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How close to reality is cashless retail?

In a world that is increasingly cashless, banknotes and coins seem to have become something of a novelty. Is cash already halfway out the door?

By Julia Steel | October 12, 2018 | News

The bartender laughed and peered at the cash I was settling my tab with.

“What is this? I haven’t seen this in a long time!” he joked.

Cash is becoming less and less common these days, sometimes seen rarely even by those in cash-handling roles. Many shoppers today see physical coins and banknotes as possessing a different value to those little (or big) numbers in our bank accounts, the invisible credits that we spend so much time working for.

Even amongst my friends, who are in their early twenties, cash in hand is thought of as free money, so tips from hospo jobs are spent haphazardly. They’re certainly not in the weekly budget.

In shops the Eftpos machine is almost always primed for payment before my card has even appeared.

We are no longer asked “Cash or card?”

ATMs are disappearing from smaller towns and suburbs, and rumours of cheques being phased out are swirling.

The ‘money tree’ you might have once imagined might be becoming irrelevant. I wonder if maybe it will one day be credit cards or units of cryptocurrency that grow on trees.

Despite all appearance to the contrary, however, this year has seen more cash in circulation than ever, according to information published by the Reserve Bank of New Zealand.

There are more units of each denomination in the hands of the public than ever before, excluding $1 and $2 coins, which have declined slightly in popularity. The data does not include coins with cent face values.

This is means that Currency in Circulation (CIC) has increased at a faster rate than the GDP between 2006 and 2016, according to comparisons released by the Federal Reserve Bank of San Francisco.

Norway and Sweden are the only countries to buck this trend globally with a decrease in CIC over the same period.

Maybe these Scandinavian countries are just ahead of the curve, as more countries in Africa and Asia move to normalise and encourage cashless payments.

Nigeria has put a policy in place called the Cash-less Nigeria Project which introduced cash handling fees and encourages online banking and electronic payments. The intention is to decrease cash related crime and strengthen the economy.

Almost all Kenyans with a bank account – more than half – use mobile banking while South Korea intends to be a cashless society in 2020 by focussing on cryptocurrencies and blockchain.

China’s use of mobile payment apps has increased more than an astronomical 65 percent since 2005, with the use of Alipay and Wechat. It produced an astounding 50 percent of the world’s digital payments in 2017.

Running a cashless business in New Zealand

In New Zealand, Westpac media relations manager Will Hines says apps like Westpac Pay and Westpac Get Paid are assisting consumers and retailers in going cashless.

“Across the industry ATM usage is declining and people are increasingly using Eftpos, debit and credit cards for their purchases, as well as apps on smartphones.

“We are likely to see an increasing number of businesses try out a cashless approach, especially those who have customers from a particular demographic.”

Toast Martinborough is one such event. General manager Anna Nielson has seen the benefits of a digital payment system for both the customers and event organisers of the wine festival since the change to cashless in 2016.

“We have moved to a cashless system because of the convenience of having a hands-free payment solution for our festival goers. I.e. there is no need to juggle around cash while you are holding a glass in one hand and more often than not a plate of food in the other.”

Westpac's Hines adds, “One of the big savings is time - not carrying cash means retailers will spend much less time on bookkeeping.

“They also won’t need to take money to the bank and it will mean they won’t need to factor in cash-handling fees.

“And, of course, not holding cash means one less security risk and potentially lower insurance costs.”

Though there are costs associated with using these new systems, Hines doesn’t think this is a problem.

“The cost of cashless payment systems will be offset by not having to manage cash.”

Nielson agrees, with a slightly different experience as the Toast Martinborough festival previously used paper money due to liquor licensing laws at the time of the event’s inception.

“There have been no challenges for us, and we have actually reduced our costs in this area as the system is so much more efficient than our previous system. “

She says that there are more benefits to cashless systems than just easy payments for events like Toast Martinborough.

“For example, there is a potential to manage flow a lot better thereby allowing event organisers to be more proactive, rather than reactive on event day.

“In addition, the information we receive about what people are eating or drinking, where and when on the day allows us to better forecast our resources for the following years event.”

With more and more events adopting these systems and consumers catching on, it is perhaps no surprise that a recent Visa study of 100 cities positioned Auckland as a ‘digital leader’ with a very high rate of cashless transactions. This was amongst other cities in Canada, Europe, Scandinavia and Australia.

A MYOB survey put New Zealand’s digital spending at 73 percent of transactions, while the 2017 World Payments Report reported 66 percent. The UK and Australia were at about 50 percent according to the same report.

However, Hines thinks that physical money still has a future, with reasons for retailers to keep using it: “Lots of customers still like using cash and if businesses are cashless, they may lose some sales.”

Who are the cashless customers?

Various surveys by Research New Zealand and the Reserve Bank place cash in peoples’ piggy banks at home, in wallets for small purchases and tips, and in the hands of tourists.

There are some slightly more nefarious reasons for some peoples use of cash. Crime is an obvious one. Privacy in making perhaps illicit purchases and tax evasion are others. A more innocent purpose is for pocket money and teaching children about how money works – difficult in a world where payments are made with the tap of a card.

A population increasingly neglected with the move to cashless systems are those who are unbanked or underbanked. The World Bank reported 0.5 percent of New Zealand’s adult population as being without banking services in 2017. This is very low in comparison to the rest of the world but is still around 23,500 people without a bank account who will require cash for their everyday needs.

The underbanked – those who may have a bank account but are more likely to engage with alternative financial services like microfinancing, payday loans and pawnshops, unlike the unbanked, will also be using predominantly cash. There were no figures available on the number of underbanked New Zealanders.

A higher percentage of those regularly using physical money are likely to be older as apps, and other advanced payment systems, attract a somewhat younger audience. Others may prefer to use cash for emotional or idosyncratic reasons, such as feeling more in control of their money when it's physically tangible.

As travellers return from abroad with stories of cashless societies in Scandinavia and counting change on buses and in stores in parts of Europe, it is clear that the world is divided.

“For many consumers, having a choice is really important,” Hines says.

Ultimately it seems that retailers have to be flexible. Ideally, they will evolve for customer convenience and cater for the older and less financially stable consumer.

Are you on board?

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