So what does this have to do with payments? Well, sitting semi-comfortably in the back of said bicycle rickshaw, peddled by the (aforementioned unlucky) entrepreneurial small businessman, replete with toned calf muscles, the question arose about what kind of payments he would accept. To no one’s surprise, cash was it. In this latest edition of ‘Rantings with Ranta,’ I chat with our intrepid digital banking guru about pay and the small businessperson.
Mark, thanks again for actually having enough cash on hand that night. What does this example tell us about the future of cash?
As I’ve said time and again, cash is almost as good as money. It’s universally accepted, there’s no surcharge to use it, and for some, it’s fits nicely into their fanny packs (more on that later).
Full disclosure, Mark and I were the 2 passengers in this rickshaw, and he’s a tremendous travel companion.
While we were sitting in this rickshaw, which was cash-only (you and I had cash as did the driver), we weren’t exactly driving through the best part of the city, nor the best lit part of the city. In fact, you might recall the 2 seemingly innocent guys getting arrested by police while on our journey.
Yeah, that was…interesting (editor’s side note: refraining from using another word). So let’s talk about micro and small businesses and how we get them to take part in the digital (payments) revolution.
After witnessing this unfortunate incident, we talked to the rider (Wilson) about the idea of card readers and the opportunity for him to rid himself of his fanny pack. And Wilson’s response summed it perfectly for merchants like him—that by using by a card reader, the merchant is assessed a transaction fee, which over time adds up, especially when you consider cash, which has no fee.
So what’s your solution?
Initially it’s two fold, 1) Educating the small business merchants, be it by the banks or by the third parties. Personally, this is prime real estate for which the banks could and should take advantage. 2) Adding the ability for the merchant to flip the fee to the client, simply and easily. It’s easier (and safer) for me to take on the extra fee as opposed to the small business operator being hit with it. And I think this would be the case for many business travelers (editor’s side note: after all, we were there for business).
Do you think this notion of flipping the fee will ever become reality?
It’s in fact possible today because of the Durbin Amendment. Think about gas companies and paying at the pump…today you pay a higher price if you pay with a credit card instead of cash. And how many (or rather, few) of us actually pay with cash? Most of us incur this higher cost due to convenience. So why should Wilson be held to a different standard?
Do you think banks will jump on the aforementioned educational bandwagon?
I think we’re seeing a greater focus on the micro and small business segment due to external pressures—low interest rates where banks are seeing less revenue than in the past, regulation, competitive cost pressures, etc. It’s been an area of neglect for many banks for a long time, but it’s finally an area that’s coming into clear focus as a huge opportunity.
If you think about the ‘shared economy’ and these companies and participants (like Uber and Airbnb), everyone in the ecosystem is now a small business proprietor. In terms of bank focus, we’re at a tipping point where small business needs are significant and many of their consumers are becoming microbusinesses themselves. It’s not just taking the credit card payment; that was an easy hurdle, it’s taxes, it’s small business protection, and opening an LLC, and so on. We’re just scratching the surface here and if banks take the lead, they’ll benefit the most.
So back to Wilson who only accepts cash, which he deposits in his less-than-secure fanny pack…do we think he’s a bank customer?
Possibly, but I think he uses the cash produced from his bike riding enterprise and it never hits the banking system. He’s among the anonymous pieces of the economy, pieces that are growing. And we as an industry need to figure out how to best improve the value proposition for the anonymous Wilsons of the world.
It’ll be an interesting journey, to say the least, though slightly different from our rickshaw ride. One thing’s for sure…cash certainly makes sense for many people, in many cities and in many countries. And it was never more evident than on Bourbon Street.