Are You Ready For A Cashless Society?
With the chaos that erupted as Visa card transactions were rejected across the UK and Europe yesterday it raises the question of what would happen if we become a cashless society.
Cash Is King, Gold Is Money
It will come as no surprise, that we are advocates of the use of cash and banknotes.
Yes, there are instances where it is a good idea to pay by credit card. One example of this is when you are booking a holiday as this will be covered by the credit card's insurance. This can be an important factor, especially if you end up being stranded abroad - although ATOL should do this without you having to pay a credit card surcharge.
However, many large transactions are not an option for credit card payment including stocks and shares and mortgage deposits. These are investment or financial transactions, as are most of our transactions.
With memories of the American subprime mortgage crisis and the worries of a car credit dilemma looming, for most people cash is still king.
A Monetary Apocalypse?
Ok, so the heading is a little extreme but maybe it isn't so far-fetched.
Recent studies have shown that if there was a severe electricity outage, whether, by natural means or foul, access to money could cause society to break down within 4-5 days. ATM machines and banks would be unable to give customers access to their money and electronic payments would come to a standstill. It would not just be survival of the fittest, it would also mean that those with access to hard cash and physical gold and silver would have the upper hand. Indeed, American retailer, Overstock.com, has publicly stated that they have been stockpiling gold and silver coins to ensure they are prepared in the event of another financial crisis.
Online Banking Problems
Big banks and payment centres including NatWest, TSB and most recently Visa, have suffered from IT crashes which have crippled their systems. Millions of customers reported distressing situations where they were unable to pay for groceries, transport, mortgages and direct debits.
Visa Card Failure
In the latest incident on Friday 1 June 2018, Visa, which processes over 65,000 transactions a second, experienced a system failure causing the payment centre to halt all transactions in the UK and across Europe. It is estimated that £1 in every £3 spent in Great Britain is via a Visa payment card and that over 95% of British debit cards use the Visa system. The problem was rectified overnight and the company issued a statement denying that they had been a victim of any unauthorised access or a cyber attack. This was typical of the statements that other banks or large organisations have issued previously. Heavens forbid that they admit that their IT security is capable of being hacked, confidence would be lost and shares would plummet.
The National Crime Agency commented that they would be monitoring the situation and would be liaising with relevant partners although they had not, at that time, been contacted by Visa.
TSB Software Fiasco
On 30 April 2018, the TSB received over 40,000 complaints from customers who were caught up in a banking crisis. The TSB had attempted to update their software and to switch more than 1.3 billion records to a new system. Unfortunately, chaos ensued. Customers had accounts frozen or closed, payments by direct debit and standing orders were halted, access was given to complete strangers' accounts and in some instances, customers were told that their accounts had been closed as they were dead!
NatWest blamed a cyber attack on 31 July 2015 for an IT system breakdown. The last Friday of the month is a traditional payday, unfortunately, customers were unable to access their salary or make payments for approx one hour. This followed a series of IT problems which had plagued the bank for more than three years. NatWest are a part of Royal Bank of Scotland group which was fined £56 million by regulators in 2014 following system failures at NatWest, Ulster Bank and RBS.
Whatever the reasons and excuses these big organisations give, it is clear that many systems need to be overhauled and security tightened. More banks are sure to fall foul of an IT outage but it is the customers who will suffer as they suddenly have no access to their money. Our advice is to make sure that you are not reliant on electronic money.
Are You Ready For A Cashless Society?
Physical cash gives you a certain amount of freedom to float below the radar of Big Brother. Even with the new GDPR legislation, you are being monitored 24 hours a day. It is not unusual now for every item of data about you, your movements and your habits to be collated, analysed and stored.
There is an increasing reliance on payment by card, particularly contactless payments. Whilst the younger generation has embraced the cashless payment method both by debit and credit cards, there are many older people who shy away from using computers or making online purchases.
Recently, there have been 'soft' attempts by banks and the government to persuade us that a cashless society will be a good deal for us. Banks and payment providers have active lobby groups, often telling us that coins and cash will disappear soon. However, there is no strong lobby group for cash users.
HMRC want us to stop cash payments to babysitters and gardeners - if only they expended as much time worrying about the large-scale tax evaders. Banks want to close local branches and reduce the amount of ATM machines on the high street and many retailers prefer the contactless payment system as there is less administration in accounting for our transactions. This frees up staff to do more work, reduces cash handling errors or the need to record and bank the physical cash paid.
Sure, there are costs involved in businesses handling cash, it costs money to bank cash as well as to take it out. But money can be recycled, look at the way many supermarkets and corner shops reduce the amount of cash they are handling by offering a cashback service on debit cards.
Where America Leads, The Rest Of The World Follows
In the USA, Visa has launched a competition among a group of retailers to go cash-less. Whilst contactless is certainly handy for small purchases, the system is not without pitfalls. Error transactions where large sums have been taken out of customer accounts by mistake are not unheard of and business has boomed for manufacturers of protector sleeves and wallets as consumers attempt to shield their details from electronic data thieves who can read and skim information as they pass by.
What happens in America tends to follow in the UK. Our bets are on that it will end up costing the consumer more money whilst the electronic payment companies and their CEOs will make many millions. It will not be a great deal for the public.
Long Live Cash!
We are strong believers in the importance of cash, whether as coins or banknotes. It is regrettable that there are so many money laundering restrictions on the amount of cash that can be used in payments. As a business which handles many high-value transactions, it can be very frustrating when customers get angry with us because we are under legal obligation to apply upper limits on cash transactions, take ID, and keep customer records, particularly when purchasing "Investment Gold".
Lawrence Chard said "I happen to be a strong believer in cash, whether as coins or banknotes. Mine has never failed yet, I have never forgotten my pin number for it, it still works even after it has been through the washing machine (I hope I don't get reported for money laundering).
Having mentioned money laundering, I still think it is regrettable that there are many restrictions on the amount of cash which can be used in payments. As a business which handles many high value transactions, it can be very frustrating when customers get angry with us because we are under legal obligations to apply upper limits on cash transactions, take ID, and keep customer records, particularly when purchasing Investment Gold.
I hope I am not showing my age when I say that in the good old days, we used to be able to sell 1,000 gold sovereigns for £3,500 and accept payment in cash. We did not even need to record the buyer's name or other contact details. Nowadays we see and hear media discussions where it is often implied that paying cash is somehow rather dodgy, but I suspect that much of this is promoted by lobby groups working for banks and card companies who want to encourage everybody to ditch cash in favour of cards and electronic payments, and to force all traders to accept cards. I believe the recent legal ban on surcharges for credit cards to be unethical, but almost certainly influenced by lobby groups financed by payment providers.
Long live cash (including coins of course)."
As rumours abound of a credit crisis looming maybe our forefathers and mothers were right. If you don't have it, you're best not to be using a credit card to borrow it.
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We are not financial advisers and we would always recommend that you consult with one prior to making any investment decision.