The problem with a cashless society
For the first time, in June last year, debit cards overtook cash as the most popular payment method in the UK. However, according to Natalie Ceeney, former Chief Financial Ombudsman who conducted an independent Access to Cash study, banknotes and coins remain a necessity for eight million people. According to the report, which was released on 19th December 2018, a cash-free society would create problems for those in debt or living in rural areas.
What’s the story with cash?
Cash use has halved in the last 10 years, and is forecasted to halve again over the next decade. By 2026, notes and coins are expected to account for just 21% of sales [The Guardian]. Without a doubt, the UK, and on the whole, Europe, have fully embraced the cashless concept due to its simplicity. Even in cafes and pubs, where people are paying for smaller ticket items, card payments are taking precedent. In Q1 2018, pub chain Wetherspoon’s reported that cash payments had fallen by roughly 5% every year for the past four years. Pret a Manger also reported that over half of their customers now paid by card. But not everyone is benefitting from the migration towards a cashless society.
Merchants and innovation
Through the various studies that have been conducted, the cost of cash is clearly hard to quantify. However, as volumes of cash transactions decline, combined with fixed retail management costs means that the relative cost of cash is organically increasing over time for merchants. Additionally, there are other factors at play in pushing up the cost of accepting cash. The decline in the level of competition in the cash in transit (CIT) and cash processing industries across Europe leaves a maximum of two national CIT players in most major European markets, leading to upward trending on pricing. In cash processing, there are strict membership requirements linked to central bank cash circulation policies, leading to a scarcity of players here also. Meanwhile, shifts in consumer trends means that merchants cannot continue to rely purely on cash, where younger generations are willing and ready to use contactless payments. Overall, rising costs and market pressures are increasingly problematic to merchants, who will need to weigh up their response based on the different factors – not least the cost of accepting payment methods, such as cards.
Not everyone can forgo cash
In some industries, cash is still used frequently, with 74% of people using cash to donate to charities, and 85% of payments to window cleaners are made in cash [Natalie Ceeney, Access to Cash study]. Additionally, there are very high societal risks in going completely cash free. Rural communities would be likely to struggle as the delivery of alternative payment options is far more challenging in areas of low mobile or broadband connectivity. Individuals with high levels of debt are equally likely to struggle, as budgeting will be made even harder in a cashless society. It will also heavily affect the unbanked, who either have no bank account, or limited banking options available to them, as well as consumers with health problems who may find the new technologies difficult to use.
This issue is well summed up by UK Finance, who maintain that a mix of different ways to pay still remains vital for consumers:
"Our own research shows that while cash usage is declining, it will still be the second most common payment method in 10 years' time," said Eric Leenders, from UK Finance.
"Maintaining access to cash is vital to ensure no customer is left behind. From over-the-counter withdrawals through 11,500 Post Offices and cashback from retailers, to investment in ATMs and mobile bank branches to reach more rural communities, the finance industry is using a range of solutions.
So, while cash is in decline, is it not disappearing completely from society any time soon.