Are paper and coins on their way out? In a new report, Option consommateurs looks at who stands to win and who stands to lose if Canada becomes a cashless society.
“People used to say they didn’t have any spare change. Well, they can’t use that excuse any more!” says Luc Desjardins with a laugh. Desjardins is managing director and editor of L’Itinéraire, a magazine sold on street corners and near busy stores in seven cities in Quebec by some 200 vendors, all homeless.
By 2019, its 25th anniversary year, the magazine’s vendors could feel things were changing. “Sales were harder to make. People don’t carry cash any more,” says Desjardins. He and his team jumped into action and launched a “Thinking Jam” consultation event in Montreal, asking 180 participants to come up with a simple, foolproof payment method so L’Itinéraire’s customers could pay the two-dollar price for the magazine electronically, on the spot. “We couldn’t just go online like other magazines. Selling the magazine is part of a social reinsertion process for our vendors. They laugh and smile and chat with clients,” says Desjardins.
As of 2020, L’Itinéraire customers don’t have to turn their pockets inside out looking for change. Instead, they can pull out their smart phone and send a text message with the code “30333camelot” to pay for the magazine. The amount will appear on their next phone bill. “It’s fast. People who buy the magazine are generally in a rush. And it’s secure,” says Desjardins, who began introducing the method on a trial basis at the end of 2019.
A WORLDWIDE PHENOMENON
If L’Itinéraire is grappling with the demise of cash, that’s because the phenomenon is becoming widespread. According to studies by Payments Canada, the non-profit organization responsible for the process, rules and infrastructure of Canada’s national payment systems, the use of cash declined by 40% between 2013 and 2018.
People carry less cash and use more electronic payment methods. It’s a worldwide phenomenon.”
Alexandre Plourde, lawyer and analyst at Option consommateurs; author of “Will Cash Soon Be A Thing of the Past?”
A decade ago, cash transactions accounted for almost half of all trading volume in Canada; by 2017, that proportion had fallen to under a third of transactions. That year, debit cards overtook cash transactions for the first time to become the most widely used payment method in Canada. A recent report by Payments Canada found that cash represented just 12% of the value of point-of-sale transactions. In an Angus Reid study conducted in January 2019, 63% of 1,500 respondents said they “hardly ever carry cash” any more.
As electronic payments become the norm, businesses and consumers across Canada will face new challenges. Option consommateurs set out to explore the risks and advantages of eliminating cash in its latest report, “Will Cash Soon Be A Thing of the Past?” The paper’s author, Alexandre Plourde, discovered that the Bank of Canada, along with central banks in other countries, is actually exploring the possibility of issuing digital currency, based on block chain technology. “The decline in the use of cash is an incontestable fact now,” says Plourde.
Plourde concluded that reducing or eliminating cash could carry some benefits, like reducing transaction costs for businesses and enabling government to fight crime more effectively – since all money would become traceable.
Yet the real winners in the cashless economy (without bank notes or coins), he says, will be Canada’s financial institutions. “Banks will make more money from the fees generated by electronic transactions. And they’ll save money, because there will be fewer paper bills in bank machines and banks to manage.”
So what will the switch away from cash mean for consumers and businesses?
Plourde found businesses were more or less resigned to the move toward cashless commerce. One issue that bothers them, however, is the perspective of having to pay financial institutions more and higher transaction fees than they already do for credit card purchases and to rent payment terminals. These fees already represent 2% to 4% per purchase.
Retail businesses are going to bear the brunt of going cashless. The retailer is essentially caught in the middle, between banks and customers. On one end, we pay exorbitant transaction fees for credit cards. But on the other, we don’t want to pass those costs on to our customers. I understand customers want to use credit cards to Air Miles or loyalty points. But the cost for businesses is very high.”
Marc Gauthier, senior manager of Operations and Marketing at the Conseil québécois du commerce de détail (Quebec Retail Council, CQCD)
A 2017 survey by Payments Canada found that 50% of Canadians were willing to move entirely away from cash to use an electronic payment accessible through their mobile device. In interviews with consumers, Plourde found that the reason most consumers are willing to do this was convenience. Electronic payment methods are simple and practical, whereas using cash requires going to a bank to withdraw money.
CANADIANS THINK GOING CASHLESS TOO RISKY
Yet while Canadians seem both resigned to the disappearance of cash and willing to follow the trend, many feel that the government eliminating cash altogether would be too risky. Plourde notes that consumers are concerned about what will happen if payment systems break down and there is no cash available as a backup. Electronic payment systems are not foolproof, he writes. Natural disasters, power outages, and computer problems […] can cripple these systems for long periods of time. Even political events can have unfortunate repercussions on the stability of these systems: for example, the Visa and MasterCard networks were excluded from Crimea after Russia took control of the territory. A January 28, 2019, Angus Reid Institute study, “Debt, savings, and stress: A study of economic experiences and attitudes in Canada today,” found cash was still one of Canadians’ “most trusted payment methods” (by 63%), just behind debit (64%).
Privacy protection was also a concern among consumers Plourde interviewed. A 2017 Payments Canada survey found 48% of Canadians were “willing to give up some degree of privacy for more convenient payment methods.” Yet consumers told Plourde they were worried that banks would be able to sell data about their purchases.
Unlike some northern European countries, including Sweden, Denmark and Norway, where many merchants now refuse to accept cash payments, Canadian stores that refuse cash are still exceptional. These stories are rare enough to make the news, Plourde notes – such as Via Rail adopting a cashless payment system for onboard purchases in 2019. Some Canadian airlines accept only credit on board, but at the moment, actual retail outlets that refuse cash are rare.
Which raises the question: can Canadian merchants actually legally refuse cash? Plourde examines the question thoroughly in his report. The upshot is: there’s no clear answer.
The law says that cash is legal tender in Canada. In Common Law, a transaction is interpreted as a contractual agreement between parties. So a merchant can in theory state in the contract that he or she won’t accept money. However, even if the contract does not stipulate this, a merchant who refuses cash won’t suffer any consequences. Canada has no legal sanctions in place for a merchant who refuses cash. And the customer still owes him or her money.”
VULNERABLE GROUPS RISK BEING EXCLUDED
Yet the big risk of going cashless, Plourde says, is that it will have a heavier impact on consumers who are already vulnerable. “It will be a problem for people who have been marginalized or have no access to credit or debit because of credit problems,” says Scott Hannah, president of the Credit Counselling Society, which helps 5,000 Canadians deal with credit problems every year. Older Canadians are more reluctant to use electronic payment methods, Plourde notes. Indigenous peoples rely heavily on cash, especially in remote communities where there are no banks. Newly arrived Canadians will also struggle in a cash-free economy, he says. “Just figuring out the bank system itself is a challenge for refugees,” says Paul Clarke, executive director of the refugee advocacy organization Action Réfugiés Montréal. Clarke knows the subject well, having previously worked as manager of a downtown bank. “Refugees all come from cash economies. Bank cards, credit cards – they’ve never seen any of this before. They are starting from scratch.”
As well, close to a million Canadians are “unbanked” at the moment. Another 15% of the population is considered “underbanked” (meaning they only have limited services from traditional financial institutions).
People who are impoverished and living on social assistance may not have access to a credit card because they have no permanent address. Banks consider them risky. What will these people do if they can’t even pay cash for groceries?”
Scott Hannah, president of the Credit Counselling Society
Hannah believes governments have a responsibility to give marginalized populations access to payment methods, but feels banks should bear their share of the problem too.
I can appreciate that a person with risky past behaviour is going to present a higher risk to a financial institution, but banks are in great shape and generating significant profits. They should be able to handle the responsibility of making sure people can pay electronically.”
Phasing out cash would have some advantages, Alexandre Plourde notes. It would theoretically reduce transaction costs for business, since they wouldn’t have to handle cash. And since electronic payments, unlike cash, are all traceable, eliminating cash might help Canada curb its underground economy, estimated to be worth $51.6 billion in 2016.
Curtailing Canada’s black market may be a more urgent problem than many realize. The curious thing about the reduction of the cash economy is that although cash is used less for day-to-day transactions, the total volume of paper money in circulation in Canada is actually rising, at the rate of 4% to 7% per year. In 2000, there were $15.7 billion worth of $100 bills in circulation. Today, that figure is $47.1 billion. Again, Canada is not an isolated case. In a study of 42 countries, the Federal Reserve Bank of San Francisco found that between 2006 and 2016, the use of cash grew more than the GDP in most, and only declined in two: Norway and Sweden.
For that matter, Payments Canada found that the decline in the use of cash for point-of-sale transactions is actually slowing: in 2016 and 2017, cash usage declined by about 2% annually, compared to 5% in previous years. “There was a sharp decline in the use of cash overall between 2013 and 2018, but it has slowed in the last couple of years,” says Viktoria Galociova, an economist in the Research Unit at Payments Canada. “The decline was sharpest in 2014, when tap-to-pay payments were introduced, probably because more people were interested in trying that in lieu of cash. Cash is still the third most popular payment option in Canada.”
CANADA NEEDS TO MODERNIZE PAYMENT REGULATIONS
Whatever the case, Plourde concludes in his report that Canada needs better laws to protect consumers in the emerging cashless era.
The question of whether or not business can refuse money is a very recent one. Option consommateurs believes Canada needs to modernize its laws that protect consumers and oblige merchants to accept cash in all but exceptional situations, like online sales, for instance.”
Other countries are already stepping up to the plate and putting such protections in place. Under France’s Criminal Code, it is an offence, punishable by a fine, not to accept coins or banknotes that are legal tender. In Sweden – where it is predicted that half of all retailers will have stopped accepting cash by 2025 – a bill was tabled in 2019 to force banks to continue to offer places where people can obtain cash.
Canada has a long way to go in modernizing its laws and making them more coherent, Plourde says. “There is no single legal framework for electronic payments in Canada that applies to credit cards, debit cards and prepaid cards together. For other payment methods like PayPal, it’s a complete legal vacuum.”
That means consumers are protected by different provisions depending on the mode of payment they use. “Quebec’s Consumer Protection Act includes provisions that protect consumers in the case of credit card fraud, but there is nothing protecting debit card users against fraud. Canadian consumers are using electronic payments more and more, but the legal framework protecting them is not harmonized. The protection depends on which method they are using,” says Plourde.
Which brings up yet another danger of the end of cash: we are entering a world where banks wield more power than ever over our lives. A 2018 Bank of Canada discussion paper, Is a Cashless Society Problematic?, notes, “A cashless society would mean an environment where retail payment services are provided entirely by private sector networks.” In this environment, Canadian consumers may be especially vulnerable to the whims of banks, since there is relatively little competition in Canada’s banking sector. “It’s a particular problem in Canada. The industry of electronic payments is very concentrated compared to other countries,” says Plourde. Indeed, Canada’s financial services market is dominated by a small number of payment networks: debit cards are transacted via Interac, while credit cards are transacted mainly via Visa, MasterCard and more rarely, American Express.
Option consommateurs recommends that the Currency Act be modernized in order to oblige merchants to accept cash offered by consumers and to set in place legislative measures aimed at harmonizing the regulatory framework for all electronic payment methods. “There’s nothing unusual about what we are asking for,” says Plourde. “Plenty of countries have already put measures in place to ensure merchants will still have to accept cash.”