A widespread power outage in Spain and Portugal on Monday caused significant disruption, leaving both customers and businesses struggling to conduct electronic transactions. This incident starkly highlights the challenges associated with the shift away from cash-based payment methods.
The blackout had a far-reaching impact across the Iberian Peninsula, affecting essential services including public transport, hospitals, and manufacturing operations. According to reports, banking and payment systems were severely affected, with only a handful of banks able to process transactions through their point-of-sale (POS) terminals. Furthermore, many bank branches and ATMs were rendered inoperable during the outage.
Banking systems and government response
In response to the chaos, the Bank of Spain announced that by 3:30 p.m. local time, the national and cross-border payment systems had resumed normal operations. However, they noted that residual issues stemmed from the lack of backup power supplies for bank branches and merchants, resulting in some POS terminals running out of battery.
Prime Minister Pedro Sanchez has been pushing to reduce cash transactions in Spain, aiming to combat tax evasion. In 2021, the government enacted a reduction in the maximum cash limit for businesses per transaction from €2,500 to €1,000. Despite these efforts, data from the European Central Bank reveals that cash still represents a considerable portion of the retail market in Spain, accounting for approximately 57 percent of transactions. In contrast, about 39 percent of payments that are not made online are completed using cards or mobile applications.
The risks of cashless transactions
The recent blackout has drawn attention to the vulnerabilities associated with cashless payment systems, which are susceptible to both accidental and intentional disruptions. Just last month, the central bank of Sweden cautioned citizens about the importance of keeping physical currency on hand for emergencies. Riksbank Governor Erik Thedéen pointed to a “deteriorating security situation” as a key reason for this advice, referencing concerns related to nearby Russia.
This incident follows closely on the heels of a prolonged outage caused by an equipment malfunction at the European Central Bank’s TARGET system, which facilitates wholesale payment processing. Fortunately, during that incident, the core components of the eurozone’s financial infrastructure continued to operate smoothly, as confirmed by the ECB.
“The vulnerability of cashless payments to disruption — either unintentional or deliberate — hasn’t gone unnoticed.”
The recent blackout serves as a crucial reminder of the need for a balanced approach to payment systems, ensuring that both electronic and cash options remain viable for consumers and businesses alike.