15 June 2021 | The hypocrisy of a working group led by the European Central Bank (ECB) on the preservation of cash, which is dominated by banks who at the same time continue to wage their war on cash, has been exposed by cash industry group ESTA in a report. ESTA sent the report to this working group – after it had recently left it in protest.
As a part of its cash strategy, which the ECB Governing Council adopted last September and which it has been hiding in the depths of the ECB’s website since December, the ECB has tasked a working group of the European Retail Payment Board (ERPB) with producing a report on securing access to and acceptance of cash. The ERPB is an ECB-led advisory group. Members are representatives of banks and other associations involved in payment transactions, as providers, merchants or consumers. Entrusting this group with the task of helping to preserve cash – a group, whose very definition of payment transactions strangely excludes cash – has led to a clash with ESTA, the association of the European cash industry, which had been invited to participate in the working group as a non-member of the EPRB.
ESTA withdrew from the bank dominated working group in protest and has now published a report,which it says “will usefully complement the ERPB report in areas where it is unlikely that the working group will venture.” I am reproducing the Executive Summary of this report (slightly abbreviated) interspersed with some quotes from the report:
ESTA: Report to the ERPB Working group on access to and acceptance of cash
10 June 2021
As a member of the ERPB working group for around 8 weeks, ESTA, supported by other organisations, sought to foster debates on a number of possible issues of relevance to “obstacles to cash acceptance”. The strong resistance from a number of organisations of the ERPB in the banking and PSP sectors prevented this from happening. This report therefore covers a number of critical issues, which from ESTA’s perspective must be considered in the report of access to and acceptance of cash as defined in the mandate of the ERPB working group. Ignoring these issues would jeopardize the meaningfulness and the credibility of the end report.
“Deposits are statutory debt that a bank owes its customers – surely a lender should not have to pay a surcharge for collection of debt.”
Tuomas Välimäki, Bank of Finland
The first critical aspect is to take stock of the fact that the decline of cash is not happening just by chance. Looking at what a number of central banks are saying on the matter, it appears provoked by the conflict of interest that exists in the realm of the stakeholders primarily responsible for making cash available to the public. Having their own, more profitable, payments instruments to offer to their clients, banks have very little interest, if any, in cash and are publicly and recurrently acting against it.
None has actually decided to go fully cashless. If they did, they would lose most of their retail customers. However, as in a concerted action driven by their common interest, they reduce cash services to the public, and sometimes even sponsor retailers to become cashless, to accelerate the phase out of cash. Their short-term cost of such actions will be offset by the increase of fees once cash will no longer be competing, making such practices predatory in their essence. If any other product or service than cash would be at stake, there is no doubt that such practice would be declared contrary to fair practice and competition rules.
“Banks should fear the day when the public will consider that cash is becoming so scarce that it will lose confidence in its ability to withdraw its depositsfrom the bank.”
The role of banks in the decline of cash is highlighted by the Central banks of three countries, Sweden, Finland and Norway, which all put the emphasis on their role, in different ways, to reduce the place of cash in the economy.
This paper reviews the consequences of the reduction of cash services by banks, and how this amounts to passing on the cost of cash to cash users, a topic that some members of the ERPB categorically refused to discuss, although it is critical to understanding the evolution of cash in the EU.
The second part of the paper covers the impact of COVID and how the pandemics has accelerated the non-acceptance of cash for fallacious arguments of risk of contamination by COVID. Despite a number of Central Banks reacting promptly to these allegations and rebutting them, the damage is done and cash has regressed strongly, even in very cash-friendly countries such as Germany.
However, despite the promise that “contactless is the safest payment methods” necessary to help in containing contamination, the major surge in contactless payments has not contributed to containing the pandemics, but has offered new market shares, particularly in micropayments, to card operators and additional income related to the volume of contactless payments. In other words: no public interest, but many private benefits in relation to the increase of contactless payments in relation to COVID.
However, increasing limits of contactless payment is not without consequences to card holders. This report raises the question of whether consumers and card holders are correctly informed and in particular whether consumers are aware of their increased liability resulting from the increase of payments limits. Here again, the development of contactless leads to passing on part of the liability for fraud from banks & PSPs to card holders, in a way which is probably unknown to most card holders.
“People do not realise it costs us more if they pay electronically and even more if they pay over the phone.”
A retailer in Scotland
The third and last part of the paper reviews some essential conditions for the future of cash, from the need to confirm that legal tender means “mandatory” acceptance of cash.
The outcome of the Court ruling on C-422/19 and C-423/19 [Häring vs. Hessischer Rundfunk; N.H.] of the European Court of Justice is core to this, a discussion which unfortunately was not possible within WS3 of the working group. It seems rather obvious that this discussion is critical to the issue of acceptance of cash, at least to apprehend what a retailer should understand from it.
The EU legislator should confirm that the notion of “non-absolute” mandatory acceptance still means that the level of obligation to accept cash is very high, based on the fact that legal tender is enshrined in primary law and, since it has been defined precisely in secondary law, it has gained direct effect. The matter is more political than legal in essence.
Other steps also look critical for the future of cash, namely adopting specific measures for retailers, such as guaranteeing the availability of change money – the absence of change money is the perfect stealth weapon of the war on cash. It also implies the need to define a “right to pay in cash”, based on the fact that the status of legal tender must imply a high level of certainty to cash users that cash will be accepted as a payment.
The last section in this third part reviews what may possibly be seen as the most critical threat to the cash industry, when banks organise their own utilities for cash processing, closing a significant part of the market and pushing price down to an unsustainable level for a number of cash management companies. This part is one that has not been developed so far in the economic literature on cash, however it needs to draw the attention of policy-makers and competition authorities.
“As a personal aside, I was struck with amazement when I discovered how much of a church’s collection plate can end up disappearing into a bank’s service fees.”
Tuomas Välimäki, 28 November 2018
A cashless environment would be a transparency nightmare. Indeed, the bank will know inter alia which of their customers are going to religious offices (and which religion), how often, and how much they donate each time they go. And of course, because this is also the objective of a cashless society, banks and payment services providers will also take their commission on each of the donations.
This report leads to one simple and straightforward conclusion and solution to all issues raised in the mandate of the ERPB working group: to avoid any further progress of the reduction in cash in circulation, those responsible for the phase out of cash should stop immediately acting against it. Their own commercial interests will not suffer very much from it.
ESTA hopes that this report will usefully complement the ERPB report in areas where it is unlikely that the working group will venture, due to its composition and structure. ESTA remains at the disposition of the ERPB or the ECB to clarify any point covered in this report.
“Contactless means security less. Card holders are fully liable for fraudulent payments using the NFC function of their cards. They just do not know it.”
Note by Norbert Häring: Besides its new cash strategy the ECB has an (updated) retail payments strategy. It is aimed at creating a viable European competition for the US card schemes and the new fintechs that are dominating the European digital payments market. While this goal is laudable it is notable that cash is not treated as part of the retail payment system in this strategy and that thus no words are spent on delineating its role next to the card and fintech schemes.The ECB’s retail payment strategy can be described as a strategy for digitalizing retail payments, at the expense of cash.