Cash costs money, no joke!

This is the beginning of a series of articles that presents a different perspective on how we use cash today and to highlight the costs to society in continuing to use physical money.

Cash is more expensive than you may have thought — Part 1

We’ve come a long way from transacting through goats, rai discs and ingots. The modern physical representation of money today comes in the form of universally accepted fiat currencies in the form of paper and coins, and now through payment cards, mobile payments and in some cases, alternatives such as cryptocurrencies. While the medium of exchange has evolved, people’s mindsets of having a physical representation has not. This article will focus on Singapore as a developed economy with still strong ties to old-fashioned money and how that is now changing.

Before the driverless car, there was the cashless drive

We are currently seeing a revolution in the public travel industry moving away from an experience burdened with metal and paper to a now largely cashless journey.

Buses and trains were the first to adopt cashless alternatives with the radio frequency contactless card. Octopus first did this in Hong Kong and EZ Link has also done the same in Singapore. And now taxis are moving to a cashless environment with Uber and GrabTaxi leading the way with mobile payments.

So let’s look at all the inefficiencies removed by going cashless: (How on earth did we last so long???)

· Pulling cash from the ATMs — remember all those journeys to find an ATM just so you can get cash to get on your vehicle of choice?

· The moment you realise the ATM only give notes and your bus only takes coins or worse, your taxi driver does not have small change. So add on the time taken to find a store and making those unnecessary purchases.

· Queuing to buy a ticket or waiting for the driver to collect and give change — Remember that awkward feeling of holding traffic while scrambling to make a payment?

· What about that horrible feeling of forgetting to get your correct change?

In short, NO ONE is complaining about the move to cashless in the transportation industry. Even in the cases of the costs of the card payment either being passed to the passenger or being borne by the driver, on balance and over time, the net saving is significant.

Fast food but still slow payments!!!

With the convenience of hawker centres and food courts within walking distance of most estates, dining out is a common option, if not a luxury in Singapore. Apart from costs involved in weight gain and the inevitable coronary infarction, there are other hidden costs that are passed onto consumers unknowingly.

Across the reported 200 hawkers and 107 food courts, we estimate a total spend of around SGD$100 million in annual volume processed by the vendors in cash. There are some new food centres with a private top up kiosk and payment system but they are hardly scalable and therefore not a sensible long-term solution.

Without knowing any better, we are once again here overwhelmed with inefficiencies:

· Once again, having to have change in small denominations to pay for SGD3–10 meals (not complaining about the prices though!)

· Having to queue to order your food and then having to queue separately to pay

· Vendors having to collect cash, store cash and then physically transport cash to the bank or the suppliers to pay for supplies.

· Vendors having to track purchases against money received, and then money banked — difficult to avoid leakage and in some unfortunate circumstances loss or theft

Once again, there are significant frictions and transaction costs in exchanging notes and coins similar to earlier cases. These costs are either passed on to the customer or absorbed by the business — Overall, not good.

With all the exciting technology surrounding, is there not a better way? What is stopping us from implementing affordable payment receivers and developing a solution designed to make the life of a hawker or food court merchant easier and cheaper? The truth is we can.

This is something we are working on so you should get in touch if you are interested.

What’s next? — Unpeeling the layers of costs

We hope you now begin to realize the hidden social costs, both in terms of time and money, involved at each stage of handling cash in some high use areas of day-to-day life for individuals — especially the poorer segments of our commnities — as well as business and the government.

Once these tangible and intangible costs are taken into account, there becomes a compelling argument for all stakeholders, including businesses, banks, regulators and the government, to support the drive to go cashless.

It is time we acknowledged the cash paradox: while cash may be considered the poor man’s best friend, it also places a disproportionate burden on the poor.

Source: Source: “The Slow Pace of Fast Change” by Bhaskar Chakravorti, Senior Associate Dean of International Business & Finance at The Fletcher School at Tufts University and founding Executive Director of Fletcher’s Institute for Business in the Global Context. (Link)

For the future articles, we will dive in depth into the challenges of switching from cash, impact to business productivity, fraud and money laundering, what the future of cashless with look like and at the same time, we would like to present case studies of cash alternatives that work in other counties such as Japan, Hong Kong and Sweden.

This series is written in collaboration with Yi Chiao Cheng (AKA Yitch) @mryitch