MDC Forum – Cash in Uncertain Times

Four speakers focused on the future of cash at the recent Mint Directors Conference online forum. Two academics used their research to explain how, and why people pay as they do and then two speakers questioned future payments and how they might evolve.

Professor Darren Duxbury, Chair in Finance at the Newcastle University Business School in the UK, carried out research in 2021 for NatWest bank. Given a confusing and changing payment landscape, the goal was to understand what might happen to cash by understanding the public’s payment intentions. Research suggests a close correlation between payment intentions and payment behaviour. The study also explored the impact of exogenous shocks on payment behaviour.

The research looked at five hypotheses.

• If people in their minds allocate money held in their bank accounts to specific purposes, does this mean they are more likely to use cash?

• If people are more likely to regard money as indivisible, non-fungible, are they more likely to use cash?

• Does a higher sensitivity to feeling the pain of ‘loss’ when they spend cash mean that they are less likely to pay using cash?

• If people have a higher tendency towards following routines and habits automatically, does this carry over to continuing to pay in cash?

• Does a lower level of financial literacy mean people are more likely to pay with cash?

The study also gave people two scenarios where there is an economic downturn which reduces their disposable income, and there is a data security breach leading to the release of their personal data. While both scenarios made paying by cash more likely, it suggested that a security breach had a bigger impact than having less disposable income.

The research found that the pain of payment is a significant determinant in how people pay, and that transaction size matters. The denominational mix makes a difference therefore, and central banks need to take the denominational structure and supply of cash into account. It also found that payment habits change. Forecasting needs to reflect the increased level of volatility and structural breaks implied by these findings.

A Swiss Perspective

Dr Tobias Trutsch, Head of the Economics Division of the University of Gallen’s Executive School of Management, Technology and Law, had carried out research on the drivers shaping individual payment behaviour in Switzerland. The research found that contactless payments increased the frequency of payments but reduced the average sum of money spent. It had little impact on cash usage because the change was largely from paying by card using a PIN to paying without contact.

While payment card fees were higher than cash and cheque costs, it was card payments linked to loyalty cards that increased both usage and spending.

Perceptions of risk from the theft of cash, fraud and counterfeiting increased card usage, while security incidents using cards reduced their use.

Psychological factors

While the concept of the pain of payments is well known, the research also looked at the impact of the transparency of the payment instrument and the link between consumption and the form of the payment, the linkage between the activity and the movement of monetary value. All three reduced the use of cash and how much was spent.

There is clear research that shows that when people pay with cards they spend more on unhealthy foods, credit cards are used to buy durable rather than perishable products and when people have higher denomination banknotes, they spend more than when they have smaller denominations.

Levers to ‘pull’ to change behaviour

The research defined drivers of intentions, injunctive norms, descriptive norms, roles, personal norms and emotions. Intentions drive behaviour while habits are also a significant factor affecting behaviour. The research showed that descriptive norms, roles, emotions and habits have the biggest impact.

To encourage payment behaviour to encourage cash use, the following will make a difference:

• A positive attitude towards cash

• Make paying in cash feel appropriate for the situation

• Persuade others to use cash

• Create positive emotions when using cash

• Break habits by defaults and nudges, for example have signs up encouraging cash payments

• Improve control mechanisms by limiting failures and increasing acceptance.

Shaping the future

Guillaume Lepecq, chair of Cash Essentials, described the futures literacy programme that culminates at September’s Future of Cash conference in Madrid. He described the rush of the banks, fintechs, big tech, crypto currencies and the advent of CBDCs as a new space race as they all seek to dominate the space currently occupied by cash.

The future literacy programme is identifying tensions, building futures tables, creating multiple scenarios and then desirable scenarios before creating a roadmap to the future. His presentation looked at possible future scenarios for the economy, society, sustainability and inclusion, technology and money. These put forward sharply contrasting alternative routes. Options for the post-pandemic global recovery, return of the state and move to digitalisation were presented.

Guillaume sees clear positive signs about what is happening around steps being taken to safeguard access to cash by central banks and governments, cashtech and other mechanisms for accessing cash, the failure of Facebook’s, attempt to launch Diem and indications of a return to budgeting using cash.

This should not be seen as cash v digital since both have a clear role. To assume there will be a single nature of money goes against history and is not realistic. When looking at the future all should focus on form rather than function. The futures literacy programme is meeting virtually for half a day on 7 and 8 September and then on 16 September at the conference.

The war for our wallets

The author, Brett Scott, has just published ‘Cloudmoney: Cash. Card, Crypto and the War for our Wallets’ (which was reviewed in last month’s Cash & Payment News™).

His presentation looked at the vision for the future, one of those touched on by Guillaume, and rigorously questioned whether this was the optimal solution for people, for societies and for mankind.

Digital is useful, but it is not for all and we would all be considerably worse off should cash be allowed to fade away.