Some say that it makes the world go round, others call it the root of all evil. But what exactly is money? Why do we need it? And where did it come from? Economists herald the advent of a society without cash. Embedded into the hundreds of cashless or digital payments initiatives there is a real struggle to understand what the real competitive landscape entails. What makes this such a complex issue is an entrenched part of society that is right under everyone's noses, but often ignored as a competitor. I'm talking about cash, a value exchange protocol (yes, I used that words deliberately) that dates back centuries. Today, cash is still the universally trusted form factor that drives much of the informal world, despite huge investments globally to migrate people to cashless alternatives.
In Western Europe, coins, silver jewellery and hacksilver (silver objects hacked into pieces) were for centuries as the only form of money, until Venetian merchants started using silver bars for large transactions in the early Middle Ages. In a separate development, Venetian merchants started using paper bills, instructing their banker to make payments. Similar marked silver bars were in use in lands where the Venetian merchants had established representative offices. The Byzantine empire and several states in the Balkan area and Russia also used marked silver bars for large payments. As the world economy developed and silver supplies increased, in particular after the colonisation of South America, coins became larger and a standard coin for international payment developed from the 15th century: the Spanish and Spanish colonial coin of 8 reales. Its counterpart in gold was the Venetian ducat.
These days, we are all more than happy to receive pieces of paper stamped with the right symbols, but this is only because of the symbolic value they have acquired through long and complex chains of events. Cash. A value we can see with our own eyes, and touch with our own fingers. An early farmer would have been distinctly underwhelmed to be handed a wad of $50 notes. To part with his goods, he would have needed to be given items directly exciting in themselves. Shiny, pretty or inherently useful things would have come to mind.
Cash has now become a fraction part of the money supply. Its remaining role is to provide a form of currency storage and payment for those who do not wish to take part in other systems, and make small payments conveniently and promptly, though this latter role is being replaced more and more frequently by electronic payment systems. Research has found that the demand for cash decreases as debit card usage increases because merchants need to make less change for customer purchases. But still we are faced with the age old saying 'cheaper for cash.' A premise that has shaped the association frameworks of merchants and consumers alike.
Cash is increasing in circulation. The value of the United States dollar in circulation increased 42% from 2007 to 2012. The value of Pound Sterling banknotes in circulation increased with 29% from 2008 to 2013. The value of the Euro in circulation increased with 34% from August 2008 to August 2013. So in the world where Google, Apple and PayPal lead the pack on alternative payment instruments, why has there not been a better cashless alternative. One that can overcome the stigma that using cards, mainly VISA, MasterCard and American Express have? Basically we believe that when we use a card, a dollar doesn't equal a dollar.
Over the past decade we've seen multiple initiatives rise to tackle the idea of 'expensive' through the creation of closed loop systems, that avoid the need for the 'interchange fee' most commonly pinned on the schemes. Right or wrong, the brands of VISA, MasterCard and American Express stand in the firing line, as closed loop stored value cards show strong utility value in the high volume, low value sectors like public transit, food & beverage, or for micropayments. Existing country specific payment cards include Chipknip in the Netherlands, Geldkarte in Germany, Quick in Austria, Moneo in France, Proton in Belgium, FeliCa in Japan, EZ-Link and NETS (CashCard and FlashPay) in Singapore and Octopus card in Hong Kong. The U.S. Department of the Treasury manages three stored-value card programs (EZpay, EagleCash, and Navy Cash) which are used by the U.S. military as electronic alternatives to cash in areas characterized by difficult access and limited banking / telecommunications infrastructure. Which each of these has strong utility in their specific area of focus, but have been unable to extend that utility to broader application.
This gets me thinking, we have a perception problem with the major card schemes which is resulting in a behaviour of network avoidance. How can we overcome this? Because the benefit of cashless are strong at the national, state, merchant and consumer level. We just need some basic level collaboration in each ecosystem.
Imagine that, when we could have a cashless option which we all know, understand and believe that a dollar is dollar, and it doesn't lose value when cash digitizes.