What’s cold, hard and yet still burns a hole in your pocket? It’s cash. And it’s certainly taking a beating in the news recently. And I think for good reason. Experts agree cash is expensive and inefficient – and yet 85% of the world’s transactions are still conducted in cash.
If you’re a regular reader of this space, you’ve probably thought about the value of electronic payments. But have you ever really thought about what cash actually costs? I think you would be surprised, as our new infographic points out. There are significant financial and social costs to cash.
First financial… cash literally costs a lot to make. Slate recently reported that US pennies and nickels are double their value to produce. No wonder Canada is now embracing the penny-less society.
And, in the US at least, cash leads to $1.5 trillion in underreported business income or lost tax revenue according to the same article. That’s no small amount, especially in these days of high public debt.
That’s why the austerity plans of Greece require that any payment over EUR 1,500 is conducted electronically, as reported in Reuters.
If time is money, you also can’t forget about the lack of convenience from cash. You can’t make online payments with it because no computer takes cash! And the lack of convenience doesn’t stop there… think about all the time you have to find an ATM or wait in line at the bank.
Beyond financial, there are social costs of cash too.
It is incredibly unhygienic. Bacteria, including eColi, are on 94% of US bills, according to Southern Medical Journal. One study reported in Science News even said that there are 20 bugs hosted on the cleanest US dollars and 25,000 on the dirtiest greenbacks. Gross, talk about dirty money!
Finally, and most importantly, cash does nothing to help those left out of the financial mainstream. There are more than 1 billion mobile phone users who lack bank accounts. Electronic payments using mobile phones act as a vital bridge for financial inclusion for these people.
So there you have it. The next time you use cash you should give second thoughts to what it really costs.
How does your household measure up? Take this quick poll to find out:
[poll id="3"]
Categories: News and Views
Tags: Cashless Society, Consumer trends, Contactless payments, Credit, Debit, Economic insights, Mobile
25 Comments
I like your post.
Thanks Daniel. Make sure to do the poll question!
Who gives a **** about the IRS. They are just as corrupt as the government that created them.
Paying in cash saves me from compulsive buying and saves me a load of cash that I don’t have to pay any of the credit card companies, thus I come out in the plus side were as if I used credit cards I would be in the minus side. I find that even with all the security that cards have to day they are there to protect the credit card companies not the person using the credit cards. Mastercard has to come up with a better strategy than what they are using now if they are going to try to entice me on using their card.
Just one more step to government tracking everything in our lives. Oh what a tragedy that the government can’t collect all of its damn taxes. Here’s an idea, shrink the government.
When we’re 100% cashless, we’re 100% police state. We’re already well on our way.
The reason it’s so expensive to make coins, etc. is because we’re debasing our currency ad infinitum; it’s the same reason they quit putting silver in our coins in 1965.
Meanwhile, yes, keep trumpeting how awesome cashless is as you force vendors to eat the 5% transaction fees you slap on them which they, in turn, funnel back through to consumer prices.
Thanks Brian and Josh. There are two sides to every debate so we appreciate your position and welcome the dialog. However, the 5% transaction fee Josh referred to is inaccurate. The average rate is 2% and the merchants receive many benefits including more customers, the ability to enable ecommerce and phone orders, less risk in handling cash and lower operating costs, to name a few.
We hope our community continues to weigh in with their thoughts on the cost of cash.
I appreciate the idea of becoming a cash-less society, even when it’s coming from a credit card company. I probably make 90% of my purchases with a debit/credit card. But twice a week at the gas station I’m kicking myself for not carrying enough cash while I’m getting gouged 10 to 15 cents a gallon for the “credit price”. For an awful trend that doesn’t seem to be going away anytime soon, cash is essential for these purchases.
We’ll conveniently ignore the 12% (on the low end) more that people spend when swiping credit cards because it doesn’t register as pain like cash does or the 46% increase per ticket McDonalds saw when they started taking credit cards. Yeah…
Oh, I’m also pretty sure that 94% of most non-sterile items have several types of bacteria on them…not merely cash. Depending on where you look, the average lifespan of a $1 bill is as short as 18 months whereas most credit cards expire only every 3-4 years. Considering that cash accidentally gets washed quite often, so how much bacteria is on a well-used credit card?
Finally, ignoring the fact that a percentage of that 1 billion mobile phone users without bank accounts are either minors or illegal aliens in the U.S. (note I said a percentage by have no idea what the numbers are), this argument seems to be a contradiction to the earlier argument that cash can be used as unreported income. Last I checked, I can use cash without a bank account (or any account for that matter!).
I am currently deployed to Kabul, Afghanistan. What’s Mastercard’s answer on the situation in Afghanistan or any other developing countries in Central Asia? You have to use cash or Eagle cash everywhere here. They don’t accept credit card payments except at the PX. What does Mastercard have to say about that? I love using my Mastercard back in the US. But cash is king around here.
Another attempt by a credit company to justify their existence. Their fees amount to billions of dollars. It is unnecessary cost to consumers. More money to the banks.
1.5 Trillion goes directly back into the economy without being taxed, sounds good to me!
Retailers don’t have to pay transaction fees to Visa or MasterCard, every last cent helps.
Paying with cash keeps people from going into debt cause they can only spend what they have.
I have mixed feelings about a cashless society. I like the fact that I can pay my bills through my bank for free electronically since it is simple and easy. At the same time though, charging practices for using these features will eventually happen as well. I prefer cash when Im in a store because I dont want to pay to use a card. Once my bank starts charging me to use the “pay online” features I will start using checks again. Cashless society might be inevitable but they will start charging you for everything eventually. They need to make their money somehow and if cash goes away, you will have no choice but to pay for the service.
My bank not charge for it now since it attracts new customers but once it is the only way to pay for things that will go out the window as well.
As for pennies and nickels costing more then they are worth to produce, it is up to the treasury to stop producing them. Canada, I believe, did that since their pennies cost too much to produce.
I will be all for the cashless society if it is guarnteed that I don’t have to pay fees for things as simple as buying a pack of gum. I understand that someone has to pay for the maintenance and upkeep of the network for the cashless society etc. Maybe a not for profit type company should do that since it seems when profit has to be evolved the take you to the cleaners for your nickels, dimes, and pennies.
Thanks to everyone for sharing your personal challenges and likes when it comes to going cashless. We’ve noticed, based on some of the comments, that there may be a misconception about what MasterCard does. Many people consider us a credit card company but in fact, we are a payment technology company. We have a multitude of services which of course include credit but also debit and prepaid and now we are moving into mobile payments as well (“tap and go”) that gives people choices and options in how to pay. We are not a bank and we do not lend credit or set any consumer fees like interest rates.
We are laser focused on making the payment process safe, simple and secure for everyone including consumers, merchants and banks.
Continue to share your personal experiences and keep following the Cashless discussion on the Heart of Commerce blog as well as @mastercardnews on Twitter. We’ll be dialing up the conversation over the next few weeks with more opportunities for consumer feedback and perspectives from thought leaders.
I love Cash, with cash I can control my spending. Plastic cards should only be used for emergencies and online purchases, I know Master and Visa don’t like that. Pay with cash people, if you pay with cash, you eliminate the transactions fees that credit card companies charge to merchants thus reducing prices, Capitalism at its best, eliminate cash, and we have communism. Master Card seems to love the latter.
Dirty inefficient cash? OK … let’s explore this using info your own info.
According to your “What Cash Costs” poster, $1,500,000,000,000 of underreported income per year is generated by the use of cash, leading to lost tax revenue. Assuming you came by this figure honestly, consider this. Your Consumer Credit Core Value Cards used in places where electronic authorization is required zap an interchange fee of 1.35% on every transaction. The less authorization required, the higher the interchange fee. But let’s assume 1.35% is the norm.
Now, from between the following two choices, what are you REALLY concerned about:
1) $1,500,000,000,000 of underreported income leading to lost tax revenue?
…or…
2) Your share of $20,250,000,000 in unrealized interchange fee profit in your own pocket?
My bet is on the latter. In your defense, I suppose $20,250,000,000 is less dirty and less inefficient (snicker).
Besides, someday, my son will make me a Grandpa. And when he does, I want to be able to send my grandkid a $5 or $10 bill with their birthday card – not a birthday card all by itself, asking my grandkid, “Do you take MasterCard?”
A brief P.S. to my last post. And, this is just an observation not an accusation.
Would you ever participate in a poll indication your preference for a Republican or Democrat candidate on a website that was controlled by a Republican or Democrat? Or would you be tempted to think that such a poll might be slanted toward the host’s desired result?
One final note regarding your other contentions.
1) Pennies and nickels cost twice their value to produce. Fine. Eliminate pennies and nickels requiring all prices to be listed (with all sales/excise taxes included) in ten-cent increments. That way, you could eliminate the quarter, too. At the very least, we’d see honest pricing at the gas pump … ie., $4.00 a gallon vs. 399.9 cents.
2) If 1,000,000,000 mobile phone users don’t have bank accounts, there must be a “reason.” I suspect that most, like me, use prepaid cellphones (ie., Tracfone). And just about every convenience store I visit sells cards with codes allowing the user to “load” the card with more minutes. Only cash is required buy them.
3) My personal favorite – bacteria (grin). Last year, I retired from the Postal Service. You think money is dirty? Try mail. But guess what … I was GLAD to be exposed. Why? If a person is constantly exposed to virii and bacteria, their body is constantly producing antibodies to fight them off … which kills most such bugs before they become an issue. Since I retired, I’m not a bit scared. I don’t have that constant exposure to virii and bacteria anymore. Hence, my body is producing fewer antibodies than it once did … leaving me open to get zapped by one of them before an antibody can protect me against it. So (grin), I should perhaps handle more cash than I used to handle to keep those antibodies producing.
Correction. On #3 of my last post, I used the phrase “I’m not a bit scared…” I meant to say, “I’m now a bit scared.”
We’d like to take moment to address the comments surrounding transaction fees. Similar in the sense that retailers pay their electric bill to have the lights on, there are indeed fees merchants pay for the benefits of accepting electronic payments. And indeed there are many benefits for merchants in accepting cards, including security, guaranteed payment, fraud protection and speed of service.
The ‘transaction fee’ being discussed here is called Interchange. Interchange is paid between banks to balance costs in the payments system, and is a component of the fee merchants pay for the tremendous value and benefits they receive when they choose to accept electronic payments. MasterCard does not receive any revenue from interchange.
I’d encourage you to take a look at our Interchange Myths vs Facts paper to learn more.
And yes, there are some instances where cash will indeed make more sense, like giving your grandson that $5 bill in his birthday card, and even the Tooth Fairy would be remiss if she forgot to slide that dollar bill under the pillow.
Marcy — Transaction fees are a cost of doing business both VISA and MasterCard (and other cards) are entitled to charge. I understand them and accept them. Heck, I have two debit MasterCards, one debit VISA, and one VISA credit card in my wallet right now as we speak. My post regarding those fees was merely meant to indicate that MasterCard has a vested interest in eliminating underreported income for purposes of making more money for itself. And I further meant to indicate, at the corporate level, that MasterCard is less interested in underreported income lost to the I.R.S. as it is in unrealized fees accrued from these transactions (lost to MasterCard).
Marcy,
Read the responses! This is a self serving article which simply promotes Mastercard’s business. It has little basis in fact and totally ignores the realities of life. You should travel more and try to use a credit card in some of the more remote areas of the world which incidentally, accounts for most of the world’s population.
As a number of respondents have noted in various ways, cash requires a fiscal discipline – if you ain’t got it – you can’t spend it. If such discipline had been in place at the beginning of this century we wouldn’t be in the financial mess we are in now….
Oh, and let’s not even get on to the subject of credit card fraud…
Wal-Mart is now letting people pay with cash in store when making purchases online: http://allthingsd.com/20120426/walmart-com-lets-you-pay-with-cash-when-shopping-online/
Consumers have many options when it comes to shopping and paying and this is just one example. We offer a range of technologies and products — including credit, debit and prepaid. Unfortunately, you cannot push dollars bills into a computer to make payments. Think about businesses that exist only online — travel sites, gaming sites, music sharing sites, not to mention “superstores” and others. Without electronic payments, these growth companies and segments wouldn’t exist.
UseMyCard.com is where consumers turn online banking cash into virtual credit cards to shop on the internet wherever MasterCard and Visa is accepted. You can’t shop with cash online!
I know people spend more with plastic and electronic.
The best place to store your wealth is in gold. The government made paper is all fake.
Bacteria is found on 99.99% of most things on earth. Using a useless stat like that to justify the extortionate fees you charge, is lame. It’s inaccurate at its best, and scare tactics at its worst.
Cashless means handing even more power to the banks and governments.
These people are trying to sell this as easy and helpful for us the public…..do you think they would be offering this service if it was not beneficial to themselves.
Cash cannot be controlled in the way electronic contact less pay can…electronic money means everyone would have every moment of there lives tracked.
I must say its a master stroke from the banks and the sleepers will fall for it and i`m pretty certain with in 10 – 20 years it will be the sorry case that cash is a thing of the past.
The crazy thing is that so many people are seeing it as the good old banks making our lives easier.
Even if this service was only 10 pence more expensive than the cash system they would not offer it….
its offered not because it benefits us its because they stand to make a fortune from it and gain a massive amount of control is why they want a cashless world.
Make the 85% figure higher…..refuse to use these contactless systems and do as i do….draw cash even when you could use a card.
Don`t lose another one of your freedoms….we are watched enough….don`t let them watch every single thing you do with your money too.