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Cash is King?
In the means of payment field, there have been unequivocal predictions, which sometimes included dates for when cash will disappear. Surprisingly, the Bank of Israel has reported a 5% increase in cash transactions (transfers) between 2017 and 2018. Is it still early to declare: “The king is dead, long live the king!”?
In light of strengthening and growing of digital retail players, there is a lot of talk about the future of cash in the market. The impact of Amazon’s entry into the Israeli 
market cannot be assessed yet. Also, the recently granted license to Marius Nacht’s and Amnon Shashua’s digital bank has made some guesses about how the latter will affect the banking system. In practice, in the digital world we see two types of disruptive phenomena:
The first – dramatic disruption, as it happened with brokerage services in the securities industry, or with flights and hotels booking in the tourism and recreation field. In these areas the power of digital world has wiped out established traditional and longstanding industries.
The second is moderate disruption. The good example in this regard is the field of media and entertainment: with the invention of cinema there has been prophecies on disappearance of theatre, and with the advent of television and videotapes – predictions about the disappearance of cinema. Nowadays, we can see that each of these industries is flourishing and thriving alongside one another.
In the means of payment field, there have been unequivocal predictions, which sometimes included dates for when cash will disappear. A large number of extrapolations have shown strengthening of various types of digital payment, including credit cards, apps and digital wallets, bank transfers, cryptographic currencies as well as regulation arrangements to allow access to these accounts and more.
Meanwhile, surprisingly, the Bank of Israel is reporting a 5% increase in cash transactions (transfers) between 2017 and 2018 and an increase in number of ATM machines worldwide, except of Scandinavian countries, China and Uganda.
I do not pretend to predict the future, not about using cash or other things. But there is still a growing demand for cash, and not necessarily because of money laundering reasons. There are still many legitimate reasons to work with cash, with the most significant argument – indicating the end of a transaction and inability to deny it. There are also other reasons for demanding cash, such as ease of use, independence from technology and electrical infrastructure, bank account fees savings, and, of course, anonymity.
In addition, there are populations (7% on average) that are by a definition pushed aside of new technologies usage, such as unbanked population, those, who refuse to use credit cards, people with low credit ratings, relocating population or migrant workers, when they decide to work with a cash as a solution.
In the e-commerce world credit card is the only mean of payment, and so a payment with PayPal is, by and large, the different way of paying by credit card. While the credit card industry is threatened by the PSD2 (directive supporting payments directly from bank accounts), challenges in the e-commerce industry will not allow this change to take effect in the foreseeable future. Until recently, e-commerce was completely closed for cash payments, and recently we’ve noticed that the winds of changes are blowing in this area.
Today, there is a staging method, which allows to pay with cash for a transaction, but digitally, as “GMT” offers – through its digital wallet, which is currently used to make money transfers abroad. This is the method where a transaction stays “on hold” for 24 hours. During this time a user can deposit cash at one of GMT’s endpoints, and then the transaction will be fully completed. When this method will penetrate other digital trading sites, I have no doubt, it will become a norm. Although this standard will only serve 2% of transactions, in the world of transactions this is still considered a huge number.
Is it still early to declare “The king is dead, long live the king!”? The future will tell.
The article’s author Michael Tayer is a member of the board of directors at “GMT” and in the past CIO at the Bank of Jerusalem.
Photo: Efraim Domb
Main image: Artem Beliaikin, Unsplash
