May 11, 2023

Cash or Card?

Which is a better way to pay?

“Cash or Card?” The age-old question that has stood between many buyers and their shiny new purchase. For a long time, cash and credit cards have been two of the most popular payment options available to consumers. However, with the onset of the coronavirus pandemic and the global shift toward online shopping and digital payments, could cash payment be turning into a thing of the past?

Over the past few years, overall cash payments have been on the decline. In Canada, for example, the volume of cash exchanged between 2015 and 2020 decreased by 38 percent. Much of this volume was lost to card payments.

The coronavirus pandemic has only exacerbated this trend, with factors such as lockdowns and curfews preventing access to brick-and-mortar stores. Increased concerns over the risk of virus transmission through the handling of notes and coins have also played a part in the move away from cash. As a result, many consumers have opted to do most of their purchasing online and through contactless channels, with 40 percent of Canadians stating they used their mobile wallets more often to pay for store purchases since the COVID-19 pandemic started.

Sweden’s Rapid Advance to a Cashless Society

These changes are not unique to Canada, as several other countries across the world have observed similar changes. Sweden, for example, is at the vanguard of cashless countries. In 2020, cash payments accounted for less than 1 percent of total transactions in Sweden, and it is expected that Sweden will become the world’s first cashless society by March 2023.

There are a few reasons that Sweden has been able to take this stance. Firstly, Sweden has a well-developed internet infrastructure, with 94 percent of Swedish households having access to the internet in 2020. Sweden also has a strong mobile network that has supported the widespread use of their mobile payment app, Swish, which links users’ phones to their bank accounts and facilitates payments and money transfers in real-time.

In 2020, 94 percent of Swedes stated they use Swish as a form of payment. Another reason for Sweden’s swift advance to a cashless world is the fact that the majority of its population owns a bank account. As of 2017, 99.74 percent of the Swedish population was banked, making access to credit cards and digital payment methods possible.

Where Cash Still Dominates

While countries like Sweden have embraced the move from cash to cards and digital payments, there are plenty of other countries where cash is still king. In 2020, a study by Merchant Machine showed that Romania is the most cash-reliant country in the world, with over 70 percent of payments having been made in cash. Egypt and Kazakhstan follow closely as the second and third most cash-reliant countries. Both have a high percentage of their population being unbanked and a comparatively low number of internet users.

However, bank account ownership and internet access aren’t the only factors responsible for the preference for cash in some countries across the world. Take Japan for example - it is one of the world’s most technologically savvy countries with 91.2 percent of the population having access to the internet in 2019. Yet, cash is still king, with about 80 percent of transactions being paid in cash.

This is largely due to the fact that cash is a large part of Japanese culture and cash is often given as a gift at other celebrations, such as weddings, which has helped to ensure its longevity in Japanese culture.

While cash still dominates in Japan, the Japanese government is working on gradually moving toward a less cash-reliant world, with a goal to see 40 percent of transactions conducted through cards and digital payments by 2025, up from about 20 percent currently.

With the use of cash declining at different rates globally, it is important to examine the benefits of both cash and card payments as we move towards a more card-reliant world. But what are the benefits of each method of payment? Let’s take a look.

The Case for Cash

Cash is Accessible

Bank account ownership and widespread access to the internet are some of the most important requirements needed to support a cashless society. This fact has led to concerns about how accessible a cashless society truly is, especially to the most vulnerable in the population.

Those who are homeless, undocumented, or otherwise lack any other pre-requisites needed to open a bank account are extremely vulnerable in the face of a cashless society. There are also concerns for the elderly and ensuring that they can adopt new technologies in a cashless world so that they, too, are included in the new financial system. Cash allows those who have little or no access to digital money to be able to make payments and save money, which is critical for the inclusion of socially disadvantaged populations, such as the elderly and low-income groups.

Cash Is Less Susceptible to Technological Issues

Card and digital payment methods are heavily reliant on technology to function. IT failures, such as loss of electricity, internet outages, or system failures could leave consumers unable to pay and merchants unable to sell their products. Cash is a failsafe option to pay as it is not reliant on technological systems to be used.

There is also the risk of hacking and cybercrime when using cards or other digital payment methods. Because the digital transaction process involves several parties at various stages, such as merchants, payment gateways, and financial institutions, each point poses as a potential point of attack for malicious actors. On the other hand, cash transactions occur between the buyer and seller offline, protecting both parties from cyberattacks and hacking.

Cash Provides Anonymity

When it comes to privacy, cards and digital payment methods do not offer the same level of protection that cash does. For each transaction that is made electronically, a wealth of information about the consumer is shared - not just between the merchant and the bank - but also with the credit card companies that function as the middlemen.

The primary middlemen in most card transitions are Visa, with about 60 percent of the credit and debit card market, MasterCard, with 25 percent, American Express, with 13 percent, and Discover, with 2 percent. Current privacy laws do not adequately protect consumers and their data and there are growing concerns over the monetization of people’s financial data through surveillance capitalism. In contrast, cash is more anonymous as it allows for transactions to happen without the exchange of information, helping to protect consumers’ data and privacy.

The Case for Cards

Cards Provide a Digital Paper Trail

Each time a card or digital payment method is used it creates a digital footprint of each transaction which can be tracked by the government and financial institutions if needed. As a result, card and digital payments help to reduce financial crimes such as money laundering, tax evasion, bribery, and other cash-reliant crimes.

Many financial crimes occur with the use of cash as it is difficult to track cash transactions. However, digital payment methods create a record of each transaction, making illegal financial activities easier to identify.

Cards are Contactless

Cards and digital payment methods facilitate contactless payments, which have become important since the coronavirus pandemic began. The pandemic has brought about increased concerns around virus transmission, and since the use of cards and coins involves a lot of handling by different people, many have opted for more contactless payment methods to reduce the risk of infection.

This has led to an increase in the use of cards and digital payment methods such as smartphones, and wearable devices, with 40 percent of Canadians stating they used their mobile wallets more often to pay for store purchases since the COVID-19 pandemic started.

Cards Are a Cheaper Alternative to Cash

It can be expensive for businesses to handle cash. While some businesses prefer cash to avoid the 3 percent processing fee that credit card companies charge, research from the ILH Group shows that handling cash is costing many businesses more. The report shows that retailers’ cash-handling costs range from 4.7 percent to 15.3 percent depending on their retail segment.

According to the same report, cash handling processes are costing businesses an estimated 100 to over

500 labor hours a month per store, which can be saved by automating some of their cash handling processes and switching to cashless payment methods.

The Verdict

So, which is better, cash or card? There are benefits to both methods of payment; cash allows for the financial inclusion of all members of society, helps to protect people’s data and privacy, and reduces the risk of technological issues and cyberattacks. Cards, on the other hand, help to prevent and identify financial crime, offer contactless payment methods in a post-COVID world, and are often a cheaper alternative to handling and managing cash. Both payment methods have something to offer our society, and there will likely be a place for each as we move forward.

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Is Canada Really in a Recession?

23 Dec, 2023

Context A CBC News article discussed the possibility of the Canadian economy heading into a recession, or whether the country has already passed that threshold. The article discussed this possibility based on slowed growth, high inflation, and the Bank of Canada’s continued interest rate hikes. Analysis A recession is a significant reduction in economic activity that occurs over a length of time, usually months or years. One of the most accepted definitions of a recession comes from the economist Julius Shiskin in 1974, who identified the threshold to an economic recession as two consecutive quarters of declining GDP, although economists often argue about the comprehensiveness of this measure. The causes of a recession can be quite complicated and have many contributing factors. Some common examples include a sudden economic shock such as the recent COVID-19 pandemic, excessive debt, asset bubbles, inflation, deflation, or large technological changes. One major factor influencing the probability of an economic recession includes rising interest rates from the Bank of Canada, which has implemented the highest hike in the shortest amount of time in all of the bank’s history, raising the rate over eight times since 2022. The Bank of Canada increased interest rates in order to curb inflation since rising interest rates discourage taking on debt and spending. This further encourages companies to lower prices or slow inflation to increase demand. Currently, the Bank of Canada is keeping at the 5.0 percent rate but has said that further hikes are not off the table as inflation may continue to exceed acceptable rates. Increases in interest rates can certainly contribute to or precede a recession. In fact, the Bank of Canada has raised interest rates three times to slow inflation since the 1960s and all three times this action led to an economic recession. Current fears of a looming economic depression are also not unique to Canada, as following the COVID-19 pandemic, the global inflation rate increased to 8.73 percent in 2021. This was due to supply chain issues, as well as the effect of the Russia-Ukraine War creating rising food and energy prices, as well as general fiscal instability. A majority of the World Economic Forum’s lead economists agreed earlier this year that we could see the beginning of a global recession starting in 2023, which would certainly affect the Canadian economy. The article also discusses the Canadian economy’s slowed economic growth, as the GDP has stagnated in the second quarter of this year. However, it suggests other factors may explain the decrease, including striking port workers in British Columbia, and the resulting negative effect on economic activity. An RBC report mentions how on a per-person GDP basis, there has already been a decline for four straight quarters despite a surge in population growth, and concludes overall predictions for GDP growth do not look promising despite local factors including Canadian wildfires and strikes. They also point to a 0.5 percent increase in the unemployment rate over the past few months, which has historically tended to indicate a looming recession.

Ottawa Mayor and Lansdowne Park

21 Dec, 2023

Context The City of Ottawa Mayor, Mark Sutcliff released a statement about a revised plan for the redevelopment of Lansdowne, an urban public park containing historic landmarks and commercial venues. The project includes the demolition of a sports arena complex, stadium stands, and the building of a new event center, residential units, and retail space. Despite suggesting the new plan has addressed the concerns of residents, many issues remain. Analysis The City of Ottawa and the Ottawa Sports and Entertainment Group (OSEG) have been in partnership to develop Lansdowne since 2012 and finished an original redevelopment of the park back in 2014. A few years later in 2019, the financial sustainability of the park came to the city council’s attention, and in 2020 the partnership was extended another 10 years with direction to develop a new plan to revitalize Lansdowne. Consultation with community members started in 2020, with the original concept released last year in 2022, and a revised version released this month. Community feedback was acquired through various platforms including public information sessions, an open email for feedback, and public surveys. A summary report of that feedback was published on October 6th, which highlighted the six most common themes of community residents’ concerns. The first concern was related to the size and number of the multiple high-rise apartments which were designed to exceed 30 floors. In the new plan , they have removed one of the three planned buildings, with fewer total units in each, and only one tower with the potential to be built at 40 stories. Residents were also concerned about the loss of greenspace due to the new event center construction. Many people suggested they wanted that greenspace allocated elsewhere, or alternatively, an accessible greenspace roof on the event center. Although in the original plan the city had conceptualized a greenspace rooftop on the event center, this was scrapped in the new plan as it was deemed too expensive to maintain. Respondents wanted a restriction of vehicles to the premises to promote pedestrian safety, a concern that has existed since Lansdowne was first renovated back in 2014. They also wanted more public transportation infrastructure to and from the park, whether that is the local city buses, trains, or cycling infrastructure to reduce congestion on connecting roads. Relatedly, residents also desired more accessible public use space from washrooms to water fountains to usable and free space for people to occupy. The new plan has reduced the number of parking spaces for the residential buildings to meet the Bylaw limit of 0.4 spaces per unit, down from 739 to 336 spaces, while they added 36 new spaces for the event center. In terms of accessible public space, the new plan includes 27,000 square feet of space originally earmarked for the third residential building, now available for an unspecified “public realm.” Residents also wanted more local and less corporate or big-box businesses, to reflect the unique local community better. The new plan does suggest the amount of retail space has been reduced from 108,000 square feet to 49,000 square feet but does not directly address the desire to attract smaller, local businesses. Finally, there was also a concern about financial transparency of how the project is being funded and the resulting impact on the City. The Federation of Citizens Association (FCA) which represents over 70 community groups voted unanimously to oppose the new plan, which comes with a very costly price tag of $419 million, increased from $332 million of the first plan. They cite that the debt comes at a time when the transit system is facing major issues, and the city is struggling with a housing affordability crisis.

Danielle Smith - Conflict of Interest

20 Dec, 2023

Context Newly elected Premier of Alberta Danielle Smith has defended her cabinet which is coming under fire over conflict-of-interest concerns. Environment and Protected Areas Minister Rebecca Schulz’s husband, Cole Schulz , may be lobbying the government in the areas that the Minister works in. Cole Schulz's firm is working on removing the protection of a threatened caribou range to make room for the oil and gas industry – which has raised concerns over who has Minister Schulz’s ear. Analysis The company that Cole Schulz is a partner with, Garrison Strategies, was hired by the Explorers and Producers Association of Canada and is working to influence the government on the issuing of reclamation certificates for oil and gas sites. The lobbyists are working to gain more access to protected caribou habitats to expand the oil and gas industry. They are hoping to “ address the moratorium on tenure in caribou regions ” which would effectively give them better access to land and investments. The Little Smoky and A La Peche herds in northwest Alberta were protected by a moratorium in 2013 which stopped the granting of new energy leases in this area. At the time, 95 percent of the herd’s range was heavily damaged. Phillip Meintzer of the Alberta Wilderness Association found that though records show that Garrison didn’t contact Environment and Protected Areas directly, the firm’s causes are “ too close for comfort ”. Meintzer also notes that as Garrison works on opening the protected caribou land for Alberta Energy, Environment and Protected Areas should be working on a protection plan for the federally and provincially designated threatened animal . Minister Schulz is working closely with the ethics commissioner, however, Danielle Smith confirmed that “ the ethics commissioner has looked at it, given guidance and there’s no violation [of the Conflicts of Interest Act]”. Cole Schulz also indicated that his firm wasn’t aware that Minister Schulz breached the Act at any time. Meintzer suggests that this situation “ calls for a further look ” from a third party. Sources https://globalnews.ca/news/9988998/alberta-premier-danielle-smith-rebecca-schulz/