In the midst of the entire digital money versus cash money saga rests the core trigger of the seemingly apparent decline of the physical money. As experts, researchers, and analysts have time and again opined, this (so far) unavoidable trigger is “the cost of cash.” Therefore, it’s obvious that containing cash costs is a must for financial institutions to position themselves competitively in the market. Along with this, it is also necessary to promote cash efficiency and decrease the costs of cash operations.
Where digital cards and mobile payments have already begun sidelining physical cash globally, it should be noted that cash as a share of total payments reduced from 92% in 2006 to 84% in 2016, as per McKinsey & Company insights report. Ironically, though, cash costs (accounting to be 5% to 10% of bank operating costs), are absolutely soaring in a number of markets, despite the fact that cash usage is plummeting.
The 3 primary tools for banks to control cash costs are: ensuring lean operations (making lean the branches & cash distribution centres), network size appropriation (network footprint optimisation), and national resources pooling (nationwide combined network). The nations witnessing fast digital money acceptance (as against cash) are United States, Sweden, Finland, United Kingdom, the Netherlands, France, and Canada. Those still preferring cash over digital money (despite being advanced economies having adequate infrastructure in place for electronic payments) are Austria, Japan, and Germany.
Global Payments Map (GPM) research presented by McKinsey & Company (with data availed from Central Banks, Bank for International Settlements, European Central Bank, and RBR by Euromonitor), categorises payments markets into 5 clusters: Emerging Markets, Mature Cash-Intensive Markets, Markets at the Vanguard, Initial Transformation Markets, and Mature Markets.
In the GPM research, countries are placed on a scale of 15 (card & mobile payments—Norway, Denmark, Sweden topping the ranks) to 100 (cash heavy—Indonesia, India, Thailand, China, etc.) on X-axis to gauge cash usage proportion in 2016. Similarly, on Y-axis, the Compounded Annual Growth Rate (CAGR) of Cash Usage 2006-2016 % is presented on a scale of 0 (slowest cash reduction—India, Indonesia, Thailand, China, Philippines, etc.) to -11 (fastest cash reduction—Norway, Denmark, Sweden).
It is vital that the costs of cash networks decline to control per transaction cost. Also, in the case of rapidly growing markets, banks bear extra costs of developing networks in underserved areas. It should also be remembered that bank operations requiring considerable manual labor, for e.g., in distribution, maintenance, and processing, coupled with increasing labor costs and bank operations’ digitalisation, sharing cash costs is vital. Research also indicates (and suggests) that cash will still exist for a considerable period of time; that is why mitigating the cost of cash is crucial by attaining operational efficiency and prudent network expansion or reduction decisions by banks.