Tuesday, 10 March 2015

Is cash king?

It’s a phrase I’ve been reading a lot lately.  There various schemes in the UK to reduce the operating costs of council-run services by eliminating cash where possible.  For example, certain councils (most noisily Brighton City Council) is rolling out cashless (and cardless) parking.  There are already lots of these schemes around.  Motorists use their phones to pay for parking by using an app, texting or through an automated call.  This lowers a council’s costs because they no longer have to pay people to empty cash from parking meters or maintain the meters.  In some cases, license place recognition is used to enforce payment leading to a further saving on traffic wardens.  In some cases, motorists who prefer to use cash or a card might be able to pay in a local shop. 

There are several benefits to motorists who do not have to carry change, can be alerted when parking is about to expire and can top up the meter remotely.  But the approach has been criticised by some, who argue that not everyone has a mobile phone, that it’s too complicated to use phones for payment (older people are often cited as being incapable of this, rather wrongly, I think) and – somewhat dogmatically – that cash is king.

There are definitely some benefits to using cash, but like all things, there’s a balance to be struck between various competing factors such as convenience, security, anonymity and likelihood of fraud or theft.

Credit cards are a good example of this kind of trade-off. They have arguably reduced security in exchange for convenience, speed, interoperability and ease of use.  With my credit or debit card, I can pay abroad in either local or home currency without needing to visit an ATM or struggle with unfamiliar notes and coins.  I can pay when I’m not present by phone or on the web.  With my card or card details alone, a criminal cannot access my money.  And credit card companies insure transactions, protecting me to an extent against fraudulent transactions. But there are several parties involved in each card transaction including the merchant, the acquirer, the card issuer and the card network.  This means at least four targets for attack with each transaction and with security being only as good as the weakest link, this can be a concern.  A number of breaches in the security of companies in this chain have made headlines recently and these are only the ones we know about.  With so many parties involved, we run the risk of losing control of the credentials we use to access our finances.  In addition, credit card transactions are very easily traceable and the companies in the transaction chain are certainly selling transaction metadata.  Government and law enforcement agencies routinely search transaction data to investigate crimes or – increasingly – to predict them.

Cash, on the other hand, is convenient in some situations but not in others.  Specifically, it’s convenient if the payer and merchant are both present, the payer is carrying sufficient cash and the merchant has sufficient change.  It is not usually convenient when purchasing high-value items, since cash takes up space (the greater the value, the greater the space) and there are usually limits on the amount that can be drawn daily from ATMs.  Larger amounts can be drawn from staffed bank branches, but these are increasingly farther between and available only in banking hours.  Cash is also easy to steal, can be used by thieves with relative anonymity and can be forged.  Cash is relatively anonymous, but not so anonymous as people tend to think.  Notes have serial numbers and can be traced via those who record them (mostly banks).  The bank knows which notes it has issued to which customer, for example.  ATMs (and bank branches, of course) photograph users during transactions.  Cash is also inconvenient to many merchants, who carry risks in holding and banking it.

Digital currencies have a yet different set of trade-offs.  Third parties are not needed and users can pay both reliably and provably.  They have some of the benefits and weaknesses of both cash and cards.  Like cash, they can offer some anonymity and avoid tracking or disclosure of transactions.  Like cash, there are no intermediaries to worry about, but neither are their guarantees of payment protection as offered by cards.  :ike cards, digital currencies are potentially very convenient, can be used regardless of location and without the payer being physically present.  But also like cards, technological components at the user or merchant end could be subject to attacks.  Users may access their counts via their phones, computers or other devices, which might have security problems of their own. There are various ways to mitigate these risks.

In considering whether cash is king, we also have to look at our current infrastructure.  Lots of places are geared and used to dealing in cash.  A couple of decades ago, I holidayed in a fairly remote part of Scotland with friends.  Being used to living in cities, none of us brought much cash and found ourselves crippled for a day or so because nowhere local accepted cards and there were no ATMs nearby.  But these days everywhere takes cards, too.  But the infrastructure for processing card transactions was not made with user privacy in mind.  Schemes such as digital cash, which do have privacy as a key design issue, require a different kind of infrastructure and – crucially – don’t require a lot of the expensive infrastructure that banks and other organisations have been putting in place since the 60s.  A sudden move to digital cash would be a big deal and not much liked by the banks.  Presumably that’s one of the reasons that many apparently new forms of payment are based on the existing card payment and banking infrastructure. 

So the banks don’t like it and government and law enforcement like it even less.

Cash is obviously not king. Like everything privacy and security related, it depends on circumstances and personal choice to the extent allowed by our various legacy infrastructures.  I think we all knew that.  My point here has been to describe some of the compromises we need to make when thinking about what sort of payment to use for a transaction and to show that current entrenched systems are designed to be difficult to avoid.  New ways of paying that are better for the payer and the merchant will have to overcome the inertia of those systems.

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