By Don Quijones, of Spain, UK, and Mexico, and an editor at Wolf Street. Originally published at Wolf Street.
War on Cash Suffers Setback.
For over 12 hours on Friday, shopping centers in the UK and other parts of Europe were plunged into chaos as millions of consumers were unable to use their Visa debit or credit cards at points of sale. The credit card company, which was finally able to restore normal service early Saturday morning, said it had no reason to believe the hardware failure was due to “any unauthorized access or malicious event”.
While the mayhem caused by the outage may have been short lived, it served as a stark reminder of the risks, both for consumers and retailers, of depending purely on cashless payments. In the UK, the chaos unleashed was particularly acute since it is one of the world’s most cashless economies, pipped to the post only by Canada and Sweden, as a recent study by industry analysts reported.
In 2017, cards overtook cash for retail payments in UK for the first time ever, according to figures from the British Retail Consortium. According to Visa, payment processing through its systems accounts for a staggering £1 in every £3 of all retail spending in the UK. Which is why, when those systems stopped working yesterday, the chaos was greater in the UK than almost anywhere else as cashless customers missed trains, were unable to fill up their cars, pay for their groceries, or even clear their bar tab — this was Friday, after all!
“There is never a good time for the payments system to go down but a Friday afternoon, when there is a flood of people leaving work, must be among the worst,” one banking industry source said. The only way for people to pay for stuff was with co-branded Mastercard cards, or hard cold cash. Luckily, Visa cards were still working at ATMs, although the queues were considerably longer than normal.
In a beautiful irony, Visa, a company whose stated mission is to “put cash out of business” as quickly as possible, had little choice but to urge its customers to withdraw and use physical bank notes for transactions until the technical issue was resolved. Without access to cash, the chaos caused by yesterday’s outage would have been immeasurably worse.
While the UK has happily embraced cashless living, with a resultant explosion in personal debt levels, in many other countries Visa has been dogged by the stubborn survival of cash and checks, despite widespread government and corporate efforts to kill them off. Globally, check and cash transactions totaled $17 trillion in 2016 — up 2% from a year earlier. To try to counter that trend, Visa rolled out a new US initiative in the summer of 2017 that offered to award 50 eligible retail businesses (online businesses are excluded) up to $10,000 each if they committed to refusing cash payments.
Visa is thinking of extending the initiative to its UK market, although it is roundly criticized by consumer groups, who say cash is still vital for many people. Serious questions have also been raised about the oft-touted financial benefits of going 100% cashless. According to a “study” that Visa recently “conducted,” if businesses in 100 U.S. cities “transitioned from cash to digital, those cities would stand to experience net benefits of $312 billion per year.”
It’s not hard to guess who would be the biggest beneficiary. Card fees, which are paid by merchants and usually passed on to customers via higher prices, normally range between 1% and 3%. Among the entities that get to divvy this moolah up are the bank that issued the visa card and the credit card network – such as Visa, MasterCard, Amex and the like. Visa gets just a small piece of the action, but if it is on every transaction, it adds up. In 2016 Visa extracted $15 billion from processing transactions globally without even carrying any credit risk (the banks have to deal with that).
Going completely cashless with risks, as consumers in Europe were just reminded: system outage. If the payment system goes down and all you have to pay with are cards or your mobile phone, you could suddenly find yourself quite literally cashless, as happened to many Puerto Ricans after the power outages in 2017, caused by Hurricane Maria, knocked out electronic transactions and ATMs for days or weeks on end.
It was a stark reminder of just how fragile and vulnerable a 100% cashless society would be — at least until a cashless system can be created that is 100% safe from the threats posed by natural disasters, accidents, cybercriminals, and basic human incompetence. And it’s why cash retains its crucial role in the payment universe, whatever Visa, driven by its desire for more profits and a larger market share, might want people to believe. Even some of Europe’s senior central bankers are now willing to publicly concede, printed banknotes should retain their place and their role in society as legal tender for a long time to come.
For a country to go cashless is too risky and systematically excludes the most vulnerable people. Read… Even the World’s Most Cashless Nation Doesn’t Want to Go Fully Cashless
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Another risk, of course, is that officialdom would very much like to inspect the purchase history of ‘persons of interest’ and if they displease their superiors they can be switched off the system to become ‘non-persons’. Absolute control of the population would be really delightful.
At present, “cashless” has to compete with “cash” on price. ie, cash is free (no extra charge) to use, so cashless has to be free or a very low surcharge.
But, if there was no cash, then “cashless money” would be unconstrained, price-wise. Grok, Payday Loan levels of surcharges to buy anything.
The same people behind the ToysRUs liquidation, are salivating (drooling) on the prospect of a cashless society.
No no no no……
You’re right.
I’ve long been the jerk who makes stores knock their price down if I’m paying for something large in cash rather than by card. Why should I subsidize the people who are afraid to tote a few bills. I feel it should be standard, if a piece of the sale is flying away on one transaction but remaining on mine, either give me a low price or charge the others more.
Gas stations around the country have started to display their price in cash and without, although a lot use it to push their branded gas cards.
Sharpen up your pocket knives, my people, and re-learn the social art of transactions via tally sticks and cuneiform clay tablets… http://www.bbc.com/news/business-40189959
Interesting, how blandly we mopes in so many places accept the yoke of nearly infinite vulnerability — payment systems and legacy banking code, financializatio markets, nuclear weapons on hair triggers every moment, genetic tinkering, Imperial Panopticon and global(destabili)zation, all that stuff. Why, one might think that we humans might have some kind of walk-into-the-fire death wish, all for a bit of personal convenience.
And because there is no alternative?
That is why all things will be computerized, and all computers will be consolidated down to one main-frame .. like in the original Rollerball. Technology isn’t value free, or cost free. The meme of progress (as getting to a free lunch aka final communism) is the Pied Piper for 200 years now.
And when some hacker figures out how to “brick” that one server, a good abacus will be useful.
Because the propaganda sways so many mopes who extol the virtues of “convenience”, we’re all trapped in the “digitized hell”. It’s a shame!
I gotta get on the tablet stylus .. and transact like a Phoenician, getting my ceramic skillz down to wheel speed in the process ..
MAGA – Make Amphorae Great Again !!
I can at last feel comfort in the knowledge that my cold, cured olives, fish paste, and wine will be immune from seizure by the High Priests of Mammon, perhaps for all eternity, once my ship is scuttled ..
That’ll show em !
Why, oh why could this have not been Sweden? Then we really could have seen how a cashless society makes out. I suppose they could have used byteshandel which is barter in English if that had happened there. I see by that linked article that even the Swedes have woken up to the fact that by going cashless, they have truly made themselves a Procrustean bed here.
Maybe the real reason that the Swedish government has decided that it is a bad idea too is Russia! Russia! Russia! They have been panicking their people about a Russian invasion recently but maybe someone taped them on the shoulder and pointed out that if the Russians in a war crashed the Swedish electrical grid, then Sweden would no longer even have an economy. It would be just as bad as a Carrington Event.
Of course if the world did go with digital currency and then decided to go back to actual cash, it may not be greeted with that much enthusiasm-
http://ledracapital.com/blog/2014/2/17/bitcoin-series-19-bizarre-shadowy-paper-based-payment-system-being-rolled-out-worldwide
Cashless…means fear of the pickings getting slim. Some thieving middle men want to make sure they’re getting a cut of every penny you have. Beyond double-dipping and double taxation. Cashless is the biggest scam on the horizon…a way to make sure every penny will be acessible to some middle man.
This
Idiocracy: “But it’s convenient…”
Dog help us!
Here’s a good Frontline docu from 2004 about the credit card industry.
https://www.pbs.org/wgbh/pages/frontline/shows/credit/
Madness, Madness , “Stupid is as stupid does” The Error of the millennium,getting rid of cash ,your only remaining protection from tyranny!
Cash is not the problem, it’s the politicians who want other peoples money and the easiest way to get at it is make it accessible though digitalization, rhymes with financialization!
Taking the low end fee,1% — 100×10,000 = 1000000 or “one mellion dollarhs” as the movie would have it.
Now I admittedly don’t know, but if even 1/4 of your business is cash, then we’re talking break even at 4 million dollars. That’s not a lot of gross yearly revenue at all for even a single hobby (say musical instruments) shop, let alone a small chain of anything.
Maybe if it’s 10k/month or something… still it’s pretty suspicious that they aren’t offering a heavily reduced rate instead of this BS.
Payment systems are a tollgate on economic activity. What could go wrong?
But they are so, ah, conveeeenient…
paulmeli says “Payment systems are a tollgate on economic activity”. Good point. It is added to the sales tax on financial transactions that has the largest affect on the bottom 90% of the population, the buying of goods. What financial transactions aren’t tax? The transfer of stocks and bonds, the biggest financial transactions for the rich.
How about wealth. Your home has a property tax. Your home is the largest wealth asset for the bottom 90%. What wealth is not taxed? Stocks and bonds, the main wealth asset for the rich.
Could there possibly be a pattern here?
Maybe the cash cows should unite.and refused to give milk. Anybody for a stampede?
#WaronWaronCash!
cash cows unite! you have nothing to lose but your
cash!
Handling cash is expensive.
For large retailers and banks.
Handling large quantities of cash is also expensive and risky for individuals making large purchases. [I guess it shares equal risk from seizure by thieves or confiscation by the police — if there is any difference, although I think the police might give you a receipt.]
Watch some of the Chinese dramas about the days of old when people had to move quantities of guard and hire master swordsmen as guards,
Here in the United States the various security forces routinely steal anything from less than a hundred to tens of thousands of dollars because reasons; I have seen who knows how many YouTube clips, blog posts and the occasional actual news story of people’s money taken right out of their pockets and wallets because they somehow, in someway, are suspected of doing something nefarious.
So cash is king, but if you use it, it can be taken from you at anytime by the lowliest cop without evidence, or charges, and you will have to pay a lawyer to get it back. That is if the money was logged after you are given a receipt and that the true amount actually reached the station. None of which is guaranteed. In some places, in all levels of “law” enforcement, that routinely does not happen as much, or all, of the money disappears en route.
So use credit/debit cards, which many Americans do not have access to, that have the possibility of becoming useless, or have the chance of it stolen especially if it is more than a hundred dollars.
What a country, and what a mess of a financial system, we have; I wish I was being hyperbolic.
@JBird
June 3, 2018 at 12:26 pm
——
You are actually being modest, IMNSHO.
Civil asset forfeiture is one of the worst crimes perpetrated against people in the US.
Just last week a man had his entire life savings, about $60k, confiscated by TSA as he was on his way to Europe to fix up some old family properties. The money was “suspicious”, no other reason was given, and he was not charged with any kind of violation or crime.
To make matters worse, the legal procedures dictate that it is the money that is sued by the government, not the owner. In addition, the money is considered guilty until proven innocent, and the original owner has the burden of proof, in contradistinction to legal traditions going back to the 6th century that put that burden on the prosecution or the accuser.
OTOH, there is some movement in a few states to try to end this practice. Unfortunately, the law enforcement community is fighting these efforts as the LE agencies get to keep a lot of the money they confiscate.
Sorry JBird –I didn’t spot your comment until after I posted my comment above]
No worries. You were pointing to the problems of physical money; I was complaining mainly about the massive system of legalized stealing.
There is a reason why throughout my adult life, for why we have always had a torch & candles stashed within handy reach. I imagine that if TPTB decided to ban the above, people would rightly see it as being ludicrous.
During an ice storm a few years back which brought down a large proportion of Northern Ireland’s power lines, we were without electricity for exactly fifty two hours. It wasn’t much fun, but we & the the around 300,000 people affected could at least go out & buy some cheer or emergency supplies.
This whole episode exposes the vulnerabilities of technology. There must be zero downtime on Visa’s part and electricity must always be working.
I wonder what other vulnerabilities are there. Hacking might be the obvious one.
Interestingly, there may be a backlash against cashless societies in Sweden. This is important as Sweden is one of the more “aggressive” cashless societies.
http://www.bbc.com/news/business-43645676
https://www.bloomberg.com/news/articles/2018-02-18/-no-cash-signs-everywhere-has-sweden-worried-it-s-gone-too-far
It will be interesting to see what happens to Sweden when an inevitable failure happens.
Cash itself isn’t flawless, but having it offers some choice. Otherwise banks and payment processors have a monopoly. Knowing the banks and firms like Visa, they will charge super high fees and treat customers like a cartel knowing that their customers have no other options.
I am so old I remember before there were credit cards. The use as cash is a side effect to earning interest payments but this shows the fragility of cash starved IT systems. The most pernicious effect of credit cards is indebting American families to an average of $15,000. There is a trillion dollars in credit card debt – matched by 1.3 trillion dollars of student loan debt. Once medical bills could be put on the card, health costs skyrocketed. The new Clinton grifting frontier is micro-loans to women. Indentured servitude is one of the reasons for the rise of populism in the West and Donald Trump’s election.
To my recollect, the populace was still being chided for using credit cards (even though that’s the only way many could pay their bills, despite even 2, 3 jobs) in the nineties – around the time the interest deduction outside of mortgages (and then, student loans – mustn’t look too blatantly evil) was banished from the IRS 1040 – then, in the blink of a snakes eye CASH IS CRIMINAL, and so were children’s lemonade stands, etcetera.
There is such a thing as evil, anything which causes immiseration, and many times a slow and horrifying death while every existing penny is bled out from the victim under the white gloved hands of amoral profiteers is evil.