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Cashless Street - Valuable Experiment or Shameless PR Stunt?

10 July 2014 5 comments

Lee Williamson

Research Analyst

Cash Management Solutions

Last month, an experiment on Beech Road in Chorlton, Manchester, transformed it into the UK’s very first ‘cashless’ street.

For one day only the majority of the shops and businesses stopped accepting notes and coins, forcing customers to pay with credit or debit cards. The experiment was organised by card payment provider Handepay to see if we are ready for a cashless society.

The experiment was met with a mixed reception from the businesses on Beech Road. While many backed the scheme, most still gave customers the option to pay in cash, for example, the Horse and Jockey pub only took ten percent less cash in than normal. Others didn’t really see the point of it as they admitted that they would never turn away customers with cash and several retailers refused point blank to get involved.

Despite the mixed reception, the real question that should be asked of the experiment is who – if anyone – really benefits?

Customers

A key principle in economics is choice, and this can be applied to payment methods. Customers face a trade-off when they pay for an item between using a card and using cash. There are certain goods that customers would prefer to use one payment for over the other – for example customers may prefer to use a credit card for expensive purchases so that they don’t need to carry that much cash and can pay it off over time. On the other hand, cash will likely be the preferred choice for small purchases, due to the freedom and convenience it offers, and for those who want to better manage their finances and spending. By removing the option to pay by cash you are giving the consumer no choice at all and removing an alternative payment method should card systems go down – as we have experienced recently in the UK. Furthermore to make this lack of choice worse, the experiment actually limits the choice to the least preferred option for UK consumers – according to the latest annual payments report from the British Retail Consortium, cash transactions made up 52 percent of all UK transactions in 2013.

Benefit? None

Businesses

The experiment doesn’t make great sense for businesses on two fronts. Firstly, following on from the choice principle, if businesses restrict customers to only purchase by card they are losing out on those customers (and the revenue they bring) that want to pay by cash. For some businesses this could include large proportions of certain demographic segments such as elderly people who generally prefer cash. Secondly, as well as reduced revenue, there is a huge disadvantage for businesses in terms of the costs associated with cards. According to the BRC annual payments report it costs retailers 40.9p on average to process a credit card transaction, 8.8p for a debit card transaction and only 1.3p for a cash transaction. The sheer scale of these differences could have a major impact on the margins of any retailer, however for some, particularly small businesses, restricting customers to only pay by the most expensive payment type could risk profitability. While the opposite argument could be that it streamlines business operations by ensuring there is no need for the operational infrastructure of accepting cash, there are very few high-street businesses where this would outweigh the negatives.

Benefit? None

Credit Card Payment Providers

Finally a winner? There is no denying that a cashless society will benefit credit card payment providers. By removing cash from the payment decision, consumers have no choice but to use cards. This results in these companies receiving a fee from the business after every swipe.

Benefit? More transactions means more profit – but it comes at the expense of the businesses

Experiment Outcomes

Irrespective of the outcome of whether a cashless society functions (which seemed to be a resounding no), the experiment was brought under significant question given that it was organised by a card company – the only stakeholder who stood to benefit from it. Fortunately, this did not go unrecognised; Alicia Herhenteris from the independent café On The Corner, said: “We were completely opposed to it. When we saw it was sponsored by a card company we decided it wasn’t something we wanted to be a part of.”

Finally the experiment was also unnecessary as it was very clear beforehand that we are not ready for a cashless society. With 52% of all transactions being in cash, an aging population and an increased pressure on high-street businesses post-recession, removing cash from the economic landscape would have a significant negative impact. However, regardless of being ready or not, we should really be asking why we would want a cashless society? By only having the option to pay by card we would be removing our privilege of choice, forgoing the greater freedom that cash gives us and putting local businesses at stake.

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Comments: (5)

Mark Latham Product and Innovation Director at Handepay

11 July 2014

Handepay's Cashless Street was a campaign aimed at independent businesses. With statistics showing that more than half of these business types do not let their customers pay by card - at a time when card use is booming - we wanted to inform the independent business owner that consumer choice is key.

Yes, we are are a card payment company, but we want high streets to thrive and for consumers to keep money in their local economies. However, too many small businesses are watching trade walk out the door as they don't provide the option for card payments.

Handepay want to educate small business owners in how to reduce their card acceptance costs, we have produced free to download guides on the subject at www.handepay.co.uk/accepting-card-payments

On the day of the Cashless Street experiment, the overwhelming majority of businesses on the road took part and reported afterwards an average of 22% more turnover on the day, as they conducted an average of 28% more card transactions than normal.

We never expected we would discover society is ready to give up cash just yet, but we're delighted so many independents engaged their customers about how they like to spend.

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Ketharaman Swaminathan Founder and CEO at GTM360 Marketing Solutions

11 July 2014

Apart from "... elderly people who generally prefer cash", there's the demographic segment of people like me who become elderly waiting for cashless to happen and, when it doesn't, must "prefer cash"? :)

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A Finextra member

12 July 2014

Cash's days are limited. It is simply a matter of time and thenatural evolution of consumer choice when the young of today would not be caught dead carrying cash when they have a smartphone with an NFC chip, PayPal, Apple's iBeacon, Google Wallet, V.me, Square, MasterPass, etc. Apart from their very handy smartphone, the young of today & tomorrow will also carry a physical wallet containing either debit or credit cards that will all beenabled with Visa payWave, MasterCard's PayPass and American Express's EpressPay. There was a very recent article in Finextrathat examined Visa's desire to use a consumer's spending history and the use of GPS for verification purposes, in the articlecalled, 'The End of Verification? Visa Europe posits new age for payment security' published on the 9th July 2014. This is where the concept of 'frictionless shopping' is being evaluated. Even the future need for plastic cards is being examined. If your credit card number can be generated randomly by your credit card organisation via the cloud, why would you maintain your vulnerability by having a static and visible number on a plastic card, which can be fraudulently used by criminals? There is no doubt in my mind that cash and even plastic cards themselves will eventually be consigned to the dustbin of history.

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A Finextra member

14 July 2014

Re. the first comment from Handepay: "...we wanted to inform the independent business owner that consumer choice is key."

... by taking away the option to use cash?

I agree that local shops should provide multiple payment methods for customers (including debit/credit cards), but if the underlying statement of the campaign is choice, this was completely the wrong way to go about it - indeed the exact opposite.

The Retailers objecting to this experiment said that the reason they don't accept card payments is because the cost of doing so is prohibitive. So it seems to me that the solution here is to lower the costs for them to process transactions, not enforce card payments on them and promoting it as a win for the 'cashless street'. It's hypocritical and counter-productive.

Finally, regarding the second point made. If an event of this nature is backed by a nationwide PR campaign, curious consumers will naturally be drawn to the event - accounting for the slight increase in sales on the day.

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A Finextra member

14 July 2014

I thought it was a good article and that the real interesting fact that came out of the experiment was that the modernists (sic) still see cash as the enemy.

Cash will be with us forever and most predictions say it will bottom out at about 25% of transactions. This is more to do with the social nature of shopping than with technology.

There are people who like cash, they like to be in control of their spending or they are from socially excluded groups who's only access to 'money' is in the form of cash.

The true battle is about making payments part of the consumer culture and not always trying to push customers away from their preferred payment choice towards the technologists choice.

Cash is not always the preferred choice; mPesa was successful because it provided communities that had no access to the payments infrastructure a way of participating. Prior to that bartering, using cash and paying with goods underpinned the economy. Cash wasn't a viable alternative as the economy grew.

I'm involved in payments technology and know, as most of you do, that consumers want to pay the way they prefer, regardless of the choices available.

Call me a disnosaur but I have a contactless debit card, had it for a year and used it once.

I'd have liked to see some survey results about the experiment and how customers felt, what their experience was and what they would have liked to see.

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