A new report commissioned by MasterCard and put together by Walid Hejazi, an associate professor and the Rotman school of Management, argues that small businesses in Canada shouldn’t be using cash but rather electronic payments (like credit cards).
Aside from the part where the study loses a bit of objectivity by being paid for by MasterCard, it does offer some interesting insights into how relying on cash can put restraints on a small business’s ability to grow and innovate.
Specifically, the report warns that not only can a reliance on cash constrain growth, but can actually lead to “inefficiencies and lost profit opportunities.”
It said that Business strategies and government policies that inhibit the transition to electronic payments will “adversely affect” small business growth, and “dampen innovation, efficiency and prosperity” across the entire canadian economy. Policies and strategies that encourage electronic payments are not only consistent with prevailing market trends—including shifting consumer payment preferences and the rapid rise of e-commerce—but they also offer “key tools and opportunities that businesses need” in order to grow and to enhance profitability.
While small businesses may assume that using cash is cheaper than cards, the report argues that they don’t consider costs associated with processing cash—including time spent accepting cash, balancing the till and taking cash deposits to the bank. As well, policies that require or encourage cash payments “trap businesses in a low-value transaction environment,” thus inhibiting a migration to higher value transactions.
Among the reasons for adopting electronic payments the study said electronic payments offer more efficient processes for managing payments, deposits and reconciliations. They create opportunities for businesses to migrate to higher value transactions, are the preferred payment method of an increasingly important internet and techno-savvy demographic and are a pre-requisite for businesses seeking to capture a share of the rapidly growing e-commerce market.
The report also urged the Canadian government to encourage the adoption of electronic payments across the entire economy through its own adoption of electronic payments. The broader macroeconomic effects and social benefits of shifting to electronic payments, urged the report, include less tax evasion, reduced activity in the underground economy, increased tax revenue, reduced corruption, and improvements in the ease and efficiency of doing business.
“Indeed, the report shows that the benefits of electronic payments adoption not only flow to individual businesses through enhanced profitability and growth, they will also enhance the efficiency, transparency and fairness of the overall canadian economy. It is therefore incumbent on government policy to address these social benefits and facilitate the move to electronic payments,” wrote Hejazi.
The government must take a leadership role in encouraging the move to electronic payments, said the report. While a shift to electronic payments cannot be mandated by regulation, the government “can help to educate small business owners and can also lead by example through its own policies” on electronic payments.
The government of Canada, for their part, does have in place a policy to replace all checks with electronic payments by april 2016. “Together, these recommendations for policy makers and industry participants will enhance the move to electronic payments across the canadian economy. the shift to electronic payments, in turn, will enhance the growth and evolution of small and medium sized businesses, increase the efficiency of the canadian economy, and improve the incomes of average canadians,” wrote the author.