Most know that fewer and fewer people are using cash to pay for goods and services. The actual rate of decline and habits around the use of cash or payment cards varies from country to country. Our colleagues across the pond at SRM Europe in London recently shared with us how this trend is manifesting in the United Kingdom and why the thought of a cashless society is not necessarily a welcomed development for some.
In the United Kingdom (UK) ten years ago, 60 percent of all purchases were made with cash. Today, cash figures into only a third[1] of these transactions. This consumer payment behaviour is transforming the UK economy, and impacting both the UK government and Bank of England. Earlier this year, the government issued an important consultation on the future of payments, including views on cash and suggested the abolition of 1p and 2p coins. This suggestion was met with a wall of severe criticism from charities and other groups. The outcry by these opponents became so visceral that the government withdrew its suggestion within 24 hours. Challengers insisted that cash and coinage were still being used by a number of consumers to donate to charities since electronic payment methods are not widely available – although this is changing as seen in the Church of England’s recent trials. In addition, cash is still required at retailers where there are ‘minimum spend’ rules for card transactions.
However, the Bank of England argues that inflation enhances the case for removing these coins. Furthermore, it is estimated that up to 60% of 1p and 2p coins go missing after their first use. Even if a meaningful number of these missing coins were to reappear, firms like CoinStar charge a hefty 10.9% ‘processing’ cost to cash in coins. And these days, banks are not readily willing to change coins into notes unless you have an account with them. Meanwhile, the Royal Mint has reduced the number of coins put into circulation by half in four years. The reduction in coin usage is another indicator that physical cash is losing its relevance.
Another force in play has to do with human mobility. People in the UK and other developed nations are travelling more than ever before, and sometimes travelling to places where the acceptance of cards is limited. Since most people hesitate to carry large sums of cash, a traveller may need to visit an ATM two or three times in a single trip to refresh their inventory of cash. Whilst this is good for the ATM network owners and operators, it is not always easy to find an ATM, nor is it especially safe. Because of the need to make purchasing transactions easy for tourists and other travellers, card acceptance infrastructure is being implemented in many countries where it did not previously exist.
This trend toward payment cards is continuing upward with little sign of slowing down as other convenience-driven ways to pay attract use. Contactless transactions, via mobile wallets or physical cards, now stand at one-third of all transactions. It is clear consumers are taking advantage of the expanding payments infrastructure, as well as the growing number of payment options that play to their need for convenience. Not everyone thinks this convenience and increased safety is worth some of the other trade-offs that must be made. In the next blog, we will look at those objections.
To be continued…
