The dash from cash

Latest data from the UK banking trade association, UK Finance, show that cash payments have continued to decline, while contactless and mobile payments have risen dramatically. In 2018, cash payments fell 16% to 11.0 billion payments and constituted just 28% of total payments; the compares with 60% in 2008 and a mere 9% projected for 2028. By contrast, in 2018, debit card payments increased 14% to 15.1 billion payments. Credit card payments increased 4% to stand at 3.2 billion payments. Mobile payments though media such as Apple Pay, Google Pay and Samsung Pay, although still a relatively small percentage, have also increased rapidly, with 16% of the adult population registered for mobile payments, compared with just 2% in 2016.

But what are the implications of this ‘dash from cash’? On the plus side, clearly there are advantages to consumers. A contactless payment is often more convenient than cash and does not require periodic visits to a cash machine (ATM) – machines that are diminishing in number and may be some distance away if you live in the countryside. What is more, card payments allow purchasing online – a form of shopping that continues to grow. Also, if a card is stolen or lost, you can cancel it; if cash is stolen or lost, you cannot cancel that.

Then there are benefits to vendors. Cashing up is time consuming and brings little or no benefit in terms of bank charges. These are typically around 0.75% for cash deposits and roughly the same for handling debit card payments (around 0.7%). What is more, with the closure of many bank branches, it is becoming harder for many businesses to deposit cash.

Finally, there is the problem that many illegal activities involve cash payments. What is more, cash payments can be used as a means of avoiding tax as they can be ‘kept off the books’.

But there are also dangers in the dash from cash. Although the majority of people now use cards for at least some of their transactions, many older people and people on low incomes rely on cash and do not use online banking. With bank branches and ATMs closing, this group is becoming further disadvantaged. As the Access to Cash Review, Final Report states:

Millions of people could potentially be left out of the economy, and face increased risks of isolation, exploitation, debt and rising costs.

Then there is the danger of fraud. As the Financial Times article below states:

The proliferation of new types of payment method has raised concerns over security. Criminals stole £1.2bn in 2018, according to previous data from UK Finance, up from £967m in 2017. This included a rise in fraudsters illegally accessing customers’ accounts and cards.
 
Complaints about banking scams reached a record high in the past financial year, according to figures in May from the UK’s Financial Ombudsman Service.

One of the biggest dangers, however, of the move to card payments, and especially contactless payments, is that people may be less restrained in their spending. They may be more likely to rack up debt with little concern at the time of spending about repayment. As the Forbes article below states:

Because items purchased with a credit card have been decoupled from emotion, shoppers can focus on the benefits of the purchase instead of the cost. Thus, paying with a credit card makes it more difficult to focus on the cost or complete a more rational cost–benefit analysis. For example, if a person had to count out $0.99 to purchase an app, they might be less inclined to buy it. However, since we can quickly buy apps with our credit card, the cost seems negligible, and we can focus on the momentary happiness of the purchase.

Finally, there is the issue of our privacy. Card payments enable companies, and possibly other agencies, to track our spending. This may have the benefits of allowing us to receive tailored advertising, but it may be used as a way of driving sales and encouraging us to take on more debt as well as giving companies a window on our behaviour.

Articles

• Millions choose a cashless lifestyle

BBC News, Kevin Peachey (6/6/19)

• The decline of cash in the UK – in charts

BBC News (7/6/19)

• One in 10 adults in UK have gone ‘cashless’, data shows

The Guardian, Rupert Jones (6/6/19)

• Going contactless is gloriously convenient – for all the wrong people

The Guardian, Peter Ormerod (7/3/19)

• Mobile banking and contactless cards continue to surge in popularity

Financial Times, James Pickford (6/6/19)

• Is a cashless society in Britain near? Banking data suggests just 9% of all payments will be cash by 2028

This is Money, George Nixon (6/6/19)

• Older and poorer communities are left behind by the decline of cash

The Conversation, Daniel Tischer, Jamie Evans and Sara Davies (16/5/19)

• As cash declines, research shows the most deprived communities are left behind

University of Bristol Press Release (16/5/19)

• Do People Really Spend More With Credit Cards?

Forbes, Bill Hardekopf (16/7/18)

• Why Cash Is Quickly Disappearing From China’s Economy—Data Sheet

Fortune, Aaron Pressman and Clay Chandler (5/6/19)

• Cashless in China: Why It Matters

CNA Insider on YouTube, Joshua Lim (28/10/17)

Reports

• UK Payments Market Summary 2019

UK Finance (June 2019)

• Access to Cash Review: Final Report

Access to Cash Review (March 2019)

Questions