Software CEO Opines Data Breaches Are Not Driving Consumers Back to Cash

Last week, it was revealed that Supermarket chain Supervalu is investigating the possibility of a data infiltration that may have affected as many as 1,000 stores. Early results of the investigation suggest the breach may have occurred earlier this summer when hackers installed malicious software into the company’s point-of-sale terminals.

Over the past year, numerous retail giants, including Walmart, Target and Neiman Marcus, have reported security data breaches that have left customers’ personal information, such as name, address and credit card numbers, vulnerable to hackers and cyberattackers. This has left a tremendous amount of pressure on data security firms and retailers.

In the meantime, one would think there would be a growing number of consumers returning to cash, at least for a little while until the data security improves at retailers. But it’s quite the opposite, according to one software firm CEO.

hackerWriting an op-ed in the American Banker last week, Douglas Ceto, CEO and President of CetoLogic, a provider of software and analytics solutions, noted that the use of cash has been declining in the last several years as only 29 percent of retail transactions in 2012 consisted of cash.

Ceto wrote that at times debit and credit cards can offer consumers a safer alternative to cash since the ladder can be lost or stolen at any time or place. However, identity thefts and data infiltration may be a bigger part of a consumer’s reality then misplacing a wallet.

Although merchants and retailers may embrace new EMV technology beginning late next year – EMV technology enhances both the security features of terminals and cards – cash, says Ceto, will still remain the most trusted and secure form of payment for consumers everywhere.

“In light of recent history, financial institutions should reconsider the notion of promoting card use for every transaction, no matter how small,” explained Ceto. “For one thing, if more customers use cash, they will visit branches and ATMs more frequently. This will give banks a greater number of one-on-one customer interactions and cross-sell opportunities.”

He added that an increased promotion of cash over cards would assist financial institutions in reducing costs relating to card replacements. Citing a Credit Union National Association and the Consumer Bankers Association report, banks and credit unions spend approximately $200 million on card replacements for customers, many of which suffered from data breaches.

“The total cost to replace each card averages $10, including customer notifications, producing and shipping new cards, managing card activation and any supplemental communication. These significant expenses are repeated with each instance of a data breach,” stated Ceto.

Ceto concluded that no innovation will ever leave cash to wither away and become archaic.

“Consumers who use cash ultimately avoid the high levels of risk associated with swiping plastic and leave no trail for hackers to follow. Those kinds of advantages never go out of style.”

Using cash may have other benefits as well. According to one study, consumers who use the cash in their wallet may save more money than using credit and debit cards. The logic behind this finding is that when touching the fresh or used printed cash this will the customer to feel the money and remind them that they worked for it. In other words, you spend more using plastic and you spend less using cash.

Other reports suggest that cash can save merchants money as well because of transaction costs, while consumers can use cash as a bargaining tool since cash remains king.