In the ever-growing financial technology sector, payment businesses have been the most prolific and successful in attracting investment. Around a quarter of the top fifty performing fintech companies are payments based, claiming to ease the transfer of money between businesses and across borders, settling invoices and quickening processes.
With 2015 seeing ApplePay and bPay also entering the marketplace, digital payments have begun to fully move into the mainstream for consumers as well as businesses. Yet the rise of alternative digital payment technologies claiming to improve business efficiency and prosperity may cause the opposite effect.
In July 2015 payment provider Sage Pay revealed nearly two-thirds of UK businesses experience late payments of 90 days or more, with invoices worth £55 billion remaining unpaid or outstanding. Two weeks a year are consequently wasted chasing cashless payments. What’s more, the Federation of Small Businesses reports thousands of small businesses fail annually purely from a lack of available cash flow “without there being anything inherently wrong with the underlying business.”
These problems alone highlight some of the primary issues of technology reliance in business and while it is undeniable that these technological payment methods are beneficial for large transactions and remote transfers, as Sage Pay revealed, complete dependence is a dangerous approach.
For small businesses, start-ups and innovators this is particularly true. The existence and immediate availability of a physical currency is essential and one of the primary bastions of business. Cash is costless, immediate, and flexible, no one ever needs a password, it can’t be hacked, and the system doesn’t crash.
It might seem simplistic, but in the current global, commercial climate, where fiscal exchange in business is so frequent, technological complications have the ability to cause a myriad of issues – from small timewasting frustrations to critical global crises. By not allowing ourselves to be fully reliant on technology - by maintaining access to cash - businesses are safeguarded from potential cash flow complications and technological setbacks.
The same benefits of cash also apply to the consumer using Apple Pay and other mobile payment platforms. Unlike mobile wallets, paper money costs nothing to hold, carries no incremental risk (other than physical theft) and its batteries can’t die.
Consider a business in its infancy. On a base level, cash prevents incurring card payment costs, which for a small business, can be a huge hit. It also negates costs from signing up to a payment processing service and from accepting fees on each payment made on top. The initial cost of innovation paired with losses made on digital transactions may in fact result in the inability of some start-ups and small companies to make it off the ground at all.
Likewise keeping hard cash is beneficial for those on low incomes, despite the array of new payment options, as it helps them to avoid additional costs at banks as well as in shops and when they need to pay bills. It maintains awareness of what is being spent and ensures immediacy of payment.
The Sage results also suggested that even when a company is well established readily available cash is hugely important for bill paying and crisis preparation.
Having the physical notes on hand creates a certain amount of flexibility. It gives young or micro-businesses, for example, greater opportunities to expand or make acquisitions without loans. It is also immediate. Payments made through technology can take longer to process, sometimes leading to unnecessary late fees and other business complications.
Similarly, in situations where unexpected costs crop up, such as during a crisis or should there be a need to support a legal claim, cash is also hugely valuable in allowing businesses to pay off fixed expenditures and hunker down rather than downsizing or facing bankruptcy.
The fact is that in critical situations cash imparts financial control. To small businesses in particular, this financial control can also become a key regulator of expenditure and tutor of financial literacy - it is more obvious when you spend (or overspend!) those physical notes and coins compared with the use of technology. The same can be said of consumers who use cash compared to credit and mobile.
None of this is to suggest technology does not have a place. Of course it does and innovation is vital to business. The avenues financial technologies have opened cannot be undervalued.
However, with the current trend towards a full reliance on digital payment methods, it is crucial to keep perspective and recognise that cash is still hugely relevant, valuable and powerful in today’s payment landscape.
Jenny Campbell, owner and CEO of YourCash Europe