The True Cost of Cash: Report Argues Why Accepting Electronic Payment is Best for All Businesses

Canadian businesses that cling to a cash-only model are “destined to exist at the low-value margins of the economy,” according to a study by The Martin Prosperity Institute, which is part of the University of Toronto’s Rotman School of Management.

The study argues that Canadian businesses clinging to cash-only models are stagnant and will be “left behind by competitors who have adapted to the way consumers want to do business,” identifying the pitfalls of accepting only cash for payments. It also details the challenges to business growth and survival as more and more Canadian consumers choose innovative payment technologies.

“Retail is changing because consumers have chosen and what they have chosen is electronic payments,” explains Don Tapscott, Fellow at the Martin Prosperity Institute, Executive Director of Global Solution Networks. “Many Canadian businesses have embraced the benefits for themselves and their customers of electronic payments, but those that don’t will find they are less competitive and less profitable, and they will be relegated to the low-value margins of the economy.”

“Cash-only businesses can help themselves by adapting to the way their customers want to do business,” says Dr. Walid Hejazi, Associate Professor at the Rotman School of Management, and author of the study. “And because this is an issue with important implications for the broader Canadian economy, government needs to lead by example. It should encourage the adoption of electronic payments across the entire economy by itself making that transition.”

The study, which was commissioned by MasterCard, details “the true costs” of conducting business in cash. Costs associated with cash payments include the costs of processing cash—time spent accepting it, counting and recounting to balance the till and taking cash deposits to the bank.  All that non-productive time on cash management activities could be spent on things that add value, the study reports. 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. Further, cash-only businesses lock themselves out of commerce with many tourists and business visitors not carrying Canadian currency.

“The biggest benefit of electronic payments is that it’s what customers want, but there are many other benefits,” noted Hejazi. “You can’t participate in e-commerce if you only accept cash, which locks those businesses out of the fastest-growing sales channel.”

The study also identified social benefits from adoption of electronic payment, including less tax evasion and reduced activity in the underground economy.

“When business owners start using electronic payment channels a world of big data insights are opened up—it’s a fascinating view into the habits of their customers,” added Hejazi. “There is a wealth of rich data a business owner can use to grow the business—from the shopping and spending habits of his customers, to identifying the time of day when certain products perform better than others.”