Picking up on my recent threads about mobile payments as a form factor (NFC Payments – Build It and They Will Come?), and with the current state of market buzz around mobile and alternative payments, I am certainly a strong proponent for advancing innovative payment methods for wholesale and consumer payments. We need improvements in efficiency and ease of use, as well as lowered risks and costs. This of course has driven many of the technology innovations in the news today. We demand to be connected socially when mobile – and the payments experience is becoming an extension of that. Although the increasing growth and shift to electronic payments is inexorable, there’s an increasing debate on whether cash will (or should) go the way of the dodo. But we shouldn’t count cash down and out just yet.
The tragedy playing out in Japan this past week highlighted that in times of crisis, there’s nothing like cash in hand as the universal method of payment. By all accounts the banking system in Japan survived and is functioning well after the earthquake and tsunami – such is the level of disaster preparedness. But Mizuho, Japan’s second largest bank, reported outages in its payments and ATM networks – coincidentally as demand for cash surged.
Why the demand for hard currency? Unlike during the peak of the financial crisis in the US two years ago, such a demand is not a ‘run on the bank’ because of fears of bank failure. More likely it is the desire for cash in hand as the most liquid of assets – and the most universally accepted method of payment. In crisis situations the seller dictates payment terms. We shift from a stance of “how we want pay” to seller terms of “‘what am I prepared to accept.” If electronic transactions (by any method) are perceived to be become unavailable or unreliable in the face of power and network outages, acceptance preferences will revert to the most convertible payment instruments – and cash in hand is the most convertible of all.