This article in CUInsight by Lorraine Ranalli starts with a confession; she is a “cash whisperer” who makes a case for cash. I am also a cash whisperer and believe cash delivers value to our society. The case Lorraine makes for cash is the societal cost associated with card fraud:
“In a society that appears to be rapidly moving away from cash, every now and then a small voice emerges making the case for cash. Being a cash whisperer, I tend to take heed to such arguments, with an open mind, of course. From the practical “you never know when you may happen upon a truck stop that only accepts cash” to the hysterical “the grid could collapse causing panic and pandemonium,” and every argument in between, there are plenty of reasons for physical currency to remain in circulation.
Spend a few moments observing the checkout at any retail outlet or the traffic in and out of a financial institution’s physical branch and it will be clear, however, that the amount of paper cash being exchanged has been reduced. Heck, have an impromptu lunch with a group of friends or coworkers and notice how few carry cash. Restaurants and retailers are responding to the trend by offering online preordering options and making it easier for consumers to swipe a debit or credit card at the register.
Financial institutions and credit card companies will not be happy with the case for cash that I’m about to divulge.
The flurry of activity around charge cards is a boon for the credit card industry and for FIs. Unfortunately, it is also a boon for thieves, a fact about which FIs are well aware and equipped to handle. Consumers are becoming more and more accustomed to the process, too. Rare is the occasion when a clerk requests identification from a cardholder, and frequent are the occasions when cardholders’ accounts are compromised.
Fraud prevention is set up to recognize, report or question, and then halt unusual activity. In most cases, the cardholder is not held responsible for fraudulent purchases. In cases where the charges can be stopped, the retailer takes the hit for the fraud. In other cases, the FI or card issuer eats the loss. Or do they?
Actually, all consumers take the fall for fraudulent credit card activity.
Let’s unravel the scenario. Credit card companies charge retailers for the ability to take credit. As the card companies’ cost to do business increases, so too do their fees. Most retailers pay the fees or risk losing customers. As retailers’ cost of doing business increases, so too do their prices.
Online retail aside, the solution is yet another case for cash. By increasing the use of cash at checkout, we drive down the opportunity for credit card fraud. Yes, what is old is new again. The solution is not favored by credit card companies for obvious reasons, and it is unpopular among some consumers and retailers.
You can read the full CUInsight article here
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
