EMP­TY­ING THE TILLS

Some Euro­peans are more at­tached to notes and coins than oth­ers Fi­nance and eco­nomics Europe’s dis­ap­pear­ing cash

The Financial Express - - FRONT PAGE -

Some Euro­peans are more at­tached to notes and coins than oth­ers

ONLY tourists pay in cash, says the young barista in Espresso House, a Swedish cof­fee chain, on Vasagatan in Stockholm. “They don’t un­der­stand we don’t use that any­more,” she rolls her eyes, ges­tur­ing to the card ma­chine. The con­tact­less “taps” that lo­cals use are much faster, and she fre­quently runs out of change when for­eign­ers bring large-de­nom­i­na­tion notes, fresh from the ATM.

Swedes rarely han­dle cash; the vol­ume of card pay­ments has in­creased ten­fold since 2000 and only one in five pay­ments—5-7% if mea­sured by value—are made in cash to­day. In much of north­ern Europe the sit­u­a­tion is sim­i­lar, with “no cash” signs in­creas­ingly pop­ping up in shop win­dows. But travel south or east and a dif­fer­ent pic­ture arises; in Italy 83% of pay­ments are still in cash. Whereas Nor­we­gians made 456 elec­tronic trans­ac­tions per per­son last year, Ital­ians made only 67 and Ro­ma­ni­ans 17, ac­cord­ing to the Bos­ton Con­sult­ing Group. Most sur­pris­ing is Ger­many’s re­luc­tance to dis­pense with “real money”. Over three-quar­ters of Ger­man pay­ments are still made in cash and “cash only” signs are not that un­com­mon.

As coun­tries be­come richer, they tend to move away from cash on grounds of se­cu­rity, con­ve­nience and cost. Con­sumers may think that cash is free but for banks and re­tail­ers it is not; it needs to be counted, bun­dled, trans­ported, cleaned, re­placed, checked for forgery, stored and guarded. Around 0.5-1% of GDP a year is spent on man­ag­ing cash. More­over, in a new book, “The Curse of Cash”, the econ­o­mist Ken­neth Ro­goff ar­gues that cash in the rich world aids tax eva­sion and other il­le­gal ac­tiv­i­ties, and that mone­tary pol­icy would be more ef­fec­tive in a cash­less world. Yet some Euro­peans are far more re­luc­tant to aban­don pa­per and cop­per than oth­ers.

In the Benelux and Scandinavian coun­tries, banks were early pro­mot­ers of elec­tronic pay­ments and made it eas­ier (and cheaper) for cus­tomers to use cards. In thinly pop­u­lated Swe­den and Nor­way, main­tain­ing a large branch and ATM net­work is costly; Swed­bank, Swe­den’s largest re­tail bank, has only eight branches that han­dle cash. Banks also helped to de­velop mo­bile-pay­ment tech­nolo­gies, such as Mo­bilePay in Den­mark, an app now used on nine out of ten Dan­ish smart­phones.

Yet in Ger­many and much of the south and east, banks have been less proac­tive. Ger­man banks have been much slower to pro­mote elec­tronic and card pay­ments. In Italy rel­a­tively few peo­ple have bank cards and those who do use them in­fre­quently (25 trans­ac­tions per debit card per year, com­pared with 114 in France). This is partly be­cause Ital­ian mer­chants dis­like cards, as banks have tended to charge high fees. To iron out dif­fer­ences be­tween coun­tries, in De­cem­ber 2015 the Euro­pean Com­mis­sion capped in­ter­change fees at 0.2% per debit-card trans­ac­tion and 0.3% for credit cards.

Scandinavian au­thor­i­ties have helped facilitate card use. In Swe­den the in­stal­la­tion in cash reg­is­ters of “black­boxes” that di­rectly send sales data to the tax agency to fight VAT eva­sion, has helped make cash less at­trac­tive. In Den­mark pay­ing ben­e­fits onto debit cards aided the tran­si­tion.

Dim­itri Roes, the owner of ‘t Vlaams Brood­huys, a Dutch chain of bak­eries, says the de­ci­sion to be­come cash­less was mo­ti­vated by se­cu­rity and hy­giene. “Bak­eries are soft tar­gets for rob­beries. For a few hun­dred eu­ros you get a knife in you.” Cus­tomers also didn’t like staff touch­ing their crois­sants af­ter han­dling coins. Some clients an­grily threw their coins across the counter when bak­ers stopped ac­cept­ing them, but over 90% didn’t care.

Cul­ture plays a role, too. Dig­i­tally so­phis­ti­cated Scan­di­na­vians may be com­fort­able buy­ing gro­ceries on their smart­phones but a deep-rooted aver­sion to be­ing tracked—a scar left by the Stasi—lies be­hind Ger­man dis­trust. A re­cent sur­vey by PWC re­vealed that two in five Ger­mans don’t use mo­bile pay­ments be­cause of con­cerns about data se­cu­rity (and nearly nine in ten worry about it). When the Ger­man fi­nance min­istry re­cently pro­posed cap­ping cash pay­ments at 5,000 eu­ros, as in some other coun­tries, Bild, a daily newspaper, or­gan­ised a reader protest.

Ital­ians were equally en­raged when a cap on cash pay­ments over 1,000 eu­ros was in­tro­duced in 2011. Mat­teo Renzi, the prime min­is­ter, last year loos­ened it to 3,000 eu­ros. Mr Ro­goff thinks weak gov­er­nance in coun­tries such as Italy and Greece is largely to blame for high rates of tax eva­sion and other crime, and con­se­quent hefty hold­ings of cash. Prac­tices such as pay­ing part of salaries in cash-stuffed en­velopes are deeply rooted.

De­spite such slower progress, An­dreas Pratz of AT Kear­ney, a con­sul­tancy, thinks that once a coun­try reaches 100 point-of-sale card trans­ac­tions per per­son per year, peo­ple re­alise they can sur­vive with­out cash. As the share of trans­ac­tions made in cash falls, their over­all costs in­crease. Pan­teia, a re­search firm, es­ti­mates that in the Nether­lands the av­er­age cost per cash pay­ment grew from 0.22 eu­ros to 0.25 eu­ros be­tween 2009 and 2014 and the cost per pin pay­ment dropped from 0.21 eu­ros to 0.19 eu­ros.

Of course there are down­sides to mov­ing away from cash. In­stalling card ma­chines can be costly. The poor, many of whom lack bank ac­counts, would need to be in­cluded. Con­cerns about los­ing anonymity are le­git­i­mate. And cash has al­ways been the ob­vi­ous contin­gency in case sys­tems break down.

But the ad­van­tages of cash­less com­merce grow ever more ap­par­ent. Back in Stockholm, at the Radis­son Water­front ho­tel, two Amer­i­can se­niors bicker over who will fetch “lo­cal money” so they can get a taxi. If only they knew that cab­bies here pre­fer cards and only 7% of Taxi Stockholm’s pay­ments are made in cash.

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