SEPA: The War on Cash
In the 1950s, Robert Shuman, French Foreign Affairs, told the newly formed European Coal and Steel Research (ECSR) community that common fundamentals would support economic development within Europe. If one looks at his statement, one such fundamental would be a common currency. His early statement was one of the building blocks for what we now know as the single euro payments area (SEPA). What started as an idea is now a reality in the form of the euro. It is a single currency shared by many European countries but how are people and companies affected by the currency?
The value of a common currency is probably not as important for the consumers and end-users in Europe as it is for businesses and governments. For example, consumers already own millions of debit and credit cards to pay for goods and bills in all European countries. People are able and willing to pay not only with cash but also with new electronic payment methods. So the question is – do we still need cash?
Personally, my need for cash is declining and I believe many people around me feel this way too. If people increasingly pay with debit and credit cards, vouchers, and cheques, do we still need cash? Most companies will agree that cash transactions are the most costly payment method. Larger companies will acknowledge that automation of liquidity and working capital will speed up their processes. For companies in general, the euro and other currencies are just numbers on an external or internal account. Local authorities and governments are in the same transition phase from cash to electronic payments.
Cash is costing the banks piles of money, and the war on cash is therefore a cost-based concept. The banks are trying to minimize these amounts, and SEPA can help them to drive these costs down.
SEPA dictates that the banks must be market driven and provide the right technologies and payment methods to their customers. Therefore, e-invoicing and mobile payments are being introduced; new debit and credit schemes are being delivered; and other technology payments methods are also being developed. The banks are pushing all these tools into the market, but the need for cash is still growing.
Within Europe, there is only one country with a decline in demand for cash: Norway. Why is the need for cash declining in Norway and not in the rest of Europe?
Norway has a low population density. Getting to a shop in Norway can be difficult and banking is sometimes only possible through the Internet or by using electronic payment methods, such as mobile phones. In Europe, at least 70-80% of inhabitants have a mobile phone or Internet access but the demand for cash is not decreasing. Why?
One reason is that we are used to paying with cash and we must also acknowledge the 20-30% of people who do not have Internet access or a mobile phone. If this group of people do not move to using electronic methods of payments, we will not see the decline of cash – the retail sector cannot exclude these customers.
Some people believe that cash will always be a necessity while banks, companies and the public sector want to reduce its use. Banks can deliver new payment methods to customers using existing technologies and standards, which will be further enhanced with the introduction of SEPA. Of course, educating customers and companies about the new payments methods and habits will take time, but banks should seize this opportunity.