Even before the advent of COVID-19, there has been a lot of research, data and experience that points to one inevitable fact: there will be a time in the near future when cash is a thing of the past. We will soon live in a cashless society.
The UK Payments Market Summary 2019 report by banking trade body UK Finance showed that last year one in six (17%) of those aged 25 to 34 in the UK typically made no more than one cash payment per month. More broadly, around 10% of UK adults were choosing to live in a largely “cashless” way. The Access to Cash Review – which was authored by the UK’s former chief financial ombudsman Natalie Ceeney CBE – took evidence from nearly 100 businesses and charities across the country and stated that the current rate of decline would mean the use of cash would end in 2026.
There is evidence to show that this trend towards a cashless society has been greatly accelerated due to the COVID-19 pandemic, and we’ll be looking in more detail at this research and the trends associated with it on this blog soon. It’s important to understand the underlying factors that are driving this shift in business and consumer behaviour, and what impact these will have on the future, including:
- Increase in debit card use – We know that not only is the use of debit cards on the rise (98% of the UK population has a debit card) but so is the use of contactless payments. A total of 13.2 billion debit card payments were made last year, a rise of 14% on the previous year according to UK Finance. The frequency of contactless payments almost doubled in that time to reach 5.6 billion payments last year. Contactless was most commonly used in supermarkets, but card suppliers say that public transport and car parking have also become regular hotspots for the use of contactless cards. Consumers are increasingly expecting to be able to pay by contactless rather than cash by default.
- Adoption of the smartphone and an increase in mobile payments – Smartphone adoption is at 88% in the UK according to research by Deloitte. This research covers all adults from 18 to 75, so smartphone adoption in the UK is essentially at 100% within the demographic of people who are likely to buy or use one. Moreover, 95% of smartphone users will have used their smartphone in the last day, underlining the crucial part they play in people’s lives. This creates a huge platform for mobile payments, and 8.3m of UK adults have already made a mobile payment according to research from eMarketer.
- Increase in ecommerce – Clearly, ecommerce is another driver of the move towards a cashless society. The value of the ecommerce market in the UK now stands at £106.46 billion and is growing at a rate of over 10% per annum, again based on research from eMarketer. However, ecommerce still only represented around 20% of total retail in the UK in 2019. These numbers are bound to change post-COVID-19, but show that around eight out of ten retail pounds were still spent in person. This underlines the need for retailers to not just offer payment options online, but have payment terminals to collect card payments from customers, whether in-store or at point of delivery.
- Traditional “bricks and mortar” retail moving to cashless – We’ve seen retailers like Itsu and Tesco either move to cashless in existing stores or open dedicated cashless stores in large metropolitan areas in the last year. Last year the Global Payments Trend report indicated that retailers could save millions of pounds a year by refusing cash payments, so no doubt more will continue to follow suit as the benefits of a cashless society so become clearer.
Everywhere you look you can see these trends continuing to build, and they are merely being accentuated by the COVID-19 outbreak.
We believe that there are many advantages for all businesses, but particularly micro and small- to-medium-sized businesses in embracing the move to a cashless society:
- Cost of cash – There are direct and indirect costs that come with dealing in cash. The direct costs can include petrol or travel costs to and from your bank, having to keep so much of your business’ float in cash at any one time, and insurance premiums which may be higher because of the amount of cash you have onsite. There are indirect costs too, such as the increased time needed to service customers, and potential loss of customers if queues are longer as a result.
- Security of cash – If you have multiple tills, or cashiers who share a till in a retail outlet, you do run the risk of encountering either minor transactional errors or mistakes in cash counting or worse, theft or fraud. Even as a sole trader you may make mistakes, and mistakes with cash can be costly. If cash is lost the money is gone – with no limits to where it can be spent. ‘Variance’, the term for lost monies that do not balance stock with income, can be more significant the more cashiers you have in a business.
- Cash management – There is a cost of cash that is incurred in both management time and opportunity cost. If you deal in a mostly cash retail business, you have to “cash up” at the end of trading and regularly take cash to the bank throughout the week. When Twickenham stadium went cashless in 2015, the cash-up from one event was reduced from days to a couple of hours, and variance on the opening weekend of the Rugby World Cup 2015 was reduced to just £130.
- Serve more customers, more quickly – Offering contactless payments rather than cash leads to reductions in queuing time in-store and helps merchants to serve more customers at times of peak demand. To use the Twickenham case study again, not only did the stadium see a significant reduction in both variance and time to cash-up, but corporate hospitality sales increased by 45%. And that’s another major benefit – in cashless environments, customers tend to spend more.
- Customer perception – In metropolitan areas cash displacement is more pronounced. Wearable payment options offered by smart watches and, more significantly, mobile payment itself, have led to greater cash displacement. As public transport services and food and beverage retailers have shifted to cashless, the need to carry cash on a daily basis is greatly reduced for many working in cities like London and Manchester. If your business doesn’t offer these payment options, you may get left behind in comparison to retailers who do.
At a societal, political and environmental level the problems associated with cash become even greater. For instance, producing, transporting and securing cash costs governments and central banks a great deal. There is a toll paid by the environment too, for instance due to how cash necessitates the extraction and use of precious metals.
Studies have shown that some countries could save the equivalent of 1% of their GDP by eliminating cash completely, which in the UK would be £26.2bn. For context, that level of budget is comparable to the total annual UK defence budget, and is greater than the UK Government’s spending on housing benefit. Society stands to benefit by becoming cashless.
Then there’s the cost to the UK in terms of crime and the prevention of it. The anonymity of cash and the lack of security lends itself to crime – tax fraud and money laundering could be significantly reduced by the removal of cash, limiting access to funds for all sorts of criminal activity around the world.
With the phos Software Point of Sale (SoftPoS), we are breaking down the barriers that traditionally prevent cash-heavy industries from moving to cards and contactless payments. With many businesses having cash flow as a critical concern, such as building, plumbing, decorating or any sole trader or small business with suppliers to pay, introducing a settlement delay causes serious problems. The phos solution can offer immediate access to funds from transactions that same day and with no requirement for additional hardware. We are working hard with our partners and their customers to help facilitate and accelerate the move to a cashless society, which will ultimately bring a range of benefits that everyone can take advantage of.