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Keyword: diversification. Beyond cash vs cashless

Categories : Uncategorized
November 15, 2017
To minimise risk, diversification is key - and this model should also be applied to the payments landscape.
Viktoria Dijakovic

We all know that there is a growing push for cashless economies, although the question remains who is truly behind that push. The purpose of this article is not point fingers as to who has most to gain from this trend, but whether such a world, as attractive and frictionless as it may appear, would actually improve the economy, and consequently humanity’s life on earth.

Cashless payments indeed diminish the “frictions” associated to cash payments: no need for a wallet, arguably no fear of robberies, no need to manage cash transportation and distribution logistics. But the question is: are our priorities being placed in the right basket? What is more important: gaining a few seconds while we shop – and consequently spending more – or rather zooming out and looking at the bigger picture linked the implications of fully cashless society?

The issue at stake is not cash vs cashless, but rather diversification. Any investment banker will tell you that a well-diversified portfolio lowers the risks of losing all your eggs in a crisis. Any CEO will tell you that a well-diversified pool of clients and products lowers the risks of bankruptcy should a contract fall through or a product become obsolete. So why insist on going all or none? Why are there so few papers on the benefits of diversification and payment options coexistence? Why not privilege consumer’s freedom of choice instead of stubbornly imposing a model or another?

Ohio State University Economist Jay L. Zagorsky recently published an article emphasizing the risks associated to an entirely cashless society in an age where the force and frequency of natural disasters are growing and where computers are playing an increasingly dominant role in most developed economies. “A cashless society means a country’s economy is vulnerable to anything that causes a long-term disruption in power, communications or security,” states Zagorsky, citing the example of hurricane-struck Puerto Rico. The small island nation’s electricity network was so badly damaged that the economy was forced to revert to cash – credit and debit cards becoming useless without power.

Zagorsky might cheer for the reinstatement of the $500 bill, the central argument of his article, and one can choose to agree or disagree with this thesis. What is important here is that access to cash should start to be analyzed from a diversification of resources perspective and not solely from the superficial influence it has on transaction time.

Aside from natural disasters, another risk is cybercrime, and it’s far from being tamed. Indeed, warfare has been slowly moving from the battlefield to the server network, and financial institutions and payment apps are far from immune to such attacks. In 2016, there was a 13% increase in phishing attacks compared to 2015 while Trojan attacks experienced a 30.5% increase, affecting over almost 2 million individuals worldwide. The same year (2016), central banks of Russia and Bangladesh experienced major cyberattacks resulting in losses of $31 million and $81 million respectively, to cite only a couple of examples.

So before we plan cash’s funeral, it might be time to look at it as an essential payments diversification tool and praise it for its attributes that have made it such a popular – and universal – payment method for centuries.