Evan Schuman's StorefrontBacktalk

British retailers are seeing a resurgence in cash purchases, mostly due to a weak economy and consumers who are "nervous about borrowing or spending on debit cards," according to a new report from the British Retail Consortium (BRC).

The British retail group used the opportunity to beat up banks and card brands for overly high interchange fees. (Then again, retail lobbying groups need no special occasion to make such points, as they often volunteer them when asked about the weather.)

BRC surveyed its retailers in January and February of 2008, asking them about payment statistics from last year. The organization didn’t say how many retailers participated, but it did say that they collectively represent about 17,000 stores. According to these retailers, some 60.5 percent of their customers in 2007 were primarily using cash, compared with 54 percent in 2006.

But the question remains whether the consumer reactions that are pushing cash usage in the U.K. are likely to be replicated in other parts of the world. The study found that British consumers think of themselves now as "particularly cash-strapped" due to "fuel costs rising, food costs and tax bills," said BRC spokesman Richard Dodd.

Thus far, that’s representative of the consumers today in many countries, including the U.S. But the British consumer apparently reacts by relying more heavily on cash because "they’re nervous about borrowing or spending on debit cards. With cash, it’s so much easier to keep track" of finances, Dodd said.

Is it likely that consumers in Australia, the U.S. or Italy would react that way? In the credit-loving U.S., consumers who are strapped are more likely to embrace more credit rather than less. It may not be fiscally responsible, but it’s all-American.

The cash versus credit/debit debate in retail is a complicated one, and it’s getting even more complex for those merchants that are inclined to push the rules a bit.

For merchants strictly obeying all rules, cash has several pros—including no credit card fees, no PCI worries (although that’s not really true unless the merchant stops taking any credit or debit cards) and no authorizations, which mean fewer potential checkout delays. For those same rule-abiding merchants, cash also has some hefty cons, including greater risk of employee theft, more time-consuming transactions where change has to be given, smaller purchases and fewer impulse buys.

BRC’s Dodd said one factor that appeared to not be influencing Britain’s new fondness for cash was security concerns. He argued that the chip and PIN system—not currently deployed in the U.S.–was eliminating many security concerns.

For those less rule-attentive retailers, there are other issues. A cash-based business can be tempted to volunteer less information to the Internal Revenue Service, and some retailers have used credit/debit cards as customer identification methods. (One merchant is now touting a service designed to do just that.)

Retail tech consultant Mark Lilien says the tax issues are among the most tempting and the most widespread.

"Over the years, I’ve been privy to the financials of dozens and dozens of privately-held retailers. The overwhelming majority supplemented their profits by underreporting cash transactions to sales tax and income tax authorities. When sales taxes rise, so do the cash profits of privately held retailers," Lilien said. "If all the retailers who underreported cash transactions went to jail, you’d have to build more jails. It’s like the old psychiatrist joke about how many patients admit they masturbate: 9 out of 10 admit it and the other one is a liar."