The way of the phone booth (or box)

One of the many side-effects of Covid has been to accelerate the pace of ongoing trends – remote working, virtual meetings, online shopping … and the shift away from cash to electronic payments.

Many consumers in Scandinavia now confess not carrying any cash at all. Yet even in this Northern European vanguard there are still those that are entirely dependent on cash, either out of choice or necessity.

We all need to be able to pay and be paid, so the non-digital minority needs to be catered for – everywhere, not just in Scandinavia. That requires not only that consumers can get cash, but that they can find others that will accept it – banks, shops and other merchants.

Governments are rightly focused on this problem and are busy looking at how to cater for the future of cash. In doing so, they are largely looking at the existing cash infrastructure and imposing requirements on the incumbent cash providers and cash-takers. But that of course is a moving target. Banks are shutting branches and closing ATMs; merchants, having seen an opportunity to avoid the costs of accepting cash, are going cash-less. What’s more, we consumers are using more and more virtual banks and payment providers – Venmo, Starling Bank, Revolut and Pockit to name but a few of them. And to top that, we are doing a greater proportion of our shopping in virtual online stores.

It’s obviously a non-starter to require a virtual store to take cash or a branchless bank to maintain branches, but putting the cash infrastructure onus on the bricks and mortar banks and merchants puts them at a (further) disadvantage to their virtual peers.

There may be some reversal in cash’s fortunes as Covid restrictions are lifted and more consumers consider the specter of a cash-less future and rally against it, but the rise of electronic payments and the decline of cash all seem now inexorable. What is less evident is how to solve for cash provision and cash acceptance ‘as long as demand for cash continues’.

Putting the onus on those banks holding the most payment accounts sounds easy enough … until of course we wake up to find the largest banks are virtual banks. Even before that transpires (if indeed it does), there are other factors to consider – starting with payments profits. Banks (largely) profit from the payments services they provide – but the maths indicates that they don’t profit nearly as much as other payment providers. Visa is worth more than any bank and MasterCard more than many; even relative newcomers like Stripe, Square and Adyen are worth more than many a bank. What burden should they shoulder in cash provision?

And then there are those CBDCs to consider. Cash is central banks’ calling card to the general public, but as we’ve seen, it’s fast going the way of the Dodo. That so many of them are now looking at Central Bank Digital Currencies with a great degree of urgency is perhaps no surprise. Without a tangible, visible manifestation of their money, will we continue to believe in its alchemy, or will we be tempted by alternatives? If the current payment rails fail to deliver the opportunities our digital futures promise, they will be displaced – and possibly central banks with them? What then for monetary policy, financial stability, credit provision, privacy, competition and more?

CBDC may – or may not – prove to be the answer for all these questions and it’s right and proper that central banks examine them. But it’s nonetheless perverse that at precisely the same time that governments are looking to hold banks responsible for cash provision, their central banks are considering rolling out instruments that might well eat into banks’ bottom lines – undermining more than their role in payments.

Banks haven’t been politically flavorsome for a good while, so few will shed tears about that, but the high street has been. Long before Covid forced them to close their shutters, e-commerce giants already challenged local shopkeepers. More recently high street giants have been forced to close shop. There may be less political mourning for the demise of the likes of TopShop, Tati or Barneys than there is for the local bookshop but the resulting loss of jobs hurts. Forcing the remaining bricks and mortar contenders to accept cash will only further disadvantage them compared to their virtual peers.

So yes, we can expect the ATM to go the way of the phone booth but squaring the cash circle on the way there won’t be easy.