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Clinging to “cash-is-free” myth threatens some Canadian businesses

May 15, 2014

Toronto – Canadian businesses that cling to a cash-only model are destined to exist at the low-value margins of the economy, near stagnant and left behind by competitors who have adapted to the way consumers want to do business, according to a study by The Martin Prosperity Institute, which is part of the University of Toronto’s Rotman School of Management.

The study identifies the pitfalls of accepting only cash for payments and details the challenges to business growth and survival as more and more Canadian consumers choose innovative payment technologies for convenience, security and ease of use, whether online or in person.

“Retail is changing because consumers have chosen and what they have chosen is electronic payments,” said Don Tapscott, Fellow at the Martin Prosperity Institute, Executive Director of Global Solution Networks, and one of the world’s leading authorities on the economic and social impact of technology. “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.”

The study, authored for the Martin Prosperity Institute by Dr. Walid Hejazi, Associate Professor at the Rotman School of Management, also charges Canadian governments with setting the right example.

“Cash-only businesses can help themselves by adapting to the way their customers want to do business,” Dr. Hejazi. “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 details many of the true costs of conducting business in cash, as well as many of the benefits to businesses of integrating with the digital world. 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. 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,” said Dr. Hejazi. “You can’t participate in e-commerce if you only accept cash, which locks those businesses out of the fastest-growing sales channel.”

Other benefits the study identified include:

  • Managing income, deposits and reconciliations efficiently
  • Enabling  higher-value transactions
  • Doing business with tourists and business travelers without currency exchange
  • Guaranteed payment
  • Expanding customer base and market beyond bricks-and-mortar location
  • Gain insights from big data to make business more relevant to customers

The study also identified major social benefits from adoption of electronic payment including less tax evasion and reduced activity in the underground economy, both resulting in big increases to tax revenue.

“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,” said Dr. Walid Hejazi, Associate Professor at the University of Toronto’s Rotman School of Management. “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. And this is unlocked for owners through the power of the information captured in electronic payment systems”

The research also identified the need to educate businesses on the utility and value of digital payments, reporting:

  • Small business owners have little knowledge about which payment systems to adopt and which vendors to trust
  • Small businesses need confidence that electronic payments will help them grow their businesses and increase their bottom lines
  • Small businesses need assistance in evaluating the true cost associated with accepting only cash and the benefits of enhancing their business with electronic payment systems
  • Small business would benefit from an online tool that helps them calculate return on investment by identifying costs and benefits specific to their own business

The study was conducted by The Martin Prosperity Institute and commissioned by MasterCard.

The Rotman School of Management at the University of Toronto is redesigning business education for the 21st century with a curriculum based on Integrative Thinking. Located in the world’s most diverse city, the Rotman School fosters a new way to think that enables the design of creative business solutions.  For more information, visit


For more information:

Ken McGuffin
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Rotman School of Management
University of Toronto
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