The cost of taking cash payments is set to rise by 50%
The cost of taking cash payments is set to rise by 50% over the next three years, according to leading payments experts.
The topic of cash has taken somewhat of a backseat in recent years, with new high-tech developments in digital payments grabbing the spotlight. Yet, as the unprecedented levels of attendance at a conference run by payments experts CMSpi prove, radical developments have put cash firmly back on the retail agenda. CMSpi’s CEO, Brendan Doyle, discusses some of the key messages from the day.
A complete reengineering of the cash landscape is underway, with forces at play that could have huge implications for retail payments operations. Cash transaction volumes are beginning to decline; 2014 saw cashless payments overtake transactions made with notes and coins for the first time. Importantly, this is a trend that is gathering increasing momentum.
This pattern in consumer behaviour is being encouraged by governments (who prefer to know where money is and how it is being spent) and multinational companies such as Visa and MasterCard which, of course, have a vested interest in boosting card transactions. Indeed, the launch of contactless payments has been specifically targeted at low value transactions, the last bastion of cash domination. And these efforts to attempt to replace cash are starting to pay off. Contactless transactions are gathering real momentum, with monthly contactless spending rocketing from around £5 million in January 2013 to £70 million in April 2015.
Concurrently to declining volumes of cash transactions, the cost of cash is also set to increase due to a number of factors.
Firstly, interest rates are set to rise, with the Bank of England indicating that levels can be expected to increase to 2.5%-3% over the medium term. With retailers’ cash taking an average of 4.5 days to get from the till to their bank, the cost of holding cash could therefore go up by five or six fold.
Secondly, taking cash payments remains a relatively manual task for retailers and with the living wage due to be introduced in April 2016, there will be a significant increase in the cost of taking and preparing cash for banking.
Finally, cash processing and cash in transit costs may also see an increase because of a lack of supplier competition and industry resource issues. As a result, CMSpi estimates that the cost of cash to retailers will increase by 50%, from approximately 0.20% to 0.30% of transaction value over the next three to five years.
As a result, we expect to see volumes fall at the same time as costs rise, meaning that retailers will face a spiralling increase in the cost of processing each note taken. Add to this the fact that card transaction costs are reducing due to the introduction of the European interchange fee regulation (IFR), and cash transactions are likely to begin to look increasingly unattractive to retailers, relative to alternatives, unless action is taken to improve efficiency.
With fundamental change on the way, it is paramount that retailers examine their cash costs to assess whether their payments operations are being optimised. Indeed, retailers will need to think extremely carefully about their cash strategies. There are a number of initiatives available now to improve the process of banking cash takings in terms of speed and costs, with the future likely to entail increased levels of automation and/or outsourcing.
Without doubt, retailers are facing permanent long term changes in the payments landscape, and the process of taking payments in-store will look radically different in years to come.
