The Cashless Future Is Failing? | Ep. 004

We explore:

Why New York is legally protecting cash payments
The reality of unbanked and underbanked populations
Whether digital payments can truly replace cash
The risks of relying on digital infrastructure
How war, outages and crises expose payment vulnerabilities
Why central banks are still investing in physical money


This isn’t just about payments, it’s about access, resilience and the future of money itself.

Host: Louis Thompsett
Guests: Rachael Kennedy & Kieran O’Connor
Producer: Anaya McDonald
Editor: Anaya McDonald

Learn more about the latest payments insights: https://paymentexpert.com

Creators and Guests

Host

Louis Thompsett

Editor, Payment Expert

Guest

Kieran O'Connor

Business Journalist, Payment Expert

What is The Payment Expert Podcast?

Welcome to The Payment Expert weekly podcast, brought to you by SBC Media. Each week we analyse the news driving the global payments industry forward; the innovation, the infrastructure, and everything that has to happen to make it all possible.

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but I'm not convinced they'll fully replace cash because they're trying to a problem that cash already solves. Why do we need it? Hello and welcome back to the Payment Expert podcast, your source for the latest news, insights and analysis on the payments industry. I'm Lewis Tompkinset, news editor at Payment Expert and with me today is editor at Payment Expert, Rachel Kennedy. Good to have you back and business journalist, Kieran O'Connor. Good to have you back as well. Now we've long been told that cash is dying, perhaps for the last decade or so. that digital payments would render notes and coins a relic. But just last month, New York City has pushed back on that narrative by mandating retailers across the city to legally require cash acceptance, no refusals, no surcharges. So Kiran, I'll start with you on this because I know it's something you've been particularly interested in. What does it say about the state of cashless movement when One of the most digitally connected cities in the world, arguably in New York, is passing laws to protect physical currency at a time and an era of the last 10 or so years when we've all been told cash is on its way out. Yeah, I think it says a few things. One of them things is that there's still a large amount of people who are unbanked and underbanked. It also suggests that cash is still critical and you can't get away from that. And I think also it's probably a bit of a reality check for the payments industry to sort of say that we're not maybe where we think we are. I know myself and you guys probably also know when you go to these events, all of the shows are about stable coins, AI, pay by bank, what's the next innovation in tech, when maybe we haven't actually found the perfect replacement for cash yet em and we still aren't there. Or maybe we're just not doing a good enough job at sort of encouraging widespread adoption of these sort of digital instruments that are already at play. What do you think, Rachel? Is it about having another use rather than cash? Or is it a case of perhaps digital payment methods aren't up to the things that cash can perhaps do? Does cash offer a sort of security that digital payments can't quite? get to yet or must yet given the infrastructure that they rely on? Yeah, it's an interesting one. I mean, if I look back at my career, the death of cash has been a topic of conversation for the past sort of decade. And first it was debit cards going to replace it, and it was contact risk is going to replace it. And then it was all these sort of pay by banks, A2A payments, that cash is going to die at some point. And it's kind of like the payment method that refuses to go away. And I think if we look back at how the debate has changed, that probably helps us frame the discussion a little bit more. the sort of push towards cashless has always come from the industry side, right? But most initiatives to keep cash alive are government policy because it's looking at payments through a different lens in that it's all around access and resilience versus innovation and speed. And I think and hit the nail on the head in that if you remove cash entirely, you're effectively making sort of participation in the economy dependent on digital infrastructure, which is why so much of the sessions at these events that we go to focus on the digital methods of payment that we're seeing. But in order to ensure everyone's included in that system, you have to have a bank account. You need to have a smart device that has connectivity. You need to have the ability to use those systems. So even when you have all of them, having the literacy to be able to log onto your bank and conduct a transfer. Not everyone is going to be able to do that. I don't necessarily think that New York's move is anti-digital because I think that would be framing the discussion in the wrong light. I think it's more around recognizing that payments are more of a form of public infrastructure and you can't exclude people simply because they can't or don't want to operate digitally. Yeah, I mean, I suppose it is a double edged sword in a way, because cashless mandates, in essence, were originally framed around inclusion, offering uh certain services via mobile in uh emerging markets, and things like that. But then New York's law is kind of framed in the same way to have inclusion for cash. So the industry in a way has ended up being on both sides of the same argument where it in certain cases in certain markets in certain regions you need digital means to sort of support an unbanked population. And then in other cases, cash is providing the extra inclusion as in the case of New York. you think inclusion as a term has changed though? So like 10 years ago, when we talking about cash as a means of payment and inclusivity, it meant X. Nowadays, when we're talking about payment inclusion, it's again, going back to that bank account smartphone. connectivity, confidence to use them. That was never the part of the discussion before and now it is. I think it's both because when you have inclusion when it comes to digital means, I think you've got to pay attention to the proliferation of mobile devices and particularly smartphones in emerging markets. They never used to be so widespread. But if you look at the market now, those devices, smartphones, are quite... quite proliferated in those spaces. So when you have that, just offers another means in which to bank. If you look at emerging markets, I think, for example, this is off the top of my head, but I think South Africa and Vodacom um seem to have a partnership for providing those kinds of financial services to those people who otherwise wouldn't have access to it if they are unbanked and they cannot access traditional banking systems or they live in remote regions where there are no physical branches that they can access. So I think the spread of those things means inclusion now goes both ways in that sense. I don't know what you think Kieran, if you think the same. Yeah, I was also just going to ask, is it also about choice as well? I mean, it was just a bank holiday weekend and I went out and one of the places that went to was a credit card only place. And one of the people we were with didn't have a card on them and only had cash. And it is just sort of this thing everyone talks about how it's more about these, there's all these different payment methods coming out. You've got uh Amazon launching, Payback Bank, and it's all about giving the consumer more options. uh When we've sort of, for whatever reason, uh tried to ditch cash uh at some of these places and push people towards these card payments or other payments. Yeah, it's interesting. I mean, suppose it is having that choice. Even if you look at the modern age with different types of payment rails, everyone's looking to sort of have a collection of different rails in their stack that, you know, if you're a merchant, you want different uses for different means. If you look at even for the kind of regional or country specific modern rails like PICS in Brazil, that is being used by merchants in other countries as well. it's kind of having the use cases available and obviously cash for some. certain demographics is still a big thing. mean, even in the UK, I think the Bank of England have committed to a new wildlife themed banknote series. So it's not as though cash is falling off the agenda for the Bank of England. I suppose that level of institutional investment tells us that perhaps central bodies like the Bank of England still believe cash has a foothold going forward. mean, central banks obviously planned for decades ahead so they don't see cash going anywhere anytime soon. It probably tells us that whilst we're being told that cash usage is going down, it is probably stabilizing. While it has gone down a lot, it will always be around, em well, at least in the next few decades. ah Maybe we won't see that decline as prominent. And it also tells us that they still see cash as sort of a public good, as Rachel was sort of saying before. It's not just a payment method. It's sort of become infrastructure and public infrastructure, which is always needed. Yeah. A lot of central banks have a sort of, it's unstated financial inclusion mandate. So I would be baffled if a central bank came out and said, right, that's it, we're done with bank notes. And as you said, it was sort of a... The Bank of England has committed to this multi-year banknote program that's not a short-term decision. But then at the same time, you've got them exploring stablecoins and the digital pound. And you're seeing sort of like this dual track approach to, as Kieran says, offering businesses and members of the general public this choice for payments. I think central banks, again, as we know, they're quite risk averse. They're not in the business of betting on everything on one model. And their job is sort of to ensure that stability and trust and cash still plays a really central role in that, particularly around sort of resilience and universal access. Sure. I mean, to play devil's advocate on, I suppose, the pros for cash, for physical cash. If you look at things like the digital euro that the ECB have been pushing for, I mean, if you look at the functionality of that, it's designed to be used offline as well as when connected to the internet. I mean, the assumption being that a lot of people, particularly in Western markets and in Europe have access to smartphones, for example, in which case, you you can go on there and access this digital euros that way. that suggest I mean, could you therefore argue that maybe physical cash is in the paper money we've we all know cash to mean does that is that on the way out if you know, more people have smartphones than ever? I don't necessarily think it's that straightforward because the reason why cash works is because it's simple, right? People know how to use it. It's tangible, helps you budget, 50 pounds in your hand is 50 pounds in your hand, 50 pounds in your wallet. Have I already spent it? Is there delay in the transaction? You've also got to teach people how to use it. Whether the current generation coming through wants to get on board with it, whether they're happy with current methods of payment, the older generations again. Do they want to change how they make payments? Cash doesn't rely on devices, infrastructure, authentication layers. I think the more features that you add to a digital system and try and replicate it, there is the argument that it becomes more complex. So I don't necessarily think that the digital euro is a bad thing by any means. I think it's actually quite an interesting experiment that the ECB are running and probably will. evolve, I'm not necessarily sure it will launch in its current form that they've sort of road mapped. There's definitely going to be hybrid models that emerge, but I'm not convinced they'll fully replace cash because they're trying to solve a problem that cash already solves. Why do we need it? Yeah, I think you've hit the nail on the head there, Rachel. They're trying to sort of replicate the benefits of cash and the reasons why it's so overly used to sort of push these more digital payment examples. Obviously it solves the issues we talked about before in that it solves the issues when it comes to outages and stuff like that. But one thing I don't think it really solves is sort of the privacy aspect, if I'm correct. A lot of people use cash for a lot of reasons, but one of them is sort of the privacy. It can't necessarily be traced the same, a digital payment can be traced. No, I know that could be used for legal and illegal reasons, probably benefits and challenges to that as well. But even though they're trying to solve the issue where cash has its resilience, they still can't really cover that privacy aspect. Sure. And I suppose, well, if we look at things happening in today's world on a geopolitical level, if you look at the infrastructure needed to support Whether it be a digital euro or any other kind of payments infrastructure that relies on, you know, rails, cross border rails, local regional rails. It's obviously dependent on things like, you know, the data centers behind it, the technology behind it. But when you have physical literal war and, uh you know, like attacks to data centers, like for example, we've seen in around, it kind of shifts the perspective on where that kind of cash comes from because you perhaps can't rely on those physical infrastructures to support payments. mean, if you look at Sweden, they were sort of a blueprint for a cashless future, or they long have been. And I believe they're sort of telling people to go and essentially have more, take more physical cash out, uh you know, in response to this kind of shifting landscape whereby if... you funds become unavailable through payment rails, or you can't access your bank, cash may be the only use case available. Yeah, Sweden's an interesting one, because they have, as you say, long sort of pioneered digital payment infrastructure. They were one of the first people that said that actually we're going to reduce how much cash we allow on circulation, we're going to reduce our investment into cash. And then yes, again, I think it was a couple of weeks ago when the conflict in the Middle East. kicked off and it sort of exposed that potentially the digital infrastructure that underlines that payments system could be at risk if there was an outage. They had to go home and look at their policies and say, okay, actually, we're going to advise you to keep a slightly larger amount of physical cash at home and to do so in the context of sort of crisis preparedness, which is not something that they've done, I think, since potentially COVID, which again was due to people not being able to go out, et cetera. And I think it just reflects that there's this growing awareness in digital systems that for all their efficiency, there are still vulnerabilities to it. And it's just a sort of recognition that I think resilience also needs to sit alongside innovation. I know, Lourdes, you've obviously got your article come out this week that looks into how Iran's payment system has adapted given the conflict. And you've seen how a central bank has had to step in, I guess, probably at the most extreme of extremes and change their sort of payment policy and how they advise citizens to access payment systems. Yes, there's actually a piece out, came out yesterday, so if you haven't had a chance to check that out, this is on paymentexpo.com, make sure you do. But yeah, it was about, I suppose, having um those rails perhaps being weaponized. Iran built Shattab, which is its own sort of domestic interbank network. And that was a response to the fact that they've been for years sanctioned, you they can't access Swear, Visa, MasterCard, those rails that other markets can. So they built their own interbank network locally. um But when those things get targeted, I believe there was a uh strike on on banks at Paz Digital Security Center in Tehran. So when the, you know, the literal bricks and mortar infrastructure gets attacked, then you have to then rely on physical cash and uh reports suggest that there have been queues outside bank branches, ATMs and cash not being widely available. And if you add on top the inflation in Iran, you need a lot of cash to buy comparatively little. You're looking at quite a difficult circumstance whereby isn't enough cash in circulation, hence um there's been a new 10 million real note recently printed, I believe, which came into circulation at the start of March, which just again shows you that reliance on that physical infrastructure. It's not always um something that can be relied on particularly in a case of war. of harks back to almost World War II days, when the German Deutschmark and there were people with wheelbarrows full of cash going into their shops because the price of bread would change due to inflation as they were kind of shopping. It's crazy. Yeah, true. remember way back in my school days, I think people in the environment, Germany used to actually burn physical cash because it was cheaper to light a fire with your cash rather than actually use that cash to go and buy wood. So I don't think we're quite there in Iran, but know, oh inflation is always gonna be inflation. It isn't just, know we talked about Iran and sort of the wars, but it isn't even just these sort of wars that cause these outages and reliance on cash. I remember last year, I think we covered it on payment expert about Spain had an outage, like a power outage. Due to the Due to the weather and the people who were over there couldn't actually use the cash because the point of sale systems and these restaurants. em and shops couldn't complete the transactions uh even if it was cash because they just couldn't register it. So it is very interesting that it isn't just about sort of how important just having the cash is, but if these places can actually accept the cash when these systems go offline, that's also like there's no point in having it. It's sort of redundant then as well. It harks back to the cost aspect, doesn't it? You've got to find a way to make all payment methods available, but also sustainable. So you've got some countries where cash is the preferred method of payment because digital means are too expensive to run. And then on the flip side, you've got places like the UK where there's a fine balance of can we afford to keep cash infrastructure running when arguably such a small share of the population choose to use it. But if you get rid of it, you exclude them from the system completely. So I don't envy policy makers involved. No, it's options, options, options, I suppose, is where we're at now in the world. But if I end on this with you both, I mean, for decades, as we opened with the consensus has been that cash is dying or was dying. But given everything we've just discussed, is that narrative completely wrong or was it kind of in the right direction, but with the wrong destination. Yeah, I would say it was part, sorry, Rachel, I would say it is partly right. Cash use has declined and it's got that right. But sort of the assumption that it will disappear is completely wrong. And I think what's been going on in the past few months and sort of has sort of been that reality check that cash might be dying, but it's by no means dead. em and it will be here for the next few decades at least until they can sort of find this replacement which has all the benefits of cash, uh can work offline em which to me just sounds like cash so I don't know why we're trying to sort of maybe replace it with something which is already there you know don't fix it if it isn't broken sort of thing. Yeah, I think we need to stop waiting for the answer of when will cash disappear and look, flip it on its head and ask, why does it still matter? And it looks to me as if sort of the answer increasingly is that cash solves problems that digital systems don't fully solve yet. Once the digital system solve those problems, maybe we will see cash slowly phase away. Indeed, it's an interesting topic of discussion and perhaps one that doesn't usually get touched upon when you go to the conferences around the globe. So I'm glad we've had the chance to discuss it. But unfortunately, that's all we have time for today. So thank you very much, Rachel and Kieran, for joining me. And if you're not already subscribed to the Payment Expert podcast, make sure you are wherever you get your podcasts with plenty more insight and analysis coming up over the next weeks and months. And for the latest news as it happens, head over to paymentexpert.com. We'll see you next time.