This post was co-authored by Devon Watson, VP, Software Research & Strategy, and Vanessa Gagnon, Software Research & Strategy Analyst.
Fact 1: There’s an estimated $5 trillion in currency circulating the globe.
Fact 2: Cash accounts for about 85% of global consumer transactions.
Question: How do you FIT in?
Let’s take a step back.
The Credit Card Crisis
By many accounts, the first “bank credit card” debuted in 1951 at New York’s Franklin National Bank. Since then, media outlets and industry pundits have predicted the end of cash – in fact, last year at Money20/20, one speaker produced an article from a 1972 edition of The Fresno Bee that predicted the demise of cash by the end of that decade. According to Currency Research, The Economist devoted its February 2007 cover to the death of cash, comparing it to a dinosaur and stamping it with a 2022 expiration date.
How accurate were those predictions?
In 2013, MasterCard conducted research that tracked progress towards cashless economies around the world. The “Cashless Journey” study measured the evolution toward more modern, efficient electronic payment mechanisms by examining the volume of consumers’ cash versus non-cash payments, how that share shifted over a five-year period and whether conditions existed for cash payments to make the leap to electronic payments.
The results were fascinating: Cash still accounted for about 85% of consumer transactions around the globe.
The Mobile Payment Crisis
Sixty-five years after the first credit cards appeared, we now face a new “crisis” – the rise of mobile payments. Apple Pay, Samsung Pay, Android Pay, Bitcoin, M-Pesa, … these emerging players are increasingly gaining traction within economies, and have perhaps emboldened another wave of “cash is dying” predictions. But let’s not forget, these predictions and arguments are coming from a highly concentrated network of extremely tech-savvy people working in technologically advanced industries, creating a perspective bias.
Since predictions are rarely on point, a rational way to evaluate the future of cash against the rise of mobile payments might be to look at the consumer base most likely to have the biggest impact on its adoption: millennials. The U.S Census Bureau estimates they’re the largest demographic group in history. With more than 80 million millennials entering the workforce, researchers at Barkley estimate they control $200 billion in direct purchasing power. By 2020, Millennials and Gen 2020 will comprise almost 60% of the workforce. Said differently, they’ve got buying power – and they like cash.
In its 2014 “The Case for Cash” report, Currency Research dispels the myth that younger generations aren’t as likely to use cash: “The 2012 US Federal Reserve System’s Diary of Consumer Payment Choice survey showed that cash use continues to be prevalent among people from all age groups and educational backgrounds and that cash is the preferred first or second choice as a payment instrument among all ages and socio-economic classes.”
The most successful payments players – whether they’re banks, financial industry partners or fintech upstarts – will find innovative ways to be a part of cash-based society, and capitalize on both cash and digital by providing effective on and off ramps between the physical and digital worlds of currency. Few businesspeople would shy away from a revenue stream that represents 85% of the world’s transactions.
The Payments Landscape Reality
Kenya’s M-Pesa solution is a prime example of how digital payments and a cash-based society go hand-in-hand. Led by Vodafone (a telecommunications company), the first M-Pesa person-to-person transfer occurred in 2006. Prior to the launch of the digital payment system, Kenyans often resorted to sending money to friends or family member by bus. You heard it! They entrusted a bus driver with their cash, hoping it would make it all the way to the other end of the country. One year after the introduction of M-Pesa, 47% of the Kenyan population sent money via their mobile phone.
But here’s where it gets interesting: M-Pesa didn’t stop the growth of cash circulation in Kenya. Five years after the launch, currency in circulation was higher than ever, and 98% of urban and rural transactions were still done in cash. Why? Vodafone installed thousands of kiosks around the country where M-PESA users could cash their money in and out. Ultimately, Vodafone, in partnership with mobile-network operator Safaricom, created an innovative and secure digital-to-physical gateway for money to be sent from one place to another.
Recently, Safaricom released its 2015 investor presentation, outlining the most current snapshot of M-Pesa’s prevalence in the region. As described in that presentation, 426 billion Kenyan Shillings (Ksh), was deposited in the digital system in 2011, while 384 billion was withdrawn. Only 9.8% of that Ksh actually remained in digital form.
Compare that to Safaricom’s 2015 numbers: 1,319 billion Ksh was deposited, and 1,129 billion was withdrawn – leaving approximately 14% of that money in digital form. Eight-six percent of the cash entering the M-Pesa system in Kenya today is still converted back into cash.
The Collaborative Solution
Talking about a cashless society is easy. Operating in the world of cash? That’s a big, dirty, complicated, difficult challenge. It requires special infrastructure and poses barriers to entry. Diebold has innovated in this space for more than 150 years. In fact, we’ve built a culture around collaborative innovation that enables us to work with clients on an individual level to bridge the worlds of physical and digital cash in ways that make sense for their unique strategies. Along the way, we’ve become experts at helping our clients efficiently connect their consumers to their money, in whatever form it may be.
We know cash isn’t going anywhere anytime soon. It’s important on a global scale, and it matters to just about everyone at some point in their day. Let’s talk how we can get you closer to your consumers, and your consumers closer to their money, when it matters, wherever it is.