Banks and Payment Card Companies Form a Discount Cartel to Take Down Cash in “Cash-Addicted” Germany

The cash assassins set their sights on Europe’s biggest economy.

If there’s one major European economy that did not get the memo on moving swiftly away from cash to digital payments during the COVID-19 pandemic, it is Germany. Though cash use has declined in recent years, physical notes and coins are still the main payment method. In 2023, 51% of all transactions were still being made with cash, with debit cards in a distant second place at 27%, according to the Deutsche Bundesbank’s annual payments survey. [1]

In the same year, Foreign Policy magazine described Germany as “hopelessly addicted” to cash:

Germany is not the only country standing athwart the global trend toward cashless payments. In Austria, cash is so popular that the Austrian chancellor has claimed it should amount to a constitutional right. Yet in other European countries, such as the United Kingdom, cash will account for just 6 percent within a decade, and in the Netherlands only 11 percent of transactions were made in cash last year. In other bigger economies, the pace of the decline is even faster. While in China 8 percent of point-of-sale (POS) transactions were made in cash, in India, cash use has declined from 91 percent in 2019 to 27 percent in 2022.

But in Germany, an obsession with [NC: as opposed to “concerns about] privacy, mistrust of big-tech and fintech in general [NC: probably warranted], and worries about political and financial crises depleting bank balances overnight—an experience rooted in history as well as a cultural desire for control—all contribute to the country’s love for cash…

On average, Germans carry more than 100 euros in their wallets—much more than their counterparts in many other developed nations. Since the euro was introduced, the Bundesbank has issued more cash than any other member in the 27-nation European Union, and according to the Bundesbank report, even though cash use was down from 74 percent in 2017, as high as 69 percent of respondents expressed their intention to continue to pay in cash.

Even as Germany has suffered wave after wave of ATM bombings, providing banks with a perfect pretext for closing even more branches and ATMs, and local and federal authorities have made it increasingly difficult to pay in cash for basic services such as public transport or registering a driving license, as the German financial journalist and cash advocate Norbert Häring has documented (in German), most Germans have continued to cling to cash.

In a survey conducted by the European Central Bank, 69% of Germans said that cash is either important or very important to them. As Der Spiegel International noted, with a gentle dash of PMC arrogance and derision, in its article last April, “Cash’s Last Stand”, this is particularly true of “older people and people with low incomes and education levels.”

Enter the Cash Assassins

But the country’s financial institutions, together with payment processors, are now taking matters into their own hands. As Häring reports (in German), big banks are joining forces with large credit card companies in an attempt to force cash out of the market through cartel pricing and unfair competition:

The new initiative “Germany pays digitally”… is not an “initiative”, but a cartel. It consists of Commerzbank (Commerz Globalpay), Deutsche Bank, Volks- and Raiffeisenbanken (VR Pay), Mastercard, Visa, Flatpay, Unzer and SumUp. Further cartel members are expressly welcome to join. The aim is to displace their main competitor, cash, and the cash service providers through dumping prices. I can’t judge whether it’s a legal cartel, but it seems legally questionable to me…

This is because cash causes costs that are often lower for small merchants than the costs of digital payments, but not zero.

Here’s how it will work: the cartel will be offering small merchants and retailers with up to €50,000 in annual turnover free installation of a payment terminal and free use of it for all transactions for up to one year. No fees, no commissions. Those will obviously kick in during the second year. As Häring notes, the cartel members are willing to accept temporary losses in order to incentivise small businesses to accept digital payments instead of cash.

The irony is that two of the banks involved in the scheme, Deutsche Bank and Commerzbank, are also directly involved in Deutsche Bundesbank’s recently established National Cash Forum, whose stated mission is “to preserve cash as a cost-effective and widely used means of payment in Germany.”

One would be hard-pushed to find a better example of the fox looking after the chicken coop. As Häring notes, the central bank’s cash forum is clearly a facade intended to give the impression that the central bank and commercial lenders are taking measures to protect cash while doing the exact opposite.

As for Visa and Mastercard, it should hardly come as a surprise that they are involved in this cartel-like attack on cash. Both are members of the Better Than Cash Alliance (BTCA), a coalition of governments, financial firms, IT companies and philanthro-capitalist foundations that have been pushing back against cash use worldwide, primarily in the Global South, for over a decade. The state sponsors of BTCA include Germany’s federal government.

For payment companies like Mastercard and Visa that generate fees from facilitating money transfers between banks accounts, cash is their ultimate rival. In 2010, the then-CEO of Mastercard (and current president of the World Bank), Ajay Banga, openly declared war on cash:

“In today’s terms, only 3% of retail spend in India or in China are through electronic payments. The rest is cash. I have declared war on cash; I believe MasterCard will grow by growing against cash. If you keep looking at 3%, everybody’s a rival; if you look at the remaining 97%, everyone’s a partner.

Both Mastercard and Visa have played arguably the biggest role in demonising cash over the past decade or so. As Brett Scott documents in his book Cloud Money, the payments industry has “consistently cast card payments as being safer, cleaner and higher status than cash, thereby slowly associating the latter with crime, disease and low status.”

The demonisation campaign hit a whole new level when cash became erroneously associated with COVID-19 infections. In early March 2020, a WHO spokesperson said:

“We know that money changes hands frequently and can pick up all sorts of bacteria and viruses … when possible it’s a good idea to use contactless payments.”

The WHO would later walk back its statement, stressing that it was not advising people to abandon the use of cash. But by then media outlets, payment card companies, fintech start-ups and big-box retailers had seized on the original comments and magnified them, sparking fears over the safety of cash. At the same governments and central banks around the world loosened the limits on contactless card payments.

For Mastercard this was nothing new. The company has been stoking the global public’s fear of cash as a vector of bacteria and disease since at least March 2013, when it sponsored an Oxford University “trial” into the germ loads found on the banknotes of a selection of global currencies. Mastercard reserved the exclusive right to present the findings of the trial as well as the results of a highly misleading survey on public perceptions of the health risks of cash, which it did in gaudy glory around the world.

“A Roaring Success”

In most countries in the so-called collective West, the Global War on Cash has been a roaring success. As shown in the map below, by the the second year of the pandemic cash had already been eclipsed in most of the economies of Northern and North-Western Europe. Granted, it was a different story in other parts of the continent, particularly Central and Southern Europe. It is also true that some countries, including the UK, France, and Spain, have seen a moderate recovery in cash use since the lockdowns of 2020-21.

Where in Europe is cash still the most common payment method? In Australia I’m never ever using cash and always experience a culture shock when going back to Germany. Source: https://t.co/wcrj4LkPTL pic.twitter.com/7t8M0Is3Ko

— Simon Kuestenmacher (@simongerman600) July 2, 2021

 

The mass abandonment of cash has been driven by a host of factors such as generational shifts and technological advances, including the rise of e-commerce and seamless contactless payments. Payment card companies, banks and big retailers knew from the get-go that contactless payments would not only offer higher transaction speeds and lower cash handling costs but also encourage compulsive consumption. Now, the payment card companies and banks want to move away from cards to biometric payments.

But the notion that this is all part of an organic bottom-up process is swiftly debunked by this example of cartel-like behaviour from German banks and global payment processors. The War on Cash continues to escalate, particularly in countries countries where cash is still King, albeit a rather diminished one, such as Germany, Spain and Austria.

Unless access to cash and the ability to use it as a means of payment are protected by law, ideally through constitutional amendments, its future is far from guaranteed, especially with the European Central Bank and the European Commission desperate to accelerate the rollout of the Euro Area’s proposed central bank digital currency, the digital euro.

So far, to my knowledge (and I invite readers to correct me), only two EU countries have actually taken that step since the pandemic: Spain, which in 2022 passed a reform of the General Law for the Defence of Consumers and Users that ensures that all businesses have the obligation to accept cash as a means of payment [2]; and Slovakia, which in 2023 introduced a constitutional amendment enshrining the right to pay for the purchase of goods and services in cash. In doing so, it earned itself a stiff rebuke from the European Central Bank.

“The ECB respectfully suggests that the provision of the constitution is outside of the competence of a member state whose currency is the euro,” said ECB president Christine Lagarde.

The governments and central banks of Sweden and Finland, two of Europe’s most cashless economies, have repeatedly sounded the alarm about the dangers of abandoning cash too quickly, even describing their over-dependence on digital banking as a potential threat to national security. As a recent Guardian article notes, “in the context of today, with war in Europe, unpredictability in the US and the fear of Russian hybrid attacks almost a part of daily life in Sweden, life without cash is not proving the utopia that perhaps it once promised to be.”

However, neither Finland nor Sweden, as far as I can tell, have taken legislative action to protect access to cash or its use as a means of payment. In Denmark, by contrast, the use of cash is already protected by law. Businesses there must accept notes or coins between 6 am and 10 pm unless the transaction is online or at an unstaffed outlet such as a self-service petrol station.

Norway, which is not an EU member, brought in legislation in October last year that means retailers can be fined or sanctioned if they do not accept cash. The government has also recommended that citizens “keep some cash on hand due to the vulnerabilities of digital payment solutions to cyber-attacks”.

This is one of the many paradoxes of the current situation in Europe: even as the continent’s most cashless economies warn about the risks of going too cashless, especially at a time of intensifying IT outages, escalating cyber attacks and other forms of hybrid war, the cash assassins continue to escalate their War on Cash in other more cash-friendly countries — for their own interests, of course. Meanwhile, the ECB is trying to fast track the digital euro into existence even as other central banks express their reservations.

In cash-loving Austria, the central bank has taken an unusual step to protect citizens’ access to cash as banks increasingly shutter branches and remove ATMs. The Oesterreichische Nationalbank has decided to install 120 new ATMs in rural communities that it itself will operate. To avoid banks taking advantage of this move by closing down even more ATMs in remote communities, the Association of Municipalities has negotiated an agreement with the banks in which they commit to refraining from dismantling ATMs by the end of 2029.

This example goes to show that if central banks and governments really want to protect cash as a public good, there is a way. But it is one that is unlikely to be adopted by the Deutsche Bundesbank or the incoming Merz government, led as it is by a man with intimate ties with Germany’s banking sector and the US investment manager BlackRock.

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[1] “Measured in terms of turnover, debit card payments accounted for 32% of total expenditure, placing them firmly in first place, followed in second place by cash (26%),” reported the Bundesbank. Compared with the 2021 study, the share of payments settled in cash sank from 58% to 51%.

Contrast this with the UK where card transactions in 2023 represented 61 per cent of all payments in the UK, making up almost 86 per cent of the total value of retail transactions. Also worth noting: as the Visa-Mastercard duopoly has increased its market share in recent years, so too have the processing fees they charge merchants, roughly equating to an added £170 million cost per year for UK businesses.

[2] At the same time, Spain has one of the lowest limits on cash payments in the EU (1,000 euros).