Cash scrapped. Not if? but when?

Photo: Peeter Langovits

The idea that cash is to go makes bankers and publicans jump with joy, black economy breaks out in cold sweat. Verily, however: that’s the trend.

Technically, we’d be able to give up cash today. Another matter being, if people are ready. In Finland, share of cash in retail turnover has dropped to a fifth, adding increased pressure to decrease the role of paper and coins. 

Starting New Year – bar a handful exceptions – Finnish wages may only land on people’s bank accounts, never to be handed over in cash. This, however, is small change as compared to plans by Ministry of Labour and Economy, as covered by Turun Sanomat this September.

A working group, put together for fight against black economy, is ever searching for fresh ways of cutting cash turnover. Thus, they are targeting the largely cash-using restaurants, accommodation business, beauty parlours. As an initial measure, entrepreneurs in Finland ought to always offer card payment options. Meaning: payment terminals will become mandatory. The working group is considering a price ceiling, above which payment may not be made in cash – only electronically.

Dear cash

According to Swedbank board member and retail division head Ulla Ilisson, the bank does not foresee disappearance of cash, right now. «I don’t think we will see a cash-free society in the years or decades to come,» said she. Ms Ilisson is positive, however, that the role of cash will continue to diminish, as new convenient electronic payment methods keep being added.

As the cash turnover drops, handling it becomes ever more expensive. Sooner or later, pressure by banks and certain interest groups will probably increase, to limit its use and wind it down, eventually. It is worth remembering, that a while ago already, without asking pensioners’ permission, pensions were directed into banks.

Silver Vohu, communications chief for SEB Eesti, says that in Estonia, about 50 per cent of retail purchased are still done in cash, while in the Nordics the level is 20 per cent and in Latvia-Lithuania – about 75 per cent. According to data available to Mr Vohu, in recent years the share of cash has remained just about the same; there has been no rapid decrease thereof. 

Up to now, it has been said in defence of cash, that dealing with it comes cheaper for the merchant that card payments, from which banks require a levy. Mr Vohu says this is not the case. «According to a pan-European study by European Central Bank, Estonia is among the few states where, for merchants, receiving cash is dearer that card payments.» For all, paying in cash is becoming increasingly uncomfortable. As you probably will have noticed, even today, card payments are swifter in stores that fumbling with cash.

Naturally, the bankers would prefer the banknotes to never ever leave the banks, only being electronically transferred from one account to another. For that to happen, however, banks must consider the needs of consumers. For instance: between banks, money should start moving in real-time, so in any backwoods village, people might do transactions between each other.

For clients of SEB and Swedbank, such options exist for quite a while already. «With mobile payments, transfers are done in real-time, from one mobile [phone] to another,» explained Mr Vohu. «Basically, it means that you dial, on the phone, the number of the service, asterisk, receiver’s phone number, asterisk and the sum [of money]. The transfer will take place in real-time, between  SEB and Swedbank, over week-ends, anytime.» Regrettably, there is still no breakthrough with this simple solution.

Comfort ceiling

At the moment, banks and EMT [mobile service – edit] are testing a solution in certain stores where clients may use mobile phones, for payment, at the cash register. For that, a SIM-card also functioning as a bank card chip is stuck into the phones. Instead of inserting a card into the payment terminal, one just touches the terminal lightly with the phone; a sound signal will confirm payment has happened. With payments under €10, PIN-code needs not be entered.

Still, Ulla Ilisson wonders how much more comfortable future electronic payments can become: as we are currently making payments, in terminals, very quickly – will payments with mobile phones be so much faster and more comfortable that we would actually bother mastering the trick?

As evidenced by the fact that super-comfortable mobile-ID and mobile payments are reaching the masses quite slowly, for many the current solution is good enough. Also: some clients, like pensioners, do not even desire the ever faster and impersonal world: rather, they’d have a moment of fellowship with the clerk.

Swedbank has offered mobile payment solutions since 2004; even so, Ms Ilisson says it only took off two years ago as the bank prepared a special app for its smartphone-owning customers. As of today, the bank has 70,000 active mobile bank users; from January to end of October, this year, they did a million mobile-phone payments – four times more year-on-year.

But then there are the sceptics who do not think cash would just up and disappear. Surprisingly, in these ranks, we find Linnar Viik, the visionary. «This is neither possible nor necessary,» said Mr Viik. «It isn’t the issue of technological capability, rather something totally different. The issue is: is the society ready and able to follow some technological innovation. Cash will remain, because we think this electronic world will just collapse.»

Kashchey the Immortal

According to Mr Viik, the attitude might still change with upcoming generations. «My grandaunt never had electricity installed, in her house, as it meant constant blackouts anyhow, and attracted lightning.» At that, the reluctance to give up cash is not an old ladies issue alone, according to Mr Viik. «Politicians aren’t ready, regulators aren’t ready for that.» According to Mr Viik, cash is something of a Kashchey the Immortal, killable by no one.

Another cashless-sceptic is Urmas Varblane, academician and professor of international business at University of Tartu. «It won’t disappear that fast, even though the trend exists of course,» he said. «While the systems work, all is fine; should they fail, however – like under cyber-attack – the chaos will be pretty bad.»

Thus: if cash goes, a country faces added security risks. During wars, cash has always been there, being quite resilient. Electronic payments programs, however, may be destroyed by a well aimed bomb blowing up communication node. «Switching over to electronic money would bring the digital gap problem,» said Mr Varblane. «It would require decent support systems, teaching the elderly how to use it. Rather, it would add inequality to society.»

As opposed to his colleague, Tartu University macroeconomics professor Raul Eamets is quite optimistic towards the disappearance of cash. As early as 2010, he held a speech at TEDx Tartu conference, claiming that a cash-free economy would be more transparent. As opposed to money under mattresses, the money held in banks is part of the economic circulation, thus producing added value.  

Street poll

Would you be ready for cash to totally disappear?

Uno Nõmm (88), pensioner

Can’t say, really. It is a nuisance, of course, especially with these small coins with tend to get lost; and sometimes the clerk will cheat you. Once at home, I notice they gave less back; or gave me some other kinds of money. Sometimes the clerks will cheat pensioners; but how will I go and tell the girl that you me too little back. That would not be becoming – I’m an old man, I’m supposed to act civil. I do not own a bank card, it’s all cash with me. Well... I wouldn’t imagine life without cash being there anymore.

Maria Rand (36), manager of translations bureau

No, definitely not. I do think cash should stay. I use cash a lot and will never be caught without euros in my purse. There still are many places where one won’t do without cash... ladies, especially – cosmetician, manicure, these are all cash based places, no cards. I would not want all our money to pass through banks, always visible to eye of the stranger. Not good with excessive control over people’s money matters.

Urmas Koor (42), entrepreneur

I’d be quite bothered by disappearance of cash. The system wants to control all your comings and goings – where and to whom you pay, what kind of pie you by. Being no criminal, I still like the anonymity that cash has so far. Should cash go, we’d again lose a measure of privacy. Already now, our lives are overly controllable electronically. The end of cash would simply mean act two, in this play.

Ave-Lii Idavain (24), student

I do come from the countryside where we only use cash; should they install ATMs, why not. I’d like it, but kids would lose the option to get all cents from parent’s pockets (laughs). Well I can’t imagine it too well, as, in the country, the bank bus comes once a month. Some folks still do live there you know... Personally, I use real-time mobile payment all the time – with sister, brother and mother, that’s the only way that money moves. This is the best thing and I do not understand why so few people have it, still.

Külliki Võrk (65), pensioner

I don’t know. Should the society come along, why not. I can’t really imagine it being like that. But I have no fear of it, as I pay by card as it is. I use cash rarely. Where possible, I pay by card. Basically one will manage without cash.