ESTA Reports on Own Vision for Cash

As an initial member of the European Retail Payment Board (ERPB) working group, the European Security and Transport Association (ESTA), supported by other organisations, sought to foster debate on a number of issues relevant to ‘obstacles to cash acceptance’, a topic being investigated by the ERPB and about which it had issued a questionnaire.

There was strong resistance from the banking and Payment Service Provider (PSP) members of the ERPB to this. As a result, ESTA left the group and issued its own report covering a number of issues that it feels are critical to the meaningfulness and credibility of a report about access to and acceptance of cash.

ESTA’s view is that the decline of cash is not happening by chance. It is provoked by the conflict of interest of 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 persistently acting against it.

None has actually decided to go fully cashless, as otherwise they would lose most of their retail customers. However, as a concerted action driven by their common interest, they are reducing cash services to the public, and sometimes even sponsoring retailers to become cashless, to accelerate the phase-out of cash. Their short-term costs of such actions will be offset by the increase of fees once cash is no longer competing, making such practices predatory.

The responsibility of the banks is highlighted by the reports of some central banks, which all put the emphasis on their role, in different ways, to reduce the place of cash in the economy. The ESTA 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 it is critical to understanding the evolution of cash in the EU.

The paper also covers the impact of COVID, and the acceleration caused by the pandemic on non-acceptance of cash based on fallacious arguments about the risk of contamination by the virus. Despite a number of central banks reacting promptly to these allegations and rebutting them, the damage has been 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 method’ (MasterCard) and necessary to help contain contamination, the major surge in contactless payments has not contributed to containing the pandemic, but has offered new market share, particularly in micropayments, to card operators, along with additional income related to the volume of contactless payments. In other words: no public benefit, but many private benefits in relation to the increase of contactless payments in relation to COVID has been achieved.

However, increasing the limits of contactless payment is not without consequences to card holders. The question of whether consumers and card holders have been correctly informed must be raised. 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 and PSPs to card holders in a way which is probably unknown to most card holders.

Finally, the paper reviews some essential conditions for the future of cash, including 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 of the European Court of Justice is core to this, a discussion which unfortunately was not possible within WS3 of the working group.

This discussion is critical to the issue of the acceptance of cash, at least to clarify 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 last section in this third part reviews what may possibly be seen as the most critical threat to the cash industry. Namely, when banks organise their own utilities for cash processing, closing down a significant part of the market and pushing prices down to an unsustainable level for a number of cash management companies.

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 phasing out of cash should immediately stop acting against it. Their own commercial interests will not suffer very much from it, and they’ll enjoy the high moral ground of respecting competition from a public good.

The report should, according to ESTA, usefully complement the ERPB report in areas where it is unlikely that the working group will venture, due to its composition and structure.

The full report can be found at www.esta-cash.eu.