Episode 5: Are Canadians going cashless? Featuring Malcolm Fowler, Curt Binns & Neville Arjani

Transcript of the recording

Justin Ferrabee: What do Sweden, China, and the UK all have in common? That might be a hard question to answer, but we're here today to talk about that commonality. Which is their adoption of a cashless society.

The digital revolution has impacted almost every facet of our lives. Physical copies of music, movies, and even books are moving out of our hands and homes and into the cloud. The same can be said for cash with debit and credit cards, digital wallets, e-transfer and visible and automatic payments.

We are dealing less in cold, hard cash. I am Justin Ferabee. I am Chief Operating Officer of Payments Canada and your guide on the paid pod podcast. Which examines all aspects of Canada's ambitious payments modernization mission.

Thinking about my own use of cash, my father used to give me WAM, or walking-around money. A few bucks to put in your pocket. Not a wad of cash or anything but a few bucks in case of emergency, or for the really great hot dog cart at the corner.

But what about the rest of Canada? Is cash going the way of our music and movies where physical versions are a thing of the past? Or does hard currency play an important and specific role in our economy and society?

Our research over the past few years has shown continued declines in cash transactions. More than a quarter of cash users say they have even started to decrease paying for things in hard currency, opting for contact-less options instead.

Today we're joined by Malcolm Fowler, Chief Product and Partnership Officer, Moneris. Curt Binns, Executive Director of the Canada region at the ATM Industry Association, and Neville Arjani, Director of Research at Payments Canada, to talk about the future of cash in Canada and the role that it plays.

Thanks for joining me today on the Paypod. Let's kick things off. Do you guys carry cash? Neville, do you carry cash?

Neville Arjani: I'm not one to to carry a whole lot of cash or use a whole lot of cash. I think there was one phase just recently where I went without using cash. Meaning physical notes and currency for an entire year to make any purchases.

Justin Ferabee: Wow. Was that a discipline you decided to do or it just happened that way?

Neville Arjani: It was just working for Payments Canada, you're interested to see how far you can take certain things in the payments world as a bit of a payments geek. I wanted to see what I could do and, and I was quite successful.

Justin Ferabee: Did you ever find yourself caught out? You couldn't buy something, or?

Neville Arjani: There were a couple of occasions. I think it's very hard to walk by a local sports team in a grocery store, or an air cadet or a sea cadet, young kid looking for a donation and basically you have to tell them, I'm sorry I don't have any cash on me.

That's probably the hardest part, is saying no to causes like that. But at the same time there are alternative means of donating money online to these causes. It hurts to say no to a child in person, but at the same time you can make it up in some other way later.

Justin Ferabee: You were able to do it, but at calloused your heart?

Neville Arjani: Exactly.

Justin Ferabee: A price to pay I guess. How about you guys?

Malcom Fowler: I think I used cash yesterday. I travel a fair bit. And one of the challenges with travel is if you want to tip a valet or if you want to leave a tip in your room, there is no other option than cash.

Much like Neville's example where he broke the heart of some young child. I tried not to break the heart of the people in the service industry, but other than that, because you're going to ask me where do I use cash?

Probably the walking around thing. At a festival or a farmer's market, it's sometimes a little difficult in those disconnected environments to not have a 20 in your pocket or $100 for your family for the day.

Justin Ferabee: You, Curt?

Curt Binns: I'm pretty much in the same boat. I do carry a few Toonies. But I, but I leave them in the car if I'm just on a short run. I'll leave the Toonies there. But what I find is that the further you get away from the city, the more it's cash preferred. It doesn't say cash, not allowed, but it's cash preferred.

Justin Ferabee: We're talking small amounts. Do any of you either a yourself keep a large amount of cash for emergencies or something... the proverbial under your mattress sort of money? Or do you know of others who do, or is that really, that's gone and we're really just playing with the petty cash element?

Malcom Fowler: It's gone for me.

Neville Arjani: Gone for me as well.

Justin Ferabee: Do you know anybody who is kind of countervailing, is that maybe-

Curt Binns: Not gone for me and I'll give you my example. At home, we're looking at running a gas line to the barbecue for the summer. The gas line is going to cost $800 cash. If we want to pay by debit or credit card, the cost is $1,200. Do the math.

Justin Ferabee: Yes. That's the second piece. One is the big dollars for emergency, that kind of stuff. The other is this gray area where the transaction cost of non-cash is driving behaviors and even making things gray like, GSE HST and that kind of stuff. Starts to sound a little bit like it's designed to skirt some of the standards we have in place for taxes.

Curt Binns: Yes. I think that this was the topic of a recent article in January in the Globe and Mail. The article essentially touched on this interesting finding where we do notice, Justin, you pointed out earlier that cash continues to decline as a medium of payment in the country.

However, when you look at the ratio of notes and coin outstanding to GDP, that's a pretty constant sort of ratio over time. The article went further to bring up data from the Bank of Canada's website to show that there was a heavy demand for $100 bills, more so than other denominations.

Leading further onto that, I'll reserve my hypothesis, but the article did go to other experts in the area who are flagging possible tax evasion. Possible underground economy business, crime, et cetera.

It is a bit odd that there's a whole demand for $100 bills, yet people are using cash and in a lower frequency, and oftentimes the purchases at point of sale that cash is being used for are actually quite small amounts. It would seem hard to believe, I want to take $100 into a convenience store to buy a...

Justin Ferabee: Well, many don't take $100 bills in many cases.

Curt Binns: Correct.

Justin Ferabee: There's an interesting thing here. We're talking about the use of cash is declining, but you're saying the value of cash is, is remaining stable, is that what you're-

Curt Binns: At least as a proportion of the real economy.

Justin Ferabee: Then we just tried it now and and many of us are using cash still for some petty cash type things... tipping, charitable donations, that kind of thing, but largely going digital. And then there's what cash remains?

Is this question of for good or for ill. How's it being used? Can you talk a little bit about if you think that cash is becoming the domain of just those that would like anonymity and is that good or bad?

Malcom Fowler: I don't think it's just that, I mean I think there are still a lot of situations. And if you live in a city and to an earlier point, the further you get away from the city, the more likely you are to see cash or cash only. Part of it could be infrastructure related.

In order to accept electronic payments, you have to have a very reliable connection. And certainly in some communities they may not have as higher reliability. And in fact at times if the cellular networks go down, you don't have an option anymore to accept payment. I doubt cash is going to completely leave the environment, but in a city it's pretty safe to say you're not going to need cash every day.

Also note just since we're talking about sort of managing cash payments in restaurants and what that might mean for the economy in general in taxation. In Quebec, the government has something called the Sales Reporting Module, or SRM, that they insist all restaurants use to track cash payments so then they can understand and manage the effects of taxation on those businesses. Clearly they saw a big enough need to want to track that because it was being under-reported.

Justin Ferabee: There seems to be adding things like the cost of processing cash. There's a cost to go to your bank and to process cash and if you want to use big denominations you have to order them in advance. That there's friction being built around the use of cash.

Curt, maybe you can talk a little bit your betting your business on people's desire to use cash.

Curt Binns: Yes.

Justin Ferabee: Tell us about your view of the longer term for cash.

Curt Binns: The longer term for Canada... Canada seems to be holding back watching other geographies. To do Neville's point with the Bank of Canada, their stats that came out a couple of weeks ago show that there's a actual increase in cash, and it's over GDP cash in circulation. That's a huge number. That's a huge number. I believe there's a lot of cash in mattresses. Mine is stapled underneath my desk .

Justin Ferabee: What's your address? [crosstalk 00:09:41]. Let's step back a bit and say if this trend is happening, we see a trend. And if it were to fall to conclusion of cashless, we see other societies where there are economies that are going that way. Who are the winners and losers in the march towards cashless?

Curt Binns: I believe in the ATM industry, there'll be a lot of industries that are members that will be hurt. Even the big telcos, I mean their servicing other machines right across the country and when it comes to connectivity you have to get your local service provider. All of those things. It's kind of steady as we go, that as we go.

Neville Arjani: I would agree. I mean, I think, you know, when thinking about the benefits of a cashless world and that's I think just to step back for one second, Justin. And to a point also that Malcolm made is, look, I mean, cash is not just being used to fund rogue activity.

In fact, cash continues to be a very prominent source of payment in the country. In fact, it's still used for 30% of transactions. I think in our latest Canadian Payments Methods and Trends Report, I think we reported something like 6.5 billion payment transactions were conducted in cash.

Justin Ferabee: We're not out of cash yet?

Curt Binns: We're not out of cash yet.

Neville Arjani: Maybe again, this is segmented in certain pockets, maybe retail, wholesale or more apps sort of for cash.

Justin Ferabee: If we did drive towards, and let's say there was a policy initiative or the economics of carrying cash got full of friction or too expensive to do that, we do away with it. Who loses in that? Does the consumer lose or... Who are those invested in cash right now, and benefit from us having lots of cash?

Neville Arjani: For me, I feel it's very hard. In economics, we typically have a representative agent or some cohort and we paint that cohort with a broad brush. I'd say that, even within the consumer sector or the business sector, there's going to be winners. There's going to be winners and losers. Right?

Neville Arjani: For instance, in our CPMT survey and to a point Curt, that you made earlier, we try and point out these heavy users of cash How we denote those Canadians who are using cash for 50% or more of their annual spend.

Neville Arjani: Those are typically younger individuals in Canada, lower income individuals, and also individuals that are living in rural areas, to Curt's original point. You have to think, and at the same time, I'd say at the other end, and thinking about personal experience here.

Neville Arjani: But there are many elderly people in Canada who I think would be very frightened from having to move away from cash. Mental health, maybe it prevents you from being able to remember a pen, for instance. Remember what to do with a card when you get to the point of sale.

Neville Arjani: It's a sense of independence for these people as well to be able to go out without a caregiver, without a family member, and be able to transact in the economy every day at their local store or whatnot. I think we need to keep those people in mind when we're, when we're thinking about moving to cashless.

Justin Ferabee: That's a great point. What about the rest of you here?

Malcom Fowler: Well, I don't disagree with, with those comments. I mean 6% of Canadians, according to the statistics, don't have a way to pay if cash didn't exist. I think Canada has done a pretty remarkable job with its banking infrastructure and systems to make banking accessible to much more of the population than than other countries in the world, which is one of the reasons why we are leading in the cashless environment.

But to get the last 6% out, if you think of those folks who would be at risk, that's going to require a huge amount of effort by institutions and governments. Down at the end of that 6%, to your point, there's a number of folks who simply will not be able to adapt to that form of payment. It's going to be a real challenge.

I think in terms of if you want to talk about other losers, I think our understanding and learning of what money means is driven initially by the $20 bill. The coins that you get, the counting that you learn, the tangible nature of cash and I wonder what... maybe all these fears or comments are unfounded. But I wonder what a true cohort of people who are brought up without that learning from birth would do to spending patterns and understandings of how the economy and commerce works.

Neville Arjani: It's a very good point. I think my own son who's seven years old. A part of his Grade 2 curriculum is to learn about the different coins. The denominations of bills, et cetera, and to understand how to count with money essentially.

Justin Ferabee: He has to go to school because there's no cash in your house.

Neville Arjani: That's right. Exactly. Yes. He has to find it elsewhere.

Justin Ferabee: Let's pivot a bit here. There is obviously a use case or whatever. They'd be people, constituents, groups who have cash. It's part of their life. They use it, they need it, it works and it's one payment method, and it works as part of the rest.

What innovation do you see happening that is going to address some of those things. For example, your example of when you go to the grocery store and there's a fundraising with some kind.

You'd like to get five bucks but you don't have the five bucks Where are you seeing innovation that's helping to start to close that gap and chase down that 6% and round that out. What are you seeing in the market that's new and interesting?

Curt Binns: Well, you make a really good point that the closer you get to cashless, I think the more points of acceptance that need to be enabled. And they aren't all merchant points of acceptance. We always typically think of commerce and what's happening at the merchant where you buy things.

But there's also a peer to peer nature of cashless. If five people go out for a meal and someone throws down the cash or the cashless payment, how do you settle up? Are we all suddenly becoming merchants? What do we have to put in place from a peer to peer exchange perspective to make that happen?

Well, clearly there are innovations in that space. Interactive transfer is one of the ones that is rapidly gaining in popularity, both between individuals and also between businesses. Or between consumers and businesses for services purchases as an example.

I see the cost of hardware and the technology coming way down to enable merchants, and the cost of acceptance also becoming lower over time. I think the barriers to a small merchant accepting cash are going away. Are not accepting cash or going away.

I also think that the speed and convenience of acceptance driven largely by contact-less, but in the future by digital commerce, also are going to change the nature of business. Our studies say that by 2026, half of all commerce will not be face to face. And you can't do cash if you're not face to face. It's going to further create this incentive for businesses to always accept electronic forms of payment.

Neville Arjani: I think most recent figures had 14% of of PoS activity being remote now. It's growing. I mean, game consoles, in-app purchases, you name it.

Justin Ferabee: There was a company charity vest where if you are someone who is on the street or you're raising money, you get the vest and someone can tap their debit card. That addresses the use case that you had, which is, I don't have cash, but I still want to make a contribution.

Neville Arjani: Other jurisdictions were kind of moving towards this. But other jurisdictions like China are already there with QR payments.

Justin Ferabee: Where do you see cryptocurrency in all this? Are you're going to be dispensing crypto tokens out of your ATMs one day to solve the digital divide?

Curt Binns: Crypto currency is sort of been on the periphery for ATM, for accessing. We've had sellers that want to use the infrastructure that we have to buy and sell bitcoins, for example. That hasn't happened?

Malcom Fowler: It's only 10 years old, this product. I'm not necessarily an advocate for Bitcoin, but I also want to respect the fact that this is also a technology in its infancy.

Justin Ferabee: Neville, if we take a currency and you look at cash disappears, let's say, and you've got a central bank who has few currency right now and you've got the Crypto. Will we have a digital card coin or will we have a digital central bank issued currency?

Neville Arjani: I would speculate that before Bitcoin ever has a chance to really take off, if it ever had a chance of taking off as becoming a more mainstream medium of exchange, we would see a central bank digital currency first.

I mean, we're already seeing the Bank of Canada through speeches, through research reports, that they are investigating the merits, the advantages, disadvantages of a central bank digital currency, not only as a means of payment for Canadians, but also the monetary policy implications that, that type of asset brings.

You can tell, in central banks around the world are also very keen on this. I don't think we have heard the last of central bank digital currencies. And we might actually expect some experiments soon. More workload going on.

Malcom Fowler: Well, before we leave this topic, I would argue that based on how much is transacted digitally today, that the Bank of Canada has a central digitally managed currency throughout the network of all the banking institutions in Canada. It's called the Canadian Dollar.

I don't think whether you put it in a blockchain or digitize it. The issues we've been talking about with loss of Bitcoins, loss of money, theft, misuse of funds that you hear through the media on these Bitcoin style transactions. It's because they're not backed by a trusted organization.

Which is in our case, the Canadian government who says this is what a Dollar is worth. And an infrastructure validates the monies moving around. My mortgage is digital. My say, paycheck... they'll get rid of the check. My pay is digital. Probably 95-98% of my spending is digital. It just doesn't have a blockchain behind it.

Justin Ferabee: Let's say we see a cash trends down and innovation floods in and the cost of carrying cash goes up. We naturally push it down and we've got no more cash and we're digitized for various things. And whatever mechanisms that we managed to solve is, that all of these constituents who are vulnerable are supported through this process.

What's the risk then? I think about data and privacy. Now everything is tracked and we get some of the benefits of a more compliant tax system and a lot of other beneficial things. What happens with all this data that we see about us and what we're spending our money on?

Malcom Fowler: Everybody's looking at me. "You've got my data man." I think that again, in economies and in businesses that are part of the trusted network of payments, they are very careful with how the data gets used. They make sure that it's not personalized, it's not trackable to an individual.

Moneris, reports on spending trends in Canada based on the volume of data that we process. We're sometimes asked to say, what is this city doing compared to that city? But it's based on aggregated, anonymized data sources, not individuals.

I think where you can run into trouble is when businesses that don't have trust, and we've seen lots of the social media networks breaking that trust bond. There are there right now where you have to be worried about the masses of data that are going on.

To be honest, in terms of spend at retail locations and in business, we live in a society that expects those to be tracked for tax purposes and fairness of our country. You can't be really worried. I think you still have to have the proper infrastructure to protect consumers and individuals. But-

Justin Ferabee: Even with that infrastructure, we're seeing cyber attacks that are very successful and massive disclosures of very, very private data. That seems to me to be a risk of a digitized payment system.

Malcom Fowler: I agree and I think a cyber attack that messes with the network that's processing the transactions also is a risk of a fully digitized payment system. If the power goes out and you can't process a transaction, what happens? And we've seen very, very small examples of that with regionalized power outages or bank network outages that lasts for 24 hours, or something.

We've never seen what would happen if it lasted for 30 days. Those are definite risks to the system and they have to be thought carefully through.

Justin Ferabee: If there is a concentration that happens when it's digital, if I have physical currency and it's distributed everywhere then it is safe. Or it's at least distributed and safe when it's centralized and these networks are... Payments Canada has a very, very disciplined job of ensuring that our payment systems are safe. There's a vulnerability that comes with anything that is digitized.

Malcom Fowler: Yes. But, I think on that point I would just say that it comes down to an economics question because you're right. When you centralize among one node, one large network hub. You do run the risk of enhanced risk.

But at the same time if that network hub and its business is characterized by scale economies, then there's also a big efficiency question also to be said to, well let's just decentralize. We'll have multiple networks and it can get costly.

Interoperability starts to become an issue. I would just say that we need to balance out the concerns over risk, and what the cost of the alternative might be to trying to mitigate that risk.

Justin Ferabee: Looking out at if cashless becomes prominent enough that we can rely on it as being a ubiquitous. How does the life of the consumer or the small business change if we are completely cashless? Or are we experiencing it now already? I don't know. How is life different? What's the prize that we get by being cashless if we actually make it and the trend continues?

Neville Arjani: I think that if you look at the behavior that's happening today at retail businesses, in December, 48 point some odd percent of every transaction Moneris processed was tapped. If you go back five years, it would be a much, much smaller number.

And you have to ask yourself, why is that? Two reasons I believe. One is, it's convenient, it's simple. Both for the consumer and the merchant, it saves time, it's more efficient. It's a more pleasurable experience. Payment becomes frictionless.

I think you look at that, and you look at the fact that Canada has created ubiquity, of tapped capabilities both at the point of sale from merchants and on cards that are issued by financial institutions. And on your phone, and on your watch. You're starting to see that we have a system that really does start to remove friction out of the payment environment.

I think the second thing, is that I noted 50% of transactions by 2026 will be not face to face. If I went out to 2030 or 2032, only 25% of transactions face to face.

A great chunk of restaurant purchases are now done by delivery services. There's never a possible exchange of cash in that transaction. What's driving it? Convenience. Utility.

We're in the middle of a metamorphosis, or maybe we're near the end of a metamorphosis on moving from currency payment to electronic payment for the majority of the behavior that goes on today in retail. I think person to person, not totally settled yet. And I think for the marginalized, the 6% of of consumers, the similar percent of merchants that aren't there, we need to get them there. Until you get them there, we'll never be a cashless society. I don't think we'll ever be 100% digital.

Curt Binns: I agree with that. We'll never be 100% digital. What drives that message home for us is, we started a consortium two years ago on players in the payments industry. And today we have 220 members. We're getting different ideas from around the globe. A lot of people now look at the ATM as, that's my banker.

If I want to go to play Bingo on Saturday night and I need 20 bucks, I'm going to stop at my banker. I don't even think anymore about going to a bank. If we go totally digital, we're taking choice away from the consumer. For that reason, I don't, I don't see it going 100% cashless.

Malcom Fowler: I'm just going to have to respectfully disagree. When I think about our demographics in the country. When I think about the amount of change we've seen in commerce driven by technology in such a short time in this country. Globally, seeing how close that other jurisdictions already are to being completely cashless, though no jurisdiction is completely there yet.

I just I'm hard pressed to think that we will still be in 25-30 years, hopefully in my lifetime, be passing around metal coins and polymer paper to make a payment.

Justin Ferabee: Great. Well, thank you very much, all three of you for your insights on the cashless society. Thank you very much everybody.

Thank you Malcolm, Neville and Curt, for your thoughts on the role of the cash plays in Canada and what the future holds for currency. Be that digital or physical. This is clearly a complex issue with many faucets to consider.

What do you think? Will we be cashless in your lifetime? Do you think that'll be good, or bad for Canada? You can join the conversation online using #Modernpayments. Tell us what you think.

That's all the time we have for this episode, but join us next time on the Paypod as we continue to delve into the world of payments. As always, the show is available for download on your favorite podcast app or, payments.ca. Until next time, I'm your host Justin Ferabee.