The case for cash remains relevant even as consumers increasingly turn to credit and debit cards for everyday purchases. While electronic payments offer speed and convenience, greater reliance on cards also creates more opportunities for card fraud—and the financial consequences can extend well beyond the individual cardholder or merchant affected by a fraudulent transaction.
Although consumers are often protected from direct liability for unauthorized purchases, the cost of card fraud does not simply disappear. Financial institutions, card issuers, and retailers absorb fraud-related expenses, which can ultimately contribute to higher fees and prices. Advocates for cash argue that maintaining physical currency as a viable payment option could help reduce some of these costs while preserving consumer choice.
This article in CUInsight by Lorraine Ranalli starts with a confession; she is a “cash whisperer” who makes a case for cash. I am also a cash whisperer and believe cash delivers value to our society. The case Lorraine makes for cash is the societal cost associated with card fraud:
“In a society that appears to be rapidly moving away from cash, every now and then a small voice emerges making the case for cash. Being a cash whisperer, I tend to take heed to such arguments, with an open mind, of course. From the practical “you never know when you may happen upon a truck stop that only accepts cash” to the hysterical “the grid could collapse causing panic and pandemonium,” and every argument in between, there are plenty of reasons for physical currency to remain in circulation.
Spend a few moments observing the checkout at any retail outlet or the traffic in and out of a financial institution’s physical branch and it will be clear, however, that the amount of paper cash being exchanged has been reduced. Heck, have an impromptu lunch with a group of friends or coworkers and notice how few carry cash. Restaurants and retailers are responding to the trend by offering online preordering options and making it easier for consumers to swipe a debit or credit card at the register.
Financial institutions and credit card companies will not be happy with the case for cash that I’m about to divulge.
The flurry of activity around charge cards is a boon for the credit card industry and for FIs. Unfortunately, it is also a boon for thieves, a fact about which FIs are well aware and equipped to handle. Consumers are becoming more and more accustomed to the process, too. Rare is the occasion when a clerk requests identification from a cardholder, and frequent are the occasions when cardholders’ accounts are compromised.
Fraud prevention is set up to recognize, report or question, and then halt unusual activity. In most cases, the cardholder is not held responsible for fraudulent purchases. In cases where the charges can be stopped, the retailer takes the hit for the fraud. In other cases, the FI or card issuer eats the loss. Or do they?
Actually, all consumers take the fall for fraudulent credit card activity.
Let’s unravel the scenario. Credit card companies charge retailers for the ability to take credit. As the card companies’ cost to do business increases, so too do their fees. Most retailers pay the fees or risk losing customers. As retailers’ cost of doing business increases, so too do their prices.
Online retail aside, the solution is yet another case for cash. By increasing the use of cash at checkout, we drive down the opportunity for credit card fraud. Yes, what is old is new again. The solution is not favored by credit card companies for obvious reasons, and it is unpopular among some consumers and retailers.
The decline of cash may make payments more convenient, but it also raises questions about the broader costs associated with an increasingly card-dependent economy. Fraud prevention systems can protect individual consumers, yet the expense of fraudulent transactions is ultimately distributed throughout the payments ecosystem.
Increasing the use of cash will not eliminate payment fraud, but it can reduce exposure to certain forms of card fraud at the point of sale. As consumers, retailers, and financial institutions continue adopting electronic payments, the case for cash serves as a reminder that physical currency still provides benefits—including an alternative payment method that does not carry the same card fraud risks.
You can read the full CUInsight article here
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
