Pennies, Prepaid Cards, Smartphones Shape The POS

By Matt Pillar, editor in chief

According to the U.S. Mint, it costs 2.41 cents to make a penny. The penny’s inflating cost of materials and production resulted in a profit loss of more than $60 million at The Mint in 2011. I’m no economist, but considering that it’s still worth just $0.01 to you, it’s no wonder there have been Congressional suggestions that we do away with the penny.

Other countries have been quick to rid themselves of small-denomination coins in modern history. Since 1971, Sweden has systematically taken its one- through 50-ore coins out of circulation. Other industrialized countries, including Brazil, Finland, Israel, the Netherlands, New Zealand, Norway and Switzerland, have followed suit by dropping small-denomination coins in recent years. Now there’s a growing chorus of UK economists and citizens calling for the end of its penny.

Meanwhile, a fresh report from Javelin Strategy & Research is telling us that cash has finally lost its miniscule edge at the retail POS. More people still use cash than any other form of payment, but at 27% ($1 trillion) of the total dollar share, cash has fallen behind debit (31%) and credit (29%) in terms of financial influence at the POS.

Further contributing to the rapid demise of the penny (and the slower demise of cash) are mobile payments, which are riding the smartphone craze to a blistering 24.7% compound annual growth rate (CAGR). Javelin says that by 2017, mobile payments volume will be close to $1.4 billion, up from $362.6 million in 2011.

That figure still pales in comparison to prepaid card volume, projected to hit $139.4 billion on 5% CAGR by 2017, and gift cards, which will drop 2.1% to $108.7 billion by 2017. 

The prepaid findings in the Javelin report align with those released by Mercator Advisory Group. It says consumers piled $57 billion onto prepaid debit cards in 2011, and projections for 2012 indicate 44% growth to $82 billion. That growth is projected despite a relatively high price to the consumer – according to the credit card comparison experts at NerdWallet, consumers pay close to $300 on average in annual prepaid debit fees.

Cash usage has further to fall than check usage does. Paper checks were the biggest losers in the Javelin report, their CAGR expected to decline 7.6% from $267.6 billion to $166 billion through 2017.

These changes have big implications for retailers’ payments infrastructures, from the hardware deployed at the POS to their relationships with banks. Most notably, the one-two punch landed by smartphone adoption and the coming EMV standards call for concerted integration of mobile payment devices. But don’t scrap those Coinstar machines just yet. They might soon collect a whole lot of pennies.