It turns out cash is bad for business. Not cash in the sense of money, but cash in the sense of those wads of shiny plastic bills made up of atoms that many companies, especially small ones, love to collect.
According to a new study by the Global Solution Networks program at The Rotman School of Management at the University of Toronto, companies that base their transactions and business on money made of atoms, not digital bits, suffer big time. If they continue their love affair with physical cash, dragging their feet into the digital age, they are headed for deep trouble. Businesses that use cash will find themselves stagnant and marginalized, left behind by competitors who have adapted to the way consumers want to do business and enjoy the business-enhancing benefits that come with electronic payments.
But the research also concludes that this isn't just an issue for the small neighbourhood retailer, restaurant or contractor. Business strategies and government policies that inhibit the transition to electronic payments will dampen small business growth, and reduce innovation, efficiency and prosperity across the entire Canadian economy. Conversely, policies and strategies that encourage electronic payments are in line with today's market trends -- including shifting consumer payment preferences and the rapid rise of e-commerce -- and offer tools and opportunities businesses need to grow and to increase profits.
In fact, the evidence is so overwhelming in support of the business and economic benefits of electronic payments that there would be nothing to discuss if it weren't for one stubbornly held fallacy -- that cash is free. It is not.
Costs of Cash to Businesses
The Global Solution Network study explores many of the direct and indirect costs associated with cash payments, including the costs of processing cash -- time spent accepting it, counting and recounting to balance the till and taking cash deposits to the bank. There is also the cost of securing cash, including security systems and personnel, and the cost of cash that is lost, either by employee errors or theft.
Cash-only businesses lock themselves out of commerce with many tourists and business visitors not carrying Canadian currency.
Add to that the cost of other wasted time -- all the time employees spend on low-value, non-strategic cash management activities that could be spent on things that add value.
Policies that require or encourage cash payments trap businesses in a world of low-value transactions. The overwhelming majority of consumers will not buy bigger-ticket items with cash, which means cash-only merchants are stuck at the margins of the economy.
Going Digital Pays Off in New Ways
The digital revolution increases the metabolism of businesses and enables companies to penetrate new markets, including online markets that provide global reach. Some companies find strategic advantage in no-cash policies. For example, some airlines don't accept cash for any in-flight purchases. Airlines succeed by maximizing the use of their aircraft and crew. Accepting only electronic payments eliminates the need to deal with different currencies, and eliminates the time-intensive process of reconciling cash balances, and handling cash. That all helps the airline shorten aircraft and crew turnaround times.
In addition, electronic payments offer major back-office benefits. Invoicing, waiting for payment and chasing after payment have costs that hurt a small business, undermine its viability and can damage its relationship with customers. But electronic payments offer more efficient processes for managing payments, deposits and reconciliations.
The economic and social benefits for governments from a move to electronic payments are significant, including less tax evasion, reduced activity in the underground economy, increased tax revenue, reduced corruption, and improvements in the ease and efficiency of doing business.
Reaching a Better Destination
Cash-only small businesses can help themselves find a better future by changing direction, and they can be helped in this regard by Canadian governments leading by example rather than regulation. Government policies should encourage the adoption of electronic payments across the entire economy, and governments should set the proper example by adopting electronic payments.
Government policies and merchant lobby campaigns that seek to discriminate against electronic payments or make them a less appealing proposition for consumers are alarmingly short-sighted and focus only on the costs of accepting such payments, not the benefits, yet the latter greatly outweigh the former.
The prescription for the business sector and for the Canadian economy is simple. Embrace the world as it is today -- digital, mobile and innovative -- and succeed, or resist change and fall behind, stuck in a low or no-growth reality where every day is a struggle for a smaller return.
A version of this article originally appeared in the Hill Times.
Don Tapscott is Executive Director of the Global Solution Networks Program and the author of 15 widely read books. The program, which is funded by companies and government, is exploring new approaches to solving global problems. Twitter: @dtapscott