Payments in 2022: Cash out, mobile in

Surely it is time for Ketharaman Swaminathan to tell us why this estimate is wrong and why cash is still going to be king in 200 years!

Yes. I am afraid that I will have to agree with the UK Payments Council's belief that cash will decline over the next 10 or so years, to the advantage of virtual wallets, the use of smartphones for banking, shopping and personal payments between individuals, and all credit and debit cards. Let's be upfront and frank about this issue. Cash is dying and it will continue on this path until it has been completely killed. I believe that most of the nation-states of the world will be 100 % cashless in around 30 to 40 years give or take a decade or two in either direction. 

There must be a plethora of public debate before physical cash can be consigned to history.  Issues such as privacy must be debated alongside all other concerns which any family or individual might have.  Make no mistake; cash is going to be killed through time, technology and by the overwhelming number of free choices that people will make over cash. 

Maybe I'm overly sensitive to high school mathematics but 14B CASH as against 1.5B MOBILE / INTERNET transactions (both in 2022) doesn't quite translate to the conclusion, "cash out, mobile in" for me. A quick back-of-the-envelope calculation would show that, out of the 5 methods of payments listed by UKPC, CASH will be the #2 with a 38% market share (14B/36.386B) in 2022 (as against #1 and 60% in 2012). To all but the most severely arithmetically challenged or with an ax to grind against cash or both, 38% won't sound like zero, and #2 won't seem like death. To the mathematically interested, UKPC's estimate for cash transactions translates to a 10 Year Growth Rate of -33% and pegs the "zero cash day" sometime in 2112, i.e. 100 years away - which is far, far away from 2022. This is assuming that the same growth rates continue.

This brings us to the really interesting story in these estimates: Mobile plus Internet payments will manage to garner merely 4% (1.5B/36.386B) of retail payment transaction volumes by 2022. For all the hype surrounding mobile payments and the millions of dollars poured into them during the last few years, such a negligible share for mobile payments might seem irrational. Not sure how many investors will stay invested for so little so late. To paraphrase John M Keynes, looks like the payments market will stay irrational longer than most mobile payment providers will stay solvent.

Ketharaman,

It's definitely not binary. I think many are looking for absolutes in this discussion, but the reality is that it is far more complex. 

For example, in most developed economies right now, cash use is declining at a rate of somewhere between 2-7% annually. In Japan, however, cash use is increasing. Primarily because cash-on-delivery e-Commerce and m-Commerce is skyrocketing in popularity. However, culturally if you were to try cash on delivery in some other developed economies, you'd get people arguing at delivery time over price, whether they ordered the goods, etc - thus COD just would not work the way it does in Japan.

The fact is there is no set rule or formula on how cash will be phased out. There is only one certaintity - cash use will continue to decline and will either take 20+ years to disappear, or at some stage will find equilibrium at minimum levels for specific use cases where it remains the easiest, most anonymous method.

Kevin Hart in "The Memory Bank" (1999) made an interesting case for how cash use would centralize during this decline that has always resonated with me however:

"Once we move down from the scenarios of history on a grand scale to money management by ordinary people, the question shifted relative use of the money instruments available. In Britain, for example, right up to the 19th century, there were normally several currencies in circulation in addition to Stirling; in this situation, having been temporarily banished by state capitalism, is likely to be restored.

If modern society has always been supposed to be individualistic, only now perhaps as the individual emerging as a social force to be reckoned with. This claim rests on a single overwhelming fact, the large amounts of information can now be processed cheaply concerning the individuals involved in economic transactions any distance, thereby making possible the re-personalisation of complex economic life.

This leads to the curious speculation that the state's legal tender will end up appealing mainly to the criminal elements of society, John Locke's nightmare of a world dominated by an informal alliance between corrupt politicians and economic criminals."

Mobile has too much going for it not to 'ascend' as the article above notes. While there is a generational aspect to comfort around cash, etc, the likelihood that mobile payment innovation will produce a shift in habits can hardly be argued. The only argument is the speed and dynamic of this change. We'll need to wait another 10+ years to know for sure how the trend is firming up and what impact it is having on cash.

Dear Ketharaman,

You state that 14 Billion transactions for cash must be compared with 1.5 Billion transactions for mobile & internet transactions.  I am afraid that you have misread crucial details in the above article.   

Cash in 2012 = 21 Billion transactions. 

Cash in 2022 = 14 Billion transactions.   

Cheques in 2012 = 477 Million transactions. 

Cheques in 2022 = 186 Million transactions. 

Plastic Cards in 2012 = 10 Billion transactions. 

Plastic Cards in 2022 = 17 Billion transactions. 

Smartphone & internet banking in 2012 = 356 Million transactions. 

Smartphone & internet banking in 2022 = 1.5 Billion transactions. 

Direct Debit transactions will increase to 3.7 Billion transactions in 2022, which is an increase of 20 % from the amount of transactions in 2012. 

If I were to tally all noncash transactions: 17 Billion (cards) + 1.5 Billion (smartphone + internet) + 3.7 Billion (Direct Debit) = 22.2 Billion transactions in 2022. 

Therefore in 2022 cash will be at 14 Billion transactions, while non-cash transactions will be 22.2 Billion.   

Are you telling me that 14 Billion is greater than 22.2 Billion?     

I've suspended the last couple of comments. Stick to the rules please: no self-promotion 

@JohnC:

TY for your comment. I can assure you that I've read more than I've written and can make available a detailed Excel model should you be interested. 

I didn't comment about CASH versus NONCASH. I compared CASH with MOBILE. My point was, based on the figures, 14B is not zero, #2 is not dead and, therefore, the conclusion "Cash out, mobile in" is seriously wrong.

I agree with your conclusion that NONCASH overtakes CASH by 2022. But, I've heard that said even today with one estimate putting share of NONCASH at 90% of current transaction volume! 

Contrary to what we've been hearing over the past few years - "MOBILE is killing CARD" - CASH will cede its current #1 position to CARD (47%) by 2022, not MOBILE / INTERNET (4%). 

@BrettK:

TY for your comment.

Surely "Cash out, mobile in" sounds binary!

That said, the retail payments space is indeed currently full of pro-cash and anti-cash trends and countertrends viz. Growing friction for online payments; Cash on Delivery for eCommerce (#1 in India apart from Japan as you've pointed out); Impact of card surcharge; Generational shifts; etc. 10 years should be long enough for these factors to play themselves out and for clarity to emerge. I agree with your conclusion, "We'll need to wait another 10+ years to know for sure how the trend is firming up and what impact it is having on cash."