The omnipresent newspaper headlines would lead you to believe the mobile revolution is just around the corner. However, as Forbes’ Steven Bertoni points out, less than 7% of all retail transactions are currently conducted through e-commerce channels (including mobile). While the research firm, Gartner, estimates mobile payments will top $720 billion a year by 2017, for the time being consumers continue to prefer cash and other tangible payment methods:


Today, it seems like everything is going digital—but we still pay for most things the old fashion way. Humans made $15 trillion in retail transactions in 2013–$1 trillion of that was via e-commerce, $14 trillion was spent in physical stores and paid for with cash and credit cards.

More of that $14 trillion chunk will slide to the digital side as smartphones continue to spread across the market. Research firm Gartner estimates that mobile payments will top $720 billion a year by 2017, up from $235 billion last year. Several tech giants are strategizing ways to capture the billions in transaction fees and troves of valuable consumer data at stake as money goes mobile. Apple AAPL -0.16%, Amazon, Google GOOG -0.16%, PayPal (Ebay EBAY +0.01%), Visa and MasterCard MA +0.28%–they all want win the digital wallet. 111

After he experiments with “going mobile” for a day, Bertoni concludes with the following verdict:

Mobile payments offer a few cool perks, but the gaps and shortcomings are massive–don’t lose your wallet just yet. 112

So, if mobile payments have not mainstreamed as fast as was initially expected, what then are the issues? There are almost 200 mobile payment schemes now in existence, all trying to capitalize on the success of M-Pesa. However, it has been estimated that over 90% of these schemes are currently struggling, defining “success” as over one million users and paling in comparison to M-Pesa’s half-trillion transactions in Kenya alone in 2012. 113 With over 15 million users, M-Pesa is by far the largest and most successful mobile payment method in the world. Barriers to mobile payment scheme success are varied, ranging from difficulties in commercial interests to stiff competition.

In light of M-Pesa’s impressive success and widespread usage, it is surprising to note that since it was introduced in Kenya, rates of cash usage have actually increased. The March 2014 issue of Currency News reports:

It is often assumed that the evolution of mobile payment technology poses a threat to the use of cash. But that assumption is now being challenged, not only by the traditional advocates of cash, but also by empirical evidence from countries where mobile communications have made the greatest in-roads into society’s payment practices.

The best example of such evidence comes from Kenya, which is a leader in mobile money. Even so, in 2013, 99% of all retail transactions in Kenya were still conducted in cash, with most of the remainder done through informal credit arrangements. Certainly the M-Pesa system has revolutionised funds distribution but, once the ‘agent-to- agent’ transaction has been completed, cash once again takes over.

Critically, as Kenya has shown, the mobile phone has enabled a largely unbanked population to transact and transfer money (nearly three quarters of the population do not have access to banking services). The ability to do so is a major driver for economic activity, and as this activity grows, so does the demand for cash. So what has happened in Kenya is not that mobile money has replaced cash – because the transactions weren’t there in the first place. Instead it has served to allow the means, and hence generate the demand, for cash.

Providing proof of this, the volume of currency in circulation in Kenya increased by 35% in the last six years, ie. since the launch of M-Pesa, and the value has doubled. Not all of this can be attributed simply to the greater ease with which payments can now been made. But it is certainly a factor. 114

To further examine M-Pesa, we look at a 2011 working paper by the US National Bureau of Economic Research (NBER), Mobile Banking: The Impact of M-Pesa in Kenya, which discusses how M-Pesa works, as well as its economic and social impacts. Relevant portions of the paper are referenced below:

M-Pesa is a money transfer system operated by Safaricom, Kenya’s largest cellular phone provider. M-Pesa allows users to exchange cash for “e-float” on their phones, to send e-float to other cellular phone users, and to exchange e-float back into cash. The story of the growth of mobile telephones in Africa is one of a tectonic and unexpected change in communications technology. From virtually unconnected in the 1990’s, over 60 percent of Africans now have mobile phone coverage, and there are now over ten times as many mobile phones as landline phones in use (Aker and Mbiti, 2010).

While the mobile telephone is within sight of becoming a mature business, e-money services like M-Pesa are still in their early days and are continually evolving in response to competitive pressures and customer needs. Despite all the attention M-Pesa has received, there is little quantitative evidence on its economic and social impacts.

While we find little evidence that people use their M-Pesa accounts as a place to store wealth, our results suggest that M-Pesa improves individual outcomes by promoting banking and increasing transfers.

The vast majority of M-Pesa use is of the form of a cash deposit, followed by a single person-to-person transfer of e-float, followed by a cash withdrawal. 115

According to the study, M-Pesa is primarily used to facilitate the transfer of cash from one person to another, with cash remaining the preferred payment vehicle for the majority of people. Conversely, mobile phone payments in the developed world are often linked to payment cards, therefore acting as a debit or credit card transaction.

As mentioned above, new mobile payment schemes experience many barriers to success, including the vast numbers of “players” involved in the transaction (mobile phone networks, manufacturers, credit card companies, large internet companies, banks, and government regulations). Additional barriers, such as intense competition, a lack of standards, and varying levels of safety and security, prevent many new mobile payment schemes from providing a smooth, easy, and universal transaction for the consumer. In 2013, the Sydney Morning Herald reported that the explosive growth predicted for mobile transactions may be slower than originally anticipated:


The amount of money paid through mobile phones and over the internet is expected to reach $US796 billion globally by next year – triple what it was in 2012 – according to a new report.

While credit and debit cards still dominate non-cash payments, mobile and internet payments are expected to increase as more people have access to mobile phones and more payment methods are developed, according to the latest World Payments Report by Capgemini, based on data from 2011.

However, the director of banking, cards and payments at Capgemini in Australia, Phil Gomm, said the forecast for m-payment volumes to grow to 30 billion transactions worldwide by 2014 might be overblown. “We are questioning some of the assumptions that the analysts have made,” he said. 116

A recent Boston Globe article corroborates the evidence that mobile payment system growth is more sluggish than originally anticipated: 117


The author, Brian X. Chen, singles out the key reasons why mobile phones have not grown as quickly as expected:

• First, retailers and consumers need a viable value proposition in order to invest in the technology and change their payment habits. However, most are not seeing it. As a result, app developers must find something else to attract both the retailer and consumer; this most often manifests itself as coupons or frequent shopper discounts.

• Second, a chicken or egg situation arises wherein merchants are not willing to invest in the various merchant systems that support mobile applications as they do not see the number of consumers to support them; meanwhile, consumers cannot find enough merchants to support the applications.

• Third, and most importantly, there is not a problem to solve. People are generally satisfied with paying by credit card or cash.

Now that “identity is the new currency,” 118 the ongoing predictions that cash will be replaced by other payment methods – from credit cards, debit cards and Stored Value Cards to Internet payments, PayPal, mobile payments, and Pay-by-touch – have missed the point. Consumers are growing more and more concerned with the security of their personal information. Cash simply has no replacement when it comes to safety and security.

As a final word on dissolving the myth that mobile payments will replace cash, Japan represents a relevant and intriguing case study. Despite Japan’s reputation as an advanced mobile payments market, the country has one of the highest rates of cash transactions in the world. 119 This thriving co-existence of mobile and cash payments suggests that card companies and commercial banks have more to worry about than cash payments from mobile phones as the telecom companies become the next “banks” and the iPhone and Galaxy the next payment “cards.”

This article has been posted with permission from Currency Research and is excerpted from The Case for Cash Part 1: Myths Dispelled. To request a copy of the full report or to learn more about Currency Research, please click here

112 Ibid.

Myth: Cash will be replaced by mobile payments