The persistence and future of cash

Transcription

1 The persistence and future of cash Presentation at the EPCA Conference, Paris, March 24, 2010 PaySys Consultancy (Frankfurt) University of Applied Sciences Frankfurt E-Finance Lab, Goethe University Frankfurt

2 PaySys Consultancy Independent consultancy founded in 1993 Focus on card-based payment systems (incl. cash withdrawals) Founding member of EPCA Platform provider for industry discussions Services: Strategic consulting Benchmarking studies Market research Implementation assistance Geographical scope: Germany and other European countries Persistence and future of cash 2

3 PaySys Consultancy Issuers Acquirers Processors Schemes Other PSPs Merchants Regulators SEPA-Strategy Business Case Market Studies Benchmarking RFPs and RFIs Regulation Persistence and future of cash 3

4 Contents Cash and card trends The usage of cash The costs of cash and the potential for automation Beyond costs Persistence and future of cash 4

5 Euro billion Cash and card trends The value of card payments goes up! Card payments in Europe (Euro billion) Euro area EU Persistence and future of cash 5

6 Cash and card trends But... Persistence and future of cash 6

7 Cash and card trends Bank note circulation does not go down! Jan 02 Jul 02 Jan 03 Notes in circulation (EUR billion) Source: ECB and own calculations Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Persistence and future of cash MAR-2008 MAY-2008 The Lehman effect Jul 08 Sep 08 Nov 08 Jan 09 MAR-2009 Oct. 2008: +EUR 43.7 billion

8 Cash and card trends Bank notes per capita: Euroland ahead of the US Bank note holdings in EUR per capita $ Euro area Czech R. US ($) Hungary Poland Sweden U.K. US ( ) * * * Source: ECB, BIS and own calculations *: X% of Euro and Dollar bank notes circulating in other currency zones Persistence and future of cash 8

9 Cash and card trends High cash holdings in the Euro area Is there scope for more? There certainly is!!! Per capita cash holdings in Switzerland:* EUR 4,375 Per capita cash holdings in Japan:* EUR 5,058 *: 2008 Persistence and future of cash 9

10 Contents Cash and card trends The usage of cash The costs of cash and the potential for automation Beyond costs Persistence and future of cash 10

11 The usage of cash What do people do with all this cash? The canonical three functions of money - Medium of transactions - Store of value legal / illegal trx. + local / foreign trx. legal / illegal + local / foreign - Unit of account Does not make it neccessary to hold cash. The demand for transactions balances is relatively small. A large fraction of the bank note circulation must be held as store of value. In the case of the Euro, there is some foreign circulation. In the case of the Dollar, there is a large foreign circulation. Persistence and future of cash 11

12 The usage of cash Foreign circulation Net shipments of euro banknotes to destinations outside the euro area Includes only official shipments of credit institutions Dec. 2008: EUR 95 b. (=13% of the total stock) The last observation is for March Persistence and future of cash 12

13 The usage of cash The denomination of Euro bank notes Mainly used for transactions % 6% 2% 1% 18% 36% 5% Total bank note circulation January 2010: EUR 784 billion Hardly used for transactions Partly used for transactions Source: ECB and own calculations Persistence and future of cash 13

14 The usage of cash Small denomination bank notes: affected by rising card usage? _real _real The stock of small denomination bank notes rises albeit slowly Increased use of cards has not had a dramatic effect on transactions balances. Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 real: figures deflated with the HICP price index Source: ECB and own calculations Bank note circulation January 2010: : EUR 75 billion : EUR 322 billion Persistence and future of cash 14

15 Contents Cash and card trends The usage of cash The costs of cash and the potential for automation Beyond costs Persistence and future of cash 15

16 The costs of cash and the potential for automation EPC Cash working Group 2003 Costs of Cash of Banks and Retailers EUR 50 billion CBs 10% Banks Incoming / recycling 42% Banks Outgoing 22% Retailers 26% Means: EUR 5.9 billion Staff: EUR 9.7 billion Transport: EUR 1.0 billion Inventory: EUR 4.4 billion Means: EUR 4.3 billion Staff: EUR 2.8 billion Transport: EUR 1.4 billion Inventory: EUR 2.5 billion Scope for automisation Scope for recycling Persistence and future of cash 16

17 The costs of cash and the potential for automation Since 2007, the Eurosystem not only provides data on ATM transactions but also on OTC cash transactions. For the first time, we have data on the flow of cash - the flow out of and into the banking system. Unfortunately, these data are available only for a minority of countries. Persistence and future of cash 17

18 Euro billion Trx. million The costs of cash and the potential for automation Cash withdrawals: OTC versus ATM OTC Withdrawals ATM Withdrawals Transactions A lot has been achieved. Germany Spain Italy Cyprus NL Portugal Hungary Slovakia BUT OTC Withdrawals ATM Withdrawals Euro value There is scope for more! Germany Spain Italy Cyprus NL Portugal Hungary Slovakia Source: ECB and own calculations Persistence and future of cash 18

19 Euro billion Trx. million The costs of cash and the potential for automation Cash deposits: OTC versus ATM 400 OTC Deposits 300 ATM Deposits 200 Transactions Germany Spain Italy Cyprus NL Portugal Hungary Slovakia Automation has only just begun. 400 OTC Deposits ATM Deposits Euro value Germany Spain Italy Cyprus NL Portugal Hungary Slovakia Source: ECB and own calculations Persistence and future of cash 19

20 Euro billion The costs of cash and the potential for automation Cash and card payments compared Euro value of card payments Euro value of cash withdrawals as a proxy of the value of cash payments Total cash withdrawals Total card payments Germany Spain Italy Cyprus NL Portugal Hungary Slovakia Source: ECB and own calculations Persistence and future of cash 20

21 The costs of cash and the potential for automation EPC Cash working Group 2003 Costs of Cash of Banks and Retailers EUR 50 billion Banks Incoming / recycling EUR 21 billion Banks Outgoing EUR 11 billion Mostly manual Automation just begun 70-80% of trx. automatic ~1/3 of the value automatic The difference in costs between incoming and outgoing provides a rough estimate of potential cost savings Taking potential efficiency gains on the outgoing side into account such cost savings are even larger Persistence and future of cash 21

22 The costs of cash and the potential for automation Potential costs savings: an example Today : Share of counter trx. - Incoming: 100% - Outgoing: 30% Use of ATM and automatic safe Front office 85,150 Annual savings: EUR 109,640 (=65%) Future : Share of counter trx.: 0% Use of recycler Back office 26,870 Cash center 28,970 Cash center 32, HW / SW 18,810 Servicing 8,070 HW / SW 17,150 Servicing 8,520 Today Future Source: WINCOR NIXDORF Persistence and future of cash 22

23 The costs of cash and the potential for automation Back to the EPC Cash Study: Much less noticed than the cost estimate of EUR 50 billion is the EPC estimate of the volume of cash transaction 360 billion cash transactions per year Combining the two estimates yields costs per transaction of 14 cents per year Given the enormous scope for automation a value below 10 cents per transaction does does not seem unrealistic. Not bad for an all-purpuse, low/high value, C2B/B2C/B2B/C2C, anonymous, offline payment instrument with fairly low fraud rates. Persistence and future of cash 23

24 Contents Cash and card trends The usage of cash The costs of cash and the potential for automation Beyond costs Persistence and future of cash 24

25 Beyond costs A look at deposits Value of overnight deposits Total deposits Retail deposits* Euro area EUR billion EUR billion EU ex UK EUR billion EUR billion *: assuming a retail share share of 50% Net interest earnings on overnight deposits interest paid 0% 1% 2% 3% Euro area EUR 56,4 b. EUR 38,5 b. EUR 20,6 b. EUR 2,7 b. EU ex UK EUR 63,7 b. EUR 63,7 b. EUR 63,7 b. EUR 63,7 b. interest earned: average EONIA : 3,15% Persistence and future of cash 25

26 Beyond costs A quote from my favorite theorist of money and banking A bank is where the money is. If the money is not in the bank anymore what does that mean for the wonderful bank-business of issuing zero-interest liabilities? Persistence and future of cash 26

27 Thank you for your attention! PaySys Consultancy GmbH Im Uhrig 7 D Frankfurt am Main Tel.: mkrueger@paysys.de URL: Fachhochschule Frankfurt/M. Nibelungenplatz 1 D Frankfurt Tel.: mkrueger@fb3.fh-frankfurt.de URL: PaySys is German member of the European Payments Consulting Association E-Finance Lab Goethe-Universität Frankfurt Persistence and future of cash 27