Live from the Banknote Conference: A Conversation with Steve Son [Episode #12]

Podcast Intro (00:00:00) – Hello. Welcome to P.I.T. Exchange, a podcast by Currency Research. Join us as we discuss the latest in payments, innovation and technology with the industry’s most innovative thought leaders. Today’s payments are changing and moving around the world faster than ever before and P.I.T. Exchange gives you the knowledge and insights to keep up. Sit back and relax as we join Currency Research, exchanging ideas with today’s special guest.

Shaun Ferrari (00:00:02) – Hey, everybody, welcome to the next episode of The P.I.T. Exchange podcast by Currency Research, where we talk about the latest in payments, innovation and technology. Special episode today we are recording a live at the Banknote Conference here in Fort Worth, Texas. After day one of full activities. Had a fantastic general session day today. Heard a lot of different talks all about designing banknotes, different security features, different changes in the cash cycle and we’re thrilled to have a special live guests with us today. Mr. Steve Son. How are you, sir?

Steve Son (00:00:35) – I’m great. How are you, Shaun?

Shaun Ferrari (00:00:36) – Doing great. Doing great. Maybe if you could just introduce yourself to the audience and we’ll go from there.

Steve Son (00:00:42) – So I’m Steve Son. I currently have the responsibility of managing fed cash services for the Federal Reserve Financial Services Group. And what that actually means is, I help manage all of our cash operations throughout the Federal Reserve system. And our job and mission is to provide cash to all of our financial institution customers on a regular basis to ensure that they can then turn around and supply that cash to their customers and ultimately, the end consumer.

Shaun Ferrari (00:01:19) – Yeah, so that’s not a small job. That’s great. Well, thanks for for doing that. First of all I know it’s it’s a large undertaking. How do you think how do you think today went in terms of the conference?

Steve Son (00:01:32) – I thought the conference today was done really well. I think there’s been a lot of very interesting conversation around what’s happening in the cash space. As you mentioned earlier, I think it’s interesting to understand the technology behind a lot of these efforts in today’s environment, as well as more and more conversations about the opportunities to collaborate as a supply chain to continue to improve the overall sort of health of the supply chain and really the resilience of the supply chain.

Steve Son (00:02:02) – I’ll maybe offer that coming out of this Covid pandemic, we really saw the importance of cash playing a contingency payment role within society. And this is not just in the US, but you hear this from other central bankers and other organizations throughout the world that people out there still continue to rely on cash as a payment instrument. And so I think it’s great to have forums like this where we can come together and share ideas and share what’s happening.

Shaun Ferrari (00:02:31) – Yeah, no thanks for that. And I think we did hear that today. And I think we’ll get into in a second an update to a study that that you all have done, but one of the slides that was shown earlier today by, by Kathleen from the Fed also showed kind of that, just that when you have a pandemic or any crisis, right. We there was a pretty big increase in, currency circulation, it may have leveled off at this point, but there is definitely a contingency kind of some somewhat of a hoarding, but also, just people like to hold cash in times of crisis.

Shaun Ferrari (00:03:02) – Yeah. so on that, you guys at the Federal Reserve just released an update to the consumer diary or the consumer the study of consumer payment choice diary. Yeah, you have the exact title, but but but yeah, I’d love to hear a bit more about what kind of some of the higher level findings were, from that because it just came out I think today or yesterday, this week.

Steve Son (00:03:27) – This week. Yeah. This week. So, yeah, I thank you for that opportunity. So, essentially The Diary of Consumer Payment Choice. There was a study, that we’ve been conducting since 2012. And really, we started this because there was no good data that exists out there around consumers use of cash. And of course, that’s important to us because in the US in particular, our mission, as I mentioned earlier, is to provide cash to all that demanded that feel that they needed. And in order to do that, well, it helps us to understand what’s happening with cash usage.

Steve Son (00:04:04) – Are there changes in that usage pattern, and what does the future hold for consumers and their desire to use cash? And so this year there were some surprises and there were some information that continued to be sort of confirmed year over year. And I think what’s interesting now, and you mentioned the pandemic experience leading up to the pandemic. We saw cash usage really, in some cases continue to grow, gradual growth, albeit, but still growth. And you talk about currency and circulation. That number has also continued to grow year over year and throughout the pandemic and even today. What’s been interesting, though, in this study is what we’ve learned is that the number of cash transactions that consumers in our study were actually making stabilized a bit. And so the. Interesting notion about cash usage that we’ve seen is whenever there’s some kind of a disruption, there’s sort of an immediate flight to cash. And it’s almost in some ways people feel better about having cash in their houses on their person, because it gives them some sense that they can weather whatever is to come.

Steve Son (00:05:20) – But what we saw during the pandemic was not a sustained spike in demand. We saw an initial increase in demand, in some cases 2 or 3 times what normal demand would be. And then we saw people hold it. And so what we’ve continued to see is the amount of cash that people hold on person, as well as maybe in their homes, has continued to stay above the levels that were before the pandemic. However, the number of transactions that they’re using to pay in cash pay with cash has remained stable. The interesting thing about that is people often ask us, well, what about credit card payments, debit card payments, mobile payments, to what degree are those increasing? And we definitely see, even through our study, increases in those payments. And as a result of those increases and cash staying stable, when you look at a percent of market share, it looks like cash has declined. But when you look at the actual number of transactions, it’s remained pretty much the same the last three years.

Steve Son (00:06:22) – Okay. And that starts to signal to us potentially that we’ve sort of hit a floor to this cash demand, and it hasn’t accelerated a decline in the usage of cash, as maybe some might surmise.

Shaun Ferrari (00:06:36) – Okay. Very interesting. And I think that kind of I think we were waiting a bit from last year because I remember when it came out last year was just kind of after the pandemic, and they were starting to make some conjectures at that point, if you will, that, yeah, maybe we have found this flaw, but I think everybody was kind of still waiting for and we still are. I mean, with only one more year of data, there’s sure of course, there’s more years to make a trend. But, nonetheless, it’s interesting to see that that kind of is carried on. Right. It’s like, okay, maybe that, assumption or that conclusion that we’ve reached a floor of, of kind of that where are we going to settle out? we might have done that. Right.

Shaun Ferrari (00:07:13) – So the current study kind of supports that still. Right? Okay.

Steve Son (00:07:17) – And the other interesting thing about cash usage, in particular in the US is that, again, as you pointed out, there’s almost $2.3 trillion of US currency out in circulation. And, we still see just below 30 billion notes per year that come through our doors for us to process from our customer financial institution. So that number hasn’t grown, but it also hasn’t shrunk. And so that signals to us that, at least for the foreseeable future, this demand for cash, this utility of people wanting to use it in payments continues to to persevere. Yeah.

Shaun Ferrari (00:07:55) – Okay. Interesting. And I think to that to that end, I guess it would also kind of indicate given that there’s more cash out there in general, yet it’s coming back less receipts are down a little bit at the fed or at a lower level, that it’s changing its circulation out in the cash cycle a bit. Yeah. and being either used differently or the pattern of, of receipts anyway is different.

Shaun Ferrari (00:08:21) – Any any kind of thoughts on on that.

Steve Son (00:08:24) – Yeah. So we hear often now that some of that is intentional by various participants within the cash supply chain. So if you think about, banks and their recent sort of behavior and activity, particularly as a result of the pandemic, a number of banks have decided to close bank branches. And yet what they’ve done is transitioned. A lot of that cash activity that used to happen in the branches to their ATM machines. We also hear from retailers, particularly the larger ones, that they’re investing in back office machines called recyclers, and smart safes that help them better recycle the cash that they receive from their customers. Now, we always ask the question when we get a chance to talk with retailers about, you know, do you prefer one payment type over another? And the large retailers will tell us, we really don’t care what our customers are willing to pay with as long as they’re willing to pay. and I’m sure when you start to talk to smaller retailers or mid-sized retailers, maybe the experiences are different and maybe some of their behavior is influenced by the the other payments and the associated sort of costs of those payments.

Steve Son (00:09:33) – But at the end of the day, again, what we continue to see is at least a sustained, stable amount of continued cash demand.

Shaun Ferrari (00:09:39) – Okay. Awesome. Cool. I mean, are there any other final thoughts from the the study that you want to leave us with?

Steve Son (00:09:48) – I think again, the the other interesting thing that we saw was in general, cash has always been traditionally the most used for purchases under about $25. For the first time, we sort of saw that change this year, and what we started to see was there were more payments being made with credit cards in that space. And so that’s always been sort of the interesting dynamic between, in particular, cash credit cards and debit cards. Debit cards seems to be on its own trajectory, but cash and credit cards tend to kind of bounce back and forth dependent on economic conditions, dependent on was there any sort of disruption in recent time? Even when you think back to the last financial crisis, there was a lot of flight to cash as households expressed that they were using cash as a way to budget better.

Steve Son (00:10:39) – Right. And so when conditions get better, then a lot of those homes might start to think about using credit again, in particular, as there is more credit available to them. And as these programs that credit card companies offer in terms of reward programs can also be somewhat beneficial to them, too. Yeah.

Shaun Ferrari (00:10:57) – For sure. And I would imagine there’s been a lot in the news and we won’t go into this topic, but there’s been a lot of news about just the use of credit over the past couple of years as as economic conditions are what they are and interest rates are and, and how that’s going to evolve. So curious to see what the future studies show and how that all plays out. But but no. Definitely fascinating fascinating results. Yeah. yeah.

Steve Son (00:11:19) – Maybe one thing I can offer to you is just, I think it’s important for people to know from the Federal Reserve’s perspective, our, our goal is not to promote necessarily the use of cash, but our goal is to educate people on how much cash is being used.

Steve Son (00:11:35) – And for us, again, given that it’s our mission, is to always make it available and accessible, our goal is to better understand their studies like this, how behavior in payments is changing, and being able to always be prepared to provide the cash that our citizens need.

Shaun Ferrari (00:11:52) – Yeah. Awesome. And to that end of being prepared, I just one more question on the panel that you were just on talking about cash visibility, a bit of a project that’s been going on since I was still at the fed when we started it, so back in what, 2015, 2016? We started talking about it anyway. Right. But I think the, in terms of being prepared, it helps to know where cash is, and who has what and how fast you can get it where. So maybe just an update on on what’s going on with with cash visibility, which for those listening is essentially how we track or how do you know where the cash is. Yeah, the packages are.

Steve Son (00:12:29) – Yeah, I mean, I would even say essentially at its root, cash visibility is exactly what it sounds like, adding more visibility to the movement of cash.

Steve Son (00:12:38) – This is not a initiative or effort to try to pry into how people are handling cash. It’s more about wanting more aggregated information and data around where cash is moving, how it’s generally moving. And as we better understand that at the core of this, cash visibility needs to have some level of data standard that helps all of the different participants within the supply chain to be able to share and communicate with data. Once we’re able to do that, then that might enable some additional things that can benefit the banks, can benefit the CIT companies can benefit the retailers. And even for the central bank, it benefits us again by giving us that aggregated view of what’s happening and how conditions are changing, so that we understand how to better prepare ourselves to meet whatever demand we see in cash. It’s exciting right now because as you mentioned back in 2013, actually, this concept was sort of born out of some conversations with industry participants, and we’re starting to finally see a lot of momentum, both from our vantage point at the Fed, but also from commercial banks, financial institutions, from the city community, as well as even groups that have come together at the Banknote Conference that are beyond just those that move cash.

Steve Son (00:14:00) – You know, the the producers, the suppliers to the producers, the technologists around the cash business. And so I think everybody is starting to recognize there is some benefit to them by greater data collection, greater data awareness, and greater data processing and analytics to help all of us kind of do what we do within that supply chain, better.

Shaun Ferrari (00:14:24) – Yeah. Awesome. It’s good that there’s progress. And I you hear it more in the industry now. And people starting to talk about it and seeing where it can benefit everybody, which is a great place to be. So cool. Well, I won’t take any more of your time this afternoon. Thanks for sitting down with us to to have a conversation. Yeah, I hope tomorrow is equally as exciting for you. And we got we got some good conversations out of that as well.

Steve Son (00:14:46) – Absolutely. Thanks for having me. And yeah looking forward to what the agenda has tomorrow.

Shaun Ferrari (00:14:50) – Cool. Awesome. Well, thanks for listening everybody. Please like subscribe, follow, do whatever it is you do with your podcast, wherever it is, you do it and we look. Forward to chatting with you again pretty soon on the next episode of the P.I.T. Exchange. Thanks very much.

Podcast Outro (00:33:09) – Thank you for listening to The P.I.T. Exchange, a podcast by Currency Research. Check out our upcoming events and publications at currencyresearch.com and join us for our next episode to hear what’s trending in payments, innovation and technology.

Welcome to the latest episode of our podcast, where we delve into the fascinating world of payments innovation and technology. Our host, Shaun Ferrari had the pleasure of recording a special live episode at the Banknote Conference in Fort Worth, Texas. It was an exhilarating day filled with engaging activities and the unique opportunity to host a live guest, Mr. Steve Son, who oversees Fed cash services for the Federal Reserve Financial Services Group.

The Mission of Cash Operations
Steve Son introduced himself and shared his extensive responsibilities in managing cash operations across the Federal Reserve System. His mission is critical: ensuring the availability of cash to financial institutions and, by extension, to consumers who rely on it daily. We were all ears as we considered the sheer scale of Steve’s role and the impact it has on the economy.

The Banknote Conference: A Hub for Collaboration
The conference itself received high praise from Steve. He was particularly impressed by the discussions surrounding cash technology and the collaborative efforts to bolster the supply chain’s resilience. It’s clear that cash remains a vital contingency payment method, a fact that was underscored during the COVID-19 pandemic when consumers worldwide continued to depend on it.

Consumer Payment Choice: A Study Update
A key topic of our conversation was the Federal Reserve’s updated study on consumer payment choice. Steve shared intriguing findings, including the initial surge in cash demand during the pandemic and the subsequent stabilization of cash transactions. This suggests a sustained level of cash usage, defying the expectations of some who predicted its decline in the face of digital payment methods.

Cash Circulation: Stability and Intentional Changes
Steve went on to discuss the stability of cash demand and circulation, which signals its enduring utility in payments. He shed light on the deliberate adjustments in cash circulation by banks and retailers, reinforcing the idea that cash demand persists even as alternative payment methods become more prevalent.

Understanding Payment Dynamics
The discussion also explored the relationship between cash, credit cards, and debit cards. Steve noted the traditional use of cash for smaller purchases and the evolving patterns in consumer payment behavior. The Federal Reserve’s objective is to comprehend these cash usage trends and ensure its availability, rather than advocating for its use.

Enhancing Cash Visibility
We wrapped up our conversation with an update on the cash visibility initiative. Steve was enthusiastic about the industry’s progress towards better data collection and the heightened awareness of cash movement. The potential benefits of this initiative for all participants in the cash supply chain are substantial.

The episode provided us with invaluable insights into the current state of cash usage, its resilience as a payment method, and the concerted efforts to improve cash visibility and data collection within the industry. The resilience of cash in our increasingly digital economy is a testament to its role as a cornerstone of financial transactions. It’s clear that while the landscape of payments continues to evolve, cash remains a key player, and its journey is one we will continue to watch and discuss.

Learn More About Cash This November!

As we wrap up this insightful journey, we invite you to continue the dialogue and participate in upcoming event, EMEA Cash Cycle Seminar (ICCOS). The EMEA Cash Cycle Seminar (ICCOS) is the leading conference focusing on cash management, distribution and circulation as well as production and how this can influence circulation.

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