The European Cash Management Companies’ Association (ESTA) responds to the European Payments Council

In May 2016, the European PaymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More Council (EPC) adopted its new “Single European Cash Area Framework” document.  The document acknowledges that “cashMoney in physical form such as banknotes and coins. More is the most popular payment instrumentDevice, tool, procedure or system used to make a transaction or settle a debt. More”, however it is the “most expensive”. It adds that the cost of cashAlthough banknotes are delivered to the citizens free of charge and their use does not involve a specific fee, costs are generated during their manufacturing, storage and circulation process, which are covered by different social agents (central banks, commercial banks, retailers etc). More is “imperfectly externalised to actual users, the usage of cash may thus be cross-subsidised by other bank revenues, contributing to burdening the pricing of other bank services”.

The key rationale behind the SECA framework approach is “efficiency” from the point of view of the banking industry. According to ESTA, other important aspects, such as security of payments instruments, the social role of cash (particularly with regard to financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More) or the fact that it ensures competition among payment instruments are not taken into account.

ESTA disputes the analysis of the EPC with regard to the cost of cash. The ECB paperSee Banknote paper. More “The Social and Private Cost of Retail Payment Instruments: A European Perspective[1]”, concludes that the societal cost of retail payments – not just cash – is 0.96% of GDP and that “on average the results show that cash has the lowest unit social cost”. Most probably, the issue is that banks bear 51% of the social cost of all retail payments (again, not just of cash): this is hardly surprising considering that for most bank customers, receiving and making payments is the primary purpose of their bank account.  For ESTA banks’ opposition to cash is essentially a means to generate additional fees by selling alternative payment services. Moreover, ESTA adds that consumers contribute to the costs of cash as they are part of the account management fees levied by banks.

ESTA emphasizes that banks are not obliged to offer cash services. The report says: “The major paradox of cash is that it is made available to consumers principally through banks, which have no interest in cash and even have an economic interest in the reduction of cash payments.”  For ESTA, banks are free to offer cash services or not. In Norway for instance, banks are required by law to enable their customers to deposit and withdraw cash in accordance with their needs and expectations. This does not necessarily have to be done through the branch network but the service must be provided in an appropriate manner. Should banks choose to disengage from cash, the services could be outsourced to cash management companiesCompanies specialized in the logistical handling of cash including several of the following operations: transportation, storage, counting and processing, packaging, replenishment and servicing of ATMs. See Cash-in-Transit. More, which would allow for economies of scale. The report cites the multi-bank branches which are successfully operated by Cash-in-Transit companies in Latin America.

ESTA agrees that the cost of cash can be further reduced.  However for ESTA, “most of the potential for the reduction of the cost of cash is in the hands of the banking sector. » The report suggests three areas that could contribute to lower costs. The first is standardisation of cash processes. The second is the collection of cash which is far less automated and streamlined than the distribution. The third is the harmonisation of packaging standards, particularly between the national central banksIn general, the expression refers to the central banks of different countries. More and the commercial players.