4 Jan 2016

The Risks Of The War On Cash

By Don Quijones: On January 1st, Londoners woke up to a rather perplexing reality: all of the cashless Oyster card readers on the city’s buses, rail and tube stations had stopped working. With cash as good as banished from the London transport system, attendants had little choice but to wave passengers through open ticket barriers and onto buses without paying, until the problem was fixed.

Serious Pause for Thought

Ironically, the costly glitch came on a day that new fare increases were to be introduced, with journey prices going up by an average of 1%. According to research by the UK Labour Party, rail fares have risen at three times the rate of wages since 2010, with campaigners saying ticket prices have become increasingly divorced from reality.”
While for London’s commuters the glitch offered a welcome respite from ever-spiraling transport costs, the temporary collapse of the Osyter Card system should give serious pause for thought about our growing dependence on electronic cashless payment systems, especially as government, central banks, financial institutions, credit card companies, and large corporations conspire openly to pull the plug on cash [read: The War on Cash in 10 Spine-Chilling Quotes].

Just this week the UK Department of Transport announced plans it is developing with banks, credit card companies, and train groups to extend the London Underground’s cashless payment system across the entire UK rail network.
“We are in the early stages of exploring how passengers could pay for and store tickets on their contactless credit or debit cards as part of our wider aim to improve the experience of rail passengers and move towards smarter types of ticket,” said Jacqueline Starr, managing director of customer experience at the Rail Delivery Group, which represents Network Rail and train operators.
The move is part of plans to push Britain towards a cashless, paperless society in which people use cards or smartphones to pay for restaurant meals, check in at airports – and everything in between, reports The Daily Telegraph.

The Abdication of Cash as King

If recent trends are anything to go by, it appears to be working. In March 2015, the volume of transactions made via credit and debit cards and other cashless methods finally outstripped those made with cash. The number of cash transactions is expected to drop to just under 13 billion by 2023, while the number of cashless transactions – including checks, credit cards, debit cards, contactless cards, direct debits, and standing orders – will rise to over 27 billion.
In terms of value, cashless payment methods are winning hands down, since they are generally used for much bigger transactions. According to the UK Cards Association, credit cards and debit cards surpassed cash in terms of value more than a decade ago and now account for more than 75 % of retail sales. A Lloyds Bank survey recently revealed that a quarter of Brits think that in just five years’ time they will no longer need cash at all.
Simon Black, the chief executive of PPRO Group, a firm offering “end-to-end financial solutions enabling international electronic payment processes,” took the cashless meme to a whole new level by proclaiming that cash could be obsolete in the UK by 2020:

What’s for certain is that we are firmly set on course for a cashless Britain. We live in a culture of increasing convenience, which has influenced and will dramatically transform the way in which we’ll pay for items now and in the future…
“Quick and easy is winning the war,” he added.

When Convenience Trumps All

There’s good reason why a partial observer like Black chose to highlight the speed and convenience of cashless payments. After all, a cashless economy would have little more to offer normal, everyday people. The real beneficiaries would be government, big banks, card companies, and other financial intermediaries, like Simon Black’s PPRO.
And who’s to say that promoting payment systems that encourage consumers to seek instant gratification at every turn is a good thing, apart from for banks and credit card companies?
It’s probably no coincidence that as the use of cashless payment systems has exploded in the UK, so too has the amount of non-mortgage personal debt. According to the report from PwC, “Precious Plastic: How Britons Fell Back in Love With Borrowing,” people’s ability to remain in control of their debt will be challenged in years to come, especially if the Bank of England raises its base rate off its historic 0.5% low. The total household debt to income ratio, including mortgage debt, is projected to reach around 172% by 2020 – surpassing its previous peak in the run-up to the Financial Crisis.
There are plenty more potential downsides of a cashless society, as I warned in “Who Exactly is Trying to Kill Off Cash?”:

They include the complete loss of personal anonymity and control over your own finances; the very serious risk of identity fraud, especially when biometric measurements are introduced; the ease with which government authorities will be able to confiscate (and probably never return) our hard-earned money; the likelihood of new or increased fees as financial intermediaries proliferate; and perhaps most grievous of all, the danger that your government or financial institutions can cut you off altogether from the money you own and need to survive, just as happened with Wikileaks when it published the biggest leaks in journalistic history, in October 2010.
Then there’s the risk of system collapse – a major power grid failure, cyber-attack or EMP event. People and businesses would be cut off from the money they supposedly own and need to survive, at least until the system is restored. Worst of all, there would be no payment alternative to keep the economy ticking over in the interim. Such a nightmare scenario is hardly imaginable yet could be a very real danger in the new cashless era our governments, banks and central banks seem determined to usher in. 


No comments:

Post a Comment