Consumers, payments and unknown knowns

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 [Jane Adams]As a marketing person I am supposed to be interested in what customers want but working in B2B that tends not to involve listening to consumers. In fact it isn’t unheard of for consultants in the payments space to say that we shouldn’t listen to consumers because what do they know? As Henry Ford once said, if he’d listened to customers, he would have built a better horse drawn carriage. It’s hard in fact for non-industry ‘civilians’ to know what they want from a technology they barely understand. Furthermore, payments is boring – consumers don’t want to think about it.

You can imagine how all this goes down with consumer marketers

So it’s not altogether surprising that when Dave Birch, Consult Hyperion’s Global Amabassador,  recently spoke at a consumer intelligence forum about innovation organised by Stylus, his presentation on ‘why we shouldn’t listen to consumers’ was retitled ‘why we should listen to consumers’ by the organisers who clearly felt they’d picked up an unfortunate typo.

“What are you doing going to that?” was the general reaction in the office when we admitted that not only Dave was speaking but I’d be attending too. Indeed, surrounded by media hipsters with either interesting facial hair or interesting shoes, depending on gender, and followed by speakers on luxury retail interiors and happening female vocalists on MTV we did feel a bit out of place.

Nonetheless, it was actually rather interesting and it turns out that although they may not know that they know, consumers do in fact know what they want from payments, even when they think they are thinking about Italian furniture and yoga pants.

Here are the innovation trends highlighted at the Forum and how they map onto payments.

  • Teens are becoming more and more important. In fact the irritating little twerps are so busy founding million dollar start ups that they barely have time to wash. Marketing needs to reflect their growing significance. True – one of the biggest opportunities in cash replacement is in payment methods for teens and children.
  • Everyone (except teenagers presumably) is now into the new spirituality and simplicity, meaning stuff like yoga rooms at airports. True – for new payments methods to succeed they need to be simple. No filling in 2 page forms and going through KYC to get a prepaid card.
  • Family structures are increasingly diverse. True and that means there’s a need for a range of payments methods to suit everyone, from Granny who doesn’t like PINs to those teens again who may well enjoy having an O2 Money companion card.
  • Eat and tweet – foodies can’t help using their mobiles to tweet pictures of their gastronomic adventures. True – then they can use the self same mobiles to pay for the food – the MyCheck app for example.
  • Outrospective thinking is bringing about positive change. True – text donations are a vital method of fundraising, according to Comic Relief. Now, if only there were a way of doing Gift Aid by text.
  • Furniture is becoming more quiet, simple and pared back. OK, this one was difficult but a tweet about how we know nothing about furniture but we do know how you’ll be paying for it led us to get a furniture designer as a Twitter follower. Moving swiftly on…
  • 3D printing, hacking and open source design is changing the way goods (including furniture) is getting to consumers. Absolutely and P2P payments like PingIt are a great way of paying for them.
  • And finally ‘brand of me’ – the modern consumer is ‘always on’ and puts digital first. It stands to reason then that they will want to put digital first in payments terms too – mobile payments rather than cash.

So you see. The consumer does know what they want from payments – exactly what they want from everything else. Doesn’t that seem logical?

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

What’s your e-mail address? Don’t tell him pike@homeguard.org.uk!

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[Dave Birch] On this sceptred isle we’re not too bothered about North Korean cyberattacks because we are going to fight them on the breaches, in the upmystreet.co.uk and in the e-fields. We shall never surrender. Who do you think you are kidding Mr. Kim Jong Un?

A Home Guard inspired Dad’s Army of computer security experts will be set up to protect Britain’s businesses and help the armed forces at times of national emergency, it has emerged today.

[From 'Dad's Army' of cyber security experts to be formed to tackle growing threat of website hackers in Britain | Mail Online]

This does, at least, open up the possibility of some continued employment for me as I fight to stave off the cat food years in amongst the embers of post-employment Europe. But hold on. Just how bad is the cybersecurity situation? We are all used to reading statistics about the size of the problem (I seem to recall that Detica estimated it to be £27 billion in the UK) but let’s go and find out what the top people think about it. I imagine the head of the US National Security Agency would know.

Gen. Keith Alexander is the director of the National Security Agency and oversees U.S. Cyber Comman… he cited statistics from, among other sources, Symantec Corp. and McAfee Inc., which both sell software to protect computers from hackers. Crediting Symantec, he said the theft of intellectual property costs American companies $250 billion a year. He also mentioned a McAfee estimate that the global cost of cybercrime is $1 trillion.

[From Does Cybercrime Really Cost $1 Trillion? | Threat Level | Wired.com]

Wow. A trillion. What kind of crimes are racking up these numbers? Tidal waves of cybercriminals looting bank vaults? Could be. But it would take teams of cybercriminals working round the clock on their trivial $45m ATM raids to get anywhere near this figure. Redirecting flows of cash from their rightful owners to Mafia oligarchs safe behind their computer screens? That would be hard to distinguish from regular investment banking. On the whole, it turns out that putting a number on cybercrime seems to involve a bit of interpretation. To see what I mean, consider the example of a cybercrime that I heard discussed at a forum on the issue recently.

Blooomberg reveals that the hackers spent one month “pilfering sensitive files” about Coca-Cola’s attempt to acquire China Huiyuan Juice Group for $2.4 billion. If successful, the transaction would have been the largest foreign takeover of a Chinese company ever. The breach started with malware-infected e-mails to Coca-Cola’s senior executives which, when opened, enabled the hackers to infiltrate the network and steal proprietary information. Once revealed, the Huiyuan deal collapsed three days later.

[From Coke Cyber-Attack Raises Corporate Disclosure Issues]

That sounds terrible. A successful cyber-attack on a multinational and a billion dollar deal collapses. I thought this might make a useful case study in a workshop with a client, so I decided to investigate a little further. And I found that the “cyber-attack” was not as clear-cut as it seemed.

But some investors were relieved that the offer didn’t go through. Coke had said the acquisition would dilute earnings by three cents to four cents a share for the first full year after completion of the deal.

[From Beijing Thwarts Coke's Takeover Bid - WSJ.com]

There may have been no cyberattack at all! It may have been the company’s own shareholders working through incumbent management. Now, I am not for one moment saying that there are no real cyberattacks. Clearly there are and some of them a considerably more serious than a few percent different in a share price.

The Moscow-based firm said it found Gauss had infected personal computers in Lebanon, Israel and the Palestinian Territories. It declined to speculate on who was behind the virus but said it was related to Stuxnet and two other cyber espionage tools, Flame and Duqu… According to Kaspersky Lab, Gauss can steal Internet browser passwords and other data, send information about system configurations, steal credentials for accessing banking systems in the Middle East, and hijack login information for social networking sites, email and instant messaging accounts.

[From Virus found in Mideast can spy on finance transactions | Reuters]

Cyberattacks are real. Cyberwarfare is real. Yes, companies should be designing and implementing more robust infrastructure and using sensible risk analysis methodologies to determine levels of exposure and appropriate countermeasures (as you would expect me to say, since this is precisely what Consult Hyperion does for payment organisations and others). But wee have to be a little cautious in responding to the trillion dollar cybercrimewave, even if it actually does exist. We don’t want to fall into knee-jerk responses that might end up making the problem worse.

A number of countries, including Russia and China, have put forward proposals to regulate aspects of the Internet like “crime” and “security” that are currently unregulated at the global level due to lack of international consensus over what those terms actually mean or over how to balance enforcement with the protection of citizens’ rights.

[From The United Nations and the Internet: It's Complicated - By Rebecca MacKinnon | Foreign Policy]

All of which suggests to me that the problem might require something more infrastructural than a bunch of old duffers like me fiddling about with laptops in the snug. We need business to work with government to do something about it and I think that a high-level commitment to a sensible identity infrastructure might be a place to start. The longer we persist in messing around with passwords and similar pseudo-security, the more the mysterious foreign viruses will attack. One of this year’s Economist “top ten” global trends for business leaders to factor into their strategies this year is cybersecurity.

Cyberspace is the new frontline for security. Knowledge and information is a source of competitive advantage for organizations, nations and individuals. But it’s a growing challenge to retain control as mobility and the democratization of everything (commerce, politics and societies) increases – along with cybercrime and cyber war. Look for a rising tide of litigation, policies and regulation. Digital freedom or a “big brother” society?

[From Global trends for 2013: A top ten for business leaders | The Economist]

I don’t think it’s an entirely accurate dichotomy but you can see the idea they are getting at. One the one hand there are people who think that people should be able to communicate freely over the open public internet and the other hand there are those who want to control, spy on and censor inter-personal communications: the Icelandic government, Sony UK,� Hillary Clinton and me for example (although I want to do it in a better way). Time for some better informed public discussion, I think, and a rational debate about what to do about cybersecurity.

These are personal opinions and should not be misunderstood as representing the opinions of�
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Adam Smith, Paul Krugman and Bitcoin

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[Dave Birch] The Nobel prize-winning economist Paul Krugman mentioned Bitcoin in his blog over at the New York Times, prompting the all-too-familiar religious-style flame wars in the comments that followed. The reason for this is that he said (about Bitcoin) that

One thing I haven’t seen emphasized, however, is the extent to which the whole concept of having to “mine” Bitcoins by expending real resources amounts to a drastic retrogression

[From Adam Smith Hates Bitcoin - NYTimes.com]

As several commenters pointed out, the work that goes into the mining is really the work that needs to be done to maintain the transaction ledgers, the “blockchain”, and this will continue even after all of the bitcoins have been mined and this work will have to be paid for in transaction fees if it is no longer rewarded in bitcoins. But that’s by the by. In the piece, Krugman quotes Adam Smith, who very famously said (in “An Inquiry into the Nature and Causes of the Weatlh of Nations“) that

The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country produces itself not a single pile either.

I’m partial to the money as highway metaphor. This has stability as an essential component: you know where roads are and where they go. You can rely on them and you can build facilities around them. I have in front of me an article from Discover magazine from 1998 (“The Fiscal Frontier” in the October issue) in which Mr. Krugman, while Professor of Economics at MIT, said with remarkable prescience that

One can imagine that a system of purely virtual money might be subject to severe instabilty.

He goes to make two well-informed and sound comments about the future of electronic money that I think are wrong (as if he cares, I can hear you thinking…). He says that

  1. There will be a distinction between electronic cash and electronic money because of the need for small transactions where neither the buyer nor seller want the buyer’s creditworthiness to be an issue. I used to think that this was true, but I don’t any more. For the reasons discussed before, specifically the falling costs of computers and communications, the connection between the transactional environment and the social graph, transactions will be between identities and their credentials and reputation obviate the need to avoid trust by assaying the medium of exchange.
  2. What everyone wants is an anonymous, reliable means of exchange; given a chance, they will always prefer one backed by a government. It’s not at all clear to me that “everyone” wants an anonymous means of exchange, and nor is it clear that — even if they would prefer a store of value backed by a government — they care whether the means of exchange is backed by the government or not.

By the way, he also made a prediction that I strongly agree with. He said that

There will not be a universal currency for a long time. There is a big advantage to separate currencies providing price stability in different parts of the world.

How true. This is just the kind of point made in the discussions around the Long Finance report on finance in 2050, where the notion of community is extended to both mundane and virtual groups, each of which might prefer its own currency, thus providing stability within the community. There won’t be a single world currency (whether the Dollar or the Remibi) and there won’t be a single virtual currency (whether Bitcoin or MintChip). There will be lots of currencies and we will all be better off because of it.

These are personal opinions and should not be misunderstood as representing the opinions of�
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Regulation of mobile money in emerging markets

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[Paul Makin] There have been many articles written in recent months about the regulation of mobile money in emerging markets, and to those of us who work in this field every day of our lives much of the talk sounds remarkably misinformed. For example, the suggestion is that mobile money has not taken off in some markets because of the failure of the key players to “define, articulate and communicate the benefits of using the service to prospective customers”.

On this analysis, it seems that we in the industry have simply failed to develop services that meet customers’ needs. I beg to differ. There are shortcomings, yes, but I strongly argue that the effect we’re seeing is the result, in most cases, of misguided regulation.

There is one country that illustrates this well. For the most well-intentioned of reasons, Nigeria has ended up with mobile money regulation that is spectacularly far from what the market needs. Consider the following points.

First, the question of sustainability.  More than almost any other business, mobile money depends on scale – so licensing 19 operators in Nigeria (9 yet to launch), all of whom have to start from scratch, almost guarantees that all will struggle for a long time to build a self-sustaining business. Surely what we all want is a healthy mobile money sector, and if that means limiting licences to three or four, at least in the early years, would that not be a price worth paying?

Second, no mobile operators have been licensed, though they may operate a platform as suppliers to a licensee. This is reportedly because the Nigerian Regulator has seen the success of M-PESA in Kenya, and does not like what he sees. I have heard similar comments from regulators a number of times in the past, and I really struggle to see precisely what harm M-PESA has done to Kenya.

Third, the hot topic of interoperability. Almost all regulators love this one (and the Nigerian Regulator is no exception), as it sounds so good; make sure that everyone can send money to everyone, regardless of operator, and try to enforce efficiency by making all the operators share agents. But this is simply nonsense. The “send to everyone” requirement is most efficiently met by allowing all schemes to implement a “send to unregistered customer” capability (which, by the way, is not a money laundering risk if it is implemented properly, as a message to the recipient to tell them there is money waiting for them, and all they need to do in order to withdraw it is to register – the promise of money is always a good incentive). Further, it is common for people in sub-Saharan Africa to carry multiple SIMs, so the idea of being registered for multiple mobile money schemes will hardly be a shock to them.

The other aspect of interoperability that regulators seek to enforce is agent sharing. Let’s pick that apart for a moment. I, as a mobile money operator, must invest money in equipping an agent, in ensuring that their premises are suitable, that they have sufficient cash on hand, and (most importantly) in training them and their staff, together with regular refreshers as they turnover staff. Once I’ve spent all that money, all of my competitors can then come along and use that agent without making any investment, because interoperability requires it. Please tell me then, why is anyone surprised that there has been insufficient investment in agent networks?

There is one aspect of interoperability that neither the regulators nor the mobile money industry have so far addressed in any meaningful manner, and that is in ensuring mobile money acceptance in shops and at small merchants. As a mobile money customer, the utility of any scheme is vastly increased as the number of places I can spend my money increases – would anyone in Western Europe be impressed with a scheme that could be loaded at a local shop, but all you could then do with the money is to send it to a relative, or pay a bill?

Shop/merchant acceptance is the next frontier of mobile money. I just hope the regulators don’t enforce solutions based on the old technology of switches and acquiring networks – but that’s a subject for another post.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Trash-talking cash

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[Dave Birch] Yesterday, I made the statistically well-founded claim that most cash appears to be used for crime and I mentioned Carol Benson, from our good friends at Glenbrook Consulting, who was one of the authors of their excellent Payment Systems in the US. That reminded me that Carol had made this straightforward observation after reading Forum friend David Wolman’s “The End of Money“:

But the truth is we really don’t know why non-criminals use cash.

[From Don’t Trash-Talk Cash — Payments Views from Glenbrook Partners]

She goes on to make an excellent, and perfectly sensible, suggestion for some focused, multi-disciplinary work, on the topic.

What research there is tends to focus on patterns of use (diary studies, etc.), rather than on the “why” of use. I was frustrated a couple of years ago, when I tried to raise funds for a study on the psychology of cash usage: I got no interest from our payments industry clients and colleagues… But cash is still a preferred method of payment for a great number of people. And whether you like cash or not, it’s not going away any time soon… It seems to me that we need to know more than we do about the psychology of why people like using cash.

[From Don’t Trash-Talk Cash — Payments Views from Glenbrook Partners]

I actually have a tiny amount of experience of this. A few years ago, for a reason not germane to the tale, I had to go to a large supermarket in the North of England and spend some time standing at the checkout line asking people about their payment choices. This was shortly before the particular supermarket chain was to stop accepting cheques. We turned up at the store early in the morning before it opened for business and had a chat with the manager about the payments methods and their impact on his operations. Then, when the store opened for business, I went to one of the lanes and asked people who did not pay using cards (which, by the way, was most of them) why they had chosen either cheques or cash. The answers broadly speaking were that people who pay by cheque did so because they liked having the written record of spending in the form of notes written in their cheque book. They weren’t really cheque users, they were cheque stub users. I remember thinking at the time that this might be a key element of functionality to incorporate into the mobile payment systems for the future because the delivery of electronic receipts directly into a mobile wallet might be a key factor in persuading members of the public to use the mobile payment mechanism.

For the people using cash, as I recall, it was mainly a question of budgeting and the “jam jarring” of household expenditure. I know from our work on the delivery of financial services to socially excluded groups with the Payments Council and the Technology Strategy Board that managing multiple pots of money is a general problem for a great many people and that making this an element of the wallet proposition is a win-win because it provides genuine added value to the users.

The London Rebuilding Society (LRS) and Consult Hyperion have been awarded funding by the Technology Strategy Board (TSB) to explore the use of the television as a channel for payments for socially-excluded groups, using both bank accounts and pre-paid “jam jar” accounts to explore the relationship between financial and social inclusion.

[From Press the red button for financial inclusion]

This work has gone on to look at the use of mobiles in the provision of services and the use of smartphones to provide context-aware financial support (e.g., helping people to budget properly), so I’m really looking forward to the Wallet Wars conference in New York next week where I thought I might test out my hypotheses around budgeting and receipting to see if the context and drivers are similar in the US market. Replacing cash is not about price/performance (ie, telling people it’s cheaper and quicker) but about better functionality. And now, a commercial break…

Wallets are hot right now. That’s why over 150 decision makers from the biggest banks, financial institutions, retailers and network operators are signed up for Wallet Wars on 8-9 March 2013 in New York. Here’s why you should join them.

Consult Hyperion global ambassador Dave Birch will be chairing the first day of Wallet Wars, covering topics such as customer acquisition, security, integration with loyalty and ticketing and whether new entrants will beat incumbents. Companies and organisations presenting include RBS, Mercantile Bank and Movenbank.�

On day two, Dave will be sharing his opinions on the future of identity and money. By quoting ‘Dave Birch’ when you book your place you can get $100 off registration. See who else is going at� http://www.mformobile.com/mobile-wallet-wars-usa/attendees.php and then book to join them at� https://secure.mformobile.com/mobile-wallet-wars-usa/register.php.

But back to Carrol’s point. I will be very interested in seeing the results of a study on the use of cash in retail environments because I do think we need to understand more about the dynamics around its usage. However, I don’t think this kind of study will give us the whole picture. When discussing “peak cash” earlier in the week I made that claim that the only reasonable explanation for the growth in the narrow money supply in developed countries is crime. I think this is demonstrably true. But I want to press the issue a little harder. Cash is not a neutral facilitator of crime, its effects are more pernicious because cash doesn’t just facilitate crime and corruption, it stimulates them.

I found academic papers noting incidents in which cops would find a stash house, but wouldn’t bust the place until all or most of the drugs had been sold. There’s no return on a house full of dope. There’s plenty of return on a house full of cash.

[From Highway Robbery | The Agitator]

The mere existence of untraceable, anonymous cash puts temptation in the way of people who might otherwise stay on the straight and narrow path.

Warwickshire police has confirmed that £113,000 went missing after being held in a “secure storage area” at its former headquarters.

[From Inquiry launched after £113,000 stolen from police station - Telegraph]

I’ve said before that I don’t believe for one moment that getting rid of cash would stop crime. It wouldn’t. But reducing the amount of cash in circulation and removing the higher-value notes from circulation would at least increase the cost of crime. That would be a start.�

These are personal opinions and should not be misunderstood as representing the opinions of�
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Peak cash

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[Dave Birch] In a talk at SXSW 2013, Facebook’s Head of Identity Products, the super-clever (and super-nice) Sam Lessin, referred in passing to the concept of “peak cash” and wondered out loud if we had gone past that point yet. Well, I think I have the answer. It’s yes, and of course, no. (We are consultants, after all!). Or, to explain it another way, no and yes. No, we have not reached peak cash as the amount of cash “in circulation” is still going up. But yes, the peak use of cash to support commerce has passed.

Here’s what I mean. Reading an interesting story — “Boosting the Money Plane” — about a big robbery in Bloomberg Business Week (25th February 2013) I noted the statistic that cash-in-transit (CIT) is a $14 billion business in the USA. The Federal Reserve physically moves around $640 billion per annum! Given this enormous amount of pointless atom shifting, it is truly surprising to note that there are so few CIT robberies (less than one each week on average) although I suppose that is a reflection of the amount of money is spent on guards and guns and “smart water” and whatever else. But why is all this money being spent and all the cash being shifted around? To support the trade and commerce at the heart of the economy? Now that we have invented laser beams and transistors, shouldn’t we be using less of the stuff?

We don’t seem to be. To resolve the paradox you have to look at the data. As the President of the Federal Reserve Bank of San Francisco, John Williams, wrote in their annual report for 2012, the evidence is that, even though the amount of cash has continued to climb, the share of transactions using cash has fallen steadily in recent years. As the (smoothed) graph below shows, the value of low denomination bills (presumed to be a reasonable proxy measure for commerce) lags economic growth whereas the value of high denomination bills is way ahead of economic growth (the figures for Europe are similar).

Cash

The figures are unequivocal. Most US cash is in the form of $100 bills and it is presumed that most of it isn’t in the US. The rest of the world has taken US currency and stuffed it under the beds of drug dealers, in the suitcases of money launderers and the freezers of corrupt politicians (no, wait, that was in the US). This is a gigantic interest free loan from the world’s criminals to the US Treasury.

Most U.S. paper currency by volume (number of notes) is used in the United States, with the $1, $5, $10, and $20 notes making up the lion’s share of all transactions. But because the dollar is widely trusted abroad, most U.S. currency (by value) is held in foreign countries, primarily in $50 and $100 denominations. The Federal Reserve Board of Governors reports that the volume of cash in circulation has more than doubled (from 13.5 billion to 31.3 billion) in the past 20 years, and the value of that cash has more than tripled (from $268.2 billion to $1.03 trillion).

[From Meeting the Demand for Cash :: Nelson Oliver, Research Analyst, Dan Littman, Economist :: Spring 2012 :: 04.13.2012 :: Federal Reserve Bank of Cleveland]

There’s a trillion dollars in cash out there, yet cash accounts for only 0.2% of all transactions in the US by value. It is inconsequential in the support of the commerce. Once again we return to the apparent paradox of the growth of e-payments and the simultaneous growth of cash that is entirely inappropriately labelled “in circulation”.

The rapid growth of substitutes for cash, particularly debit and credit cards, has led economists to predict the advent of the “cashless society”. Yet cash holdings in most developed economies continue to grow and in the U.S., per capita currency holdings now amount to $3000.

[From The myth of the “cashless society”: How much of America’s currency is overseas? - Munich Personal RePEc Archive]

I strongly doubt that the average citizen of the US has anything like $3,000 in cash under their bed at any one time (although to be honest the median might be climbing following events in Cyprus). Spot the mistake in the following paragraph from the same report…

Even a cursory examination of the growth and magnitude of the U.S. currency supply in circulation with the public reveals that predictions of the advent of the “cashless society” are unfounded.

Yes, of course, I’m sure you spotted the same error. Once again, the idea that the currency is “in circulation” is utterly mistaken. As indeed is recognised later on in the text as the paper goes on to discuss various estimates for the amount of US currency overseas (In passing, it notes the extent to which US dollars circulate in Canada, something I had no idea about) and comes up with two broad hypotheses in an attempt to explain the figures. These are summarised thus.

The first posits that a large fraction of U.S. currency is held abroad, the second that large amounts of cash are employed to undertake transactions that individuals and firms prefer to hide from the government either to avoid taxes, regulations or punishment for illegal activities.

Like many other industry observers, I had assumed that the former explanation accorded more closely with reality since the quoted figures for US currency in circulation have consistently estimated that most of the “unexplained” cash is outside the US and unlikely to be repatriated (see above). My standard text on US payment systems, Scott Lofteness and Carol Benson’s excellent Payment Systems in the US says that economists put the figure at 60%. However, the new estimates put forward in Edgar’s paper would seem to indicate the latter: that is, the domestic underground economy is soaking up cash in the US just as it is in Europe. If correct, that makes for an interesting rethink on the government’s (lack of) strategy toward cash. If the cash is overseas, causing mayhem somewhere else, then foreigners are lending Uncle Sam money. If the cash is at home then it is a stealth tax on the honest and a subsidy to the dishonest.

According to a forthcoming study by the Institute for Business in the Global Context (IBGC) at The Fletcher School at Tufts University, cash is a major vector for tax evasion in the U.S., likely costing the government more than $75 billion in missing tax revenue. The Fletcher School’s research also indicated that U.S. households invest $31 billion worth of time annually accessing cash, while businesses lose $40 billion worth of cash to theft, counterfeit and accident.

[From Public-Private Dialogue on Cost of Cash Progresses in D.C. | MasterCard Social Media Newsroom]

What do these figures tell us? They tell us that all around the world, the principal function of cash in developed economies is no longer to support commerce, but to support crime.

The U.S. Bureau of Engraving and Printing produced 8.4 billion notes last year, including a record three billion hundred-dollar bills. Yet even while cash in circulation is growing, it is becoming increasingly marginalized for retail transactions.

[From The End of Cash? - Barrons.com]

Record numbers of $100 bills that you can’t even spend in most shops! If you have another explanation for the volume and distribution of cash, other than crime I mean, I’d be genuinely interested in hearing and sharing it.

These are personal opinions and should not be misunderstood as representing the opinions of�
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.