6 November 2018
The Treasury is currently considering its response to a survey on the use of cash. What are the implications for businesses of a possible cashless society?
The pound in your pocket
Do you normally give a gratuity when settling a restaurant bill? If so, are you one of those traditional types who pays by credit card but presses a few coins into the waitress’s hand as she leaves your table? Probably not. According to a survey in 2016 by Mastercard, two in five of us carry less cash than we did two years ago and about 47% of us normally have less than £5 in our pockets.
Another survey by Kalixa Pro, a mobile chip and pin provider, revealed that in 2014 the average amount of cash carried by a UK citizen was only £17.79, or for 18 to 24 year olds, £12.51.
The (slow) death of cash
The retreat of tangible money has been slow. Historians claim that Sweden was the first country to issue banknotes in their current form in 1661, followed by the newly-established Bank of England in 1694. Credit cards first appeared in the USA in 1949, but debit cards were not introduced until the 1980s. Incidentally automatic cash dispensers first became available in 1967, in London.
For consumer spending cash remained the preferred method until as late as 2014, when cashless payments exceeded cash payments in the UK for the first time. Since then cash spending has been in steep decline, particularly in Europe and North America. Now the world leader is Belgium, where 93% by value of consumer transactions is by digital methods. In the UK the figure is 85%. Both Sweden and Denmark have declared their ambition to remove cash completely by 2030.
In March this year, HM Treasury instigated a call for evidence on ‘The Role of Cash and Digital Payments in the New Economy’. This highlighted the disadvantages of cash including handling costs and its role in crime, tax evasion and money laundering. The new one pound coin is hailed as a success – by the time the old coin was discontinued one in thirty of those in circulation was counterfeit! The £50 note comes under serious scrutiny, regarded with suspicion by many traders, it is often associated with hidden market activities and is used more as a store of value by foreigners rather than a means of payment.
But the £50 note has been reprieved and in fact will re-emerge in plastic form shortly, and the call for evidence does emphasise the continuing demand and need for cash. It acknowledges that 2.7 million UK citizens rely entirely on cash and that a further 45 million still use a combination of cash and digital means.
Critics have accused the banks and financial institutions of forcing people into using digital methods, purely as a cost-saving exercise, by closing branches and reducing the number of ATMs. They also point out that the more transactions are carried out digitally the greater the opportunities for ‘spying’ on people’s spending habits and collecting marketable data. Another criticism is that making cash difficult to use disadvantages the poorest in society.
The Treasury responds to these concerns by proposing to work providers to maintain the number of ATMs available, and also by improving the quality of coins and notes.
Implications for business
Obviously businesses need to make it as easy as possible for their customers to pay them. Some retailers and restaurants, however, already refuse to accept cash payments. A much larger number still refuse non-cash methods. This is short-sighted given the Kalixa Pro survey finding that, when digital methods are unavailable, one in three customers will leave the premises without buying.
Contactless payments have increased by a factor of 20 over the last three years. Traders should ensure that they have the means to deal with these. Mpos systems are now widely available enabling traders to use apps on smart phones combined with compact card readers to receive payment even if they are not in their own premises.
So don’t give up yet on cash. Enough customers still use it to make it worthwhile and perhaps its greatest advantage is that it remains available when digital networks or power supplies fail.