacy and budget.)
“There is this sense of redundancy, resiliency and transparency to cash that I think is helpful for different constituents for different reasons,” he said, “but is helpful to a lot of people.” He added later in the interview, “Cash will find its place … it will be a fairly small percentage in the scheme of things.”
Data: Added To And Traveling With Corporate Payments
Even if cash has its place, Ferrabee said that digital payments can still gain traction with the addition of information — data, in other words — that can literally travel, and that can be used to ensure (and reassure) both sides of a transaction of speed and security. That’s especially true for corporate and B2C transactions, he said.
He pointed to ISO 20022, a universal financial industry messaging scheme that can work with current financial system infrastructures and hasten the development of new ones. (As noted, there are several faster and real-time payment schemes taking shape or being deployed in countries around the world.)
Ferrabee noted that ISO 20022 helps satisfy compliance mandates tied to anti-money laundering (AML) and know your customer (KYC), and carries the same data as seen on checks (account info, banks and dates) that has been a mainstay of B2B. ISO 20022, he said, moves all that valuable data from the “back-office processing of payment into the center of the business,” and helps stakeholders know exactly where their money is and when.
Consider it, then, the move to not only cashless, but checkless, as infrastructures (made more robust by redundant, or backup, communication systems) and information join together.
As faster payments become the norm across any number of verticals, he added, service providers will realize there’s an immediate savings in costs tied to payment processing, as data and payments travel together, where they were once separate. He offered the example of an auto customer who submits an accident claim via a mobile device. The insurer immediately offers a reimbursement amount. The individual can accept or decline the settlement amount — if accepted, the funds are pushed into their account instantly.
“So, we see that coming in,” he said of the ISO standard and heightened levels of service, “and it supports the movement to digital payments. It will put more pressure on cash. We see cash moving almost exclusively down to the consumer levels. The future, in our view, [is that] payment rails will become information rails that also do transactions.”