You thought cash was going away for good?
We’re nearing the end of the road for cash – or so we are repeatedly told. Ever since debit card transactions leapfrogged their cash equivalents in the UK for the first time in 2017, we’ve been flexing the plastic by clicking, swiping and tapping at checkouts in ever greater numbers. According to a 2020 report from the National Audit Office, between 2008 and 2019, the volume of cash payments made in Britain plunged by 59 per cent. Analysis from Barclays Investment Bank, meanwhile, predicts that the global transition from cash to digital payments would reach a tipping point moment in 2025, when absolute cash usage would decline from 41 per cent in 2019 to 20 per cent by 2030.
Among those nations leading the way to the supposed nirvana of a cashless society is Norway, where cash is now used in just four per cent of transactions. Sweden is in lockstep with the U.S. Research from Riksbank, Sweden’s Central Bank, found that over the past ten years the proportion of people paying with cash fell from around 39 per cent in 2010, to just nine per cent a decade later, with banknotes and change “now mostly used for small payments and primarily by older people”. In France, where the use of cash for payments is protected by law – and merchants who refuse to accept it can be fined €150 – only nine per cent of those surveyed by the Banque de France prefer to pay cash for purchases at the point of sale (compared with an average of 27 per cent across the Eurozone).
Prior to the pandemic, 44 per cent of consumers made less than 25 per cent of their in-person payments using cash, and 9 per cent were completely cash-free. During COVID-19 this rose to 58 per cent and 14 per cent. However, when consumers are asked to project their cash usage once the pandemic is over, only 10 per cent plan to be completely cashless, and 50 per cent plan to make at least 25 per cent of their transactions using cash.
Source: Lost in Transaction Consumer Payment Trends 2021 – The survey, commissioned by Paysafe, was conducted among 8,111 consumers (representative by age and gender) in the U.S (2,000), UK, Canada, Germany, Austria, Bulgaria, Italy (all 1,000).
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Cash plainly has many upsides, especially in an era where digital payments have become the norm: it’s convenient, offers privacy and protection against identity theft or mass-hacks (it doesn’t leave a digital trail), and is accepted almost universally. Tourists travel with it, waiting staff, bartenders and gig economy workers (to name but a few) are tipped with it, and low-value transactions typically rely on it. Even in the richest countries, cash is stitched into our day-to-day lives. Gifts are often given in cash, while many elderly people (though certainly not all) prefer it to plastic.
Natalie Ceeney, chair of the UK’s Access to Cash Review – which was set up to address consumer requirements for cash over the next five to 15 years, and reported back in 2019 that Britain’s cash system was on the verge of collapse – says huge swathes of the population are still utterly dependent on it. “I regularly hear the comment, ‘Why do we still need cash?’ But the problem is around five to eight million people in the UK – a lot of whom are some of the more vulnerable in society – do need cash, and the implications of a cashless society for them are actually quite profound. For example, mental health charities have told us that if you’ve got a long-term depressive condition, you may not want to use digital payments when you’re ill, as you could suddenly blow the entirety of your spending and max out your cards and loans. For people with dementia, it’s not unusual for carers, or their children, to find that they’ve suddenly spent all their savings.
“People who don't feel confident or safe online can get conned very easily in a digital world. If you’ve got a learning disability, you may always struggle with online payments. During the COVID-19 pandemic the charity Age UK said that access to cash was the single biggest issue their constituency faced, as many older people were shielding and needed to pay someone to do their shopping. If you hand over a £20 note, you’ve limited your potential loss to that £20 and you can eyeball the change, making it hard to get ripped off. Give someone your debit card, you’ve lost control and could be fleeced. For many people cash is about staying independent and being able to live your life.”
The unbanked, underbanked and financially excluded
“The banknote paradox”
of consumers’ spending habits have changed during the pandemic. Of these:
preferred to use
opted for credit cards.
chose digital wallets.
Use of cash during Covid-19:
Percentage who said they preferred to pay without cash in selected countries (2020)
Cash over card?
Whether it’s free apps that help users locate nearby merchants offering cashback or services which enable cash payment options for e-commerce purchases, technology is already connecting online transactions and offline cash worlds for those who are unable to access other forms of digital payments (or who are wary of using them for security reasons). The vast American property rental market is one such example. Significant numbers of tenants, such as gig economy workers or others who work irregular hours, or may hold down multiple cash-in-hand jobs, are unable to transfer their rent digitally to their landlord or management company.
Against a backdrop of the pandemic, which has seen renters all over the world struggle with arrears, one leading solution is Paysafecash, which enables secure rent transactions to be conducted in cash at popular retail chains. Users go online to generate a barcode which they download or print and take to participating outlets – of which there are over 200,000 in 28 countries – where they settle their bill in cash. “We help bridge the gap between the world of digital transactions and the offline world of physical cash,” explains Albrecht.
Paysafecash customers can also shop online, top up a bank account or digital wallet, or pay down a loan. Another growing use of this alternative payment method is in making it easier for challenger (or digital) bank customers to deposit cash into their accounts – previously something of a pain-point due to the lack of physical branches. Through its partnership with Paysafecash, customers of mobile money app Monese, for example, can quickly add cash to their account by generating a barcode, and use a map to find the nearest payment point, all within the app. “This partnership means that the underbanked and financially excluded can now access app-based services that had previously been out of reach,” explains Monese founder and CEO Norris Koppel.
Bridging the gap
If banknotes and coins were one day to fade from our everyday lives – which, admittedly, given the growing value of cash in circulation today is unlikely – it wouldn’t simply be vulnerable individuals and those who use cash through choice or necessity who would be left high and dry; the very stability of our societies might also be at risk. “If cash use declines dramatically then the link between the state, the Bank of England, or the central bank and the citizen is lost, because your cash is drawn on the central bank and, ultimately, the government,” says Mott. “If everyone stops using cash, we’d effectively be outsourcing money supply to a third party: a bank or credit-card company.”
That severed link raises existential issues, argues Ceeney, who as part of her review into the future of cash, travelled to Sweden, which she describes as “a couple of years closer” to becoming a cashless society than the UK. “The central bank there was very worried about losing control of the monetary system and even fiscal policy because, if you don’t have cash and your money is going through private banks and credit-card companies, you’ve effectively privatised your economy,” she says.
“There have been debates in the Swedish parliament about what they would do if they were hacked by a nation state, because when your financial system is entirely digital, you’re extremely vulnerable. The government even sent out leaflets to people’s homes which included instructions about making sure they kept physical currency at home in case of a digital blackout. So, there’s a resilience threat to cash going away, too.”
Out of Cash: Does cash have a future?
Furthermore, a Bank of England quarterly bulletin entitled “Cash in the time of Covid” revealed that, even as COVID-19 intensified the decline in the transactional use of cash, demand for banknotes surged as people withdrew cash for its “store of value” – a phenomenon sometimes known as the “banknote (or cash) paradox”.
“We saw during the pandemic an exceptional and unprecedented increase in demand for cash globally,” says Guillaume Lepecq, the Paris-based chair of CashEssentials, an independent think-tank. “In the U.S., the value of banknotes in circulation increased by 16 per cent in 2020. In the [Eurozone] the corresponding figure is 11 per cent, while in Mexico it is 30 per cent. This is a phenomenon that we’ve seen in previous crises, which is simply that in times of uncertainty people like to have access to liquidity; something tangible which can be used in all circumstances.”
In fact, the pandemic merely turbo-charged a little-appreciated trend – that while cash usage in some individual countries has slumped, the total value of cash in circulation continues to grow globally by five to eight per cent a year. In the Eurozone the value of banknotes in circulation rose from around €650 billion in 2008 to €1.4 trillion at the start of this year, while Bank of England data shows that there are over £70 billion-worth of notes in circulation today, roughly twice as much as a decade ago. What’s more, for every Norway, Sweden and UK, where contactless and digital payments are consumers’ overwhelming preference, there are countries such as Greece, Moldova and Bulgaria where, respectively, 75 per cent, 81 per cent and 81 per cent of POS transactions are still in cash.
All of which suggests that cash isn’t going away anytime soon. But who exactly – beyond those who are stuffing it under the proverbial mattress – is using it, and why? And what does it mean for the future of cash?
At first glance, the pandemic, which saw digital and contactless payments proliferate, has served only to accelerate this trend. Research by specialist payments company Paysafe, conducted during the first lockdown in 2020 – which interviewed consumers in the UK, the U.S., Canada, Germany, Austria, Bulgaria and Italy – found that 56 per cent of respondents were happier to use a contactless card in May 2020 than they had been a year earlier. Meanwhile, ATM transaction volumes slumped by 60 per cent year-on-year in the first full month of the initial lockdown in the UK, with 72 per cent of people suggesting that COVID-19 will impact their future use of paper currency, according to LINK, the UK’s largest cash machine network.
Yet if we delve a little deeper into the numbers, it quickly becomes clear that reports of the death of cash have been greatly exaggerated. Graham Mott, director of strategy at LINK, says that while the use of cash for payments had already been declining at around ten per cent a year pre-COVID-19, before plunging by 35-38 per cent over the course of the pandemic, the situation has since stabilised. “We’re now in basically the same place as this time last year. One of the factors we’ve seen is that people are going to the ATM less often, but when they do go, they’re taking out a bit more each time. My view is that this change is probably permanent.”
Table 1: Changing habits over the pandemic
Given the position of cash within a nation’s critical infrastructure, as well as its indispensability to a significant segment of the population, it’s unsurprising that the UK government, among others including Sweden, recently committed to ensuring the long-term survival of banknotes through legislation. To this end, Ceeney now chairs the Community Access to Cash Pilots, supported by the major retail banking giants, consumer groups and charities, which is exploring ways to keep cash viable from a cost-of-infrastructure perspective in eight locations around the UK.
The French authorities, too, should consider the societal underpinning of cash as the mainstream economy rushes headlong into digital, says Lepecq. “There is a need to work on the future of cash in France by ensuring sufficient infrastructure. But I think there is also a need for more and better communication from the central bank policy side, and from regulators, to put forward the benefits of cash for the general public: that has to do with having an inclusive society, and avoiding discrimination,” he says. “It has to do with resilience. It has to do with sustainability. We need to ensure that cash has a viable future to guarantee those social prerogatives.”
While the vast majority of our financial lives are increasingly digital-by-default, the evidence suggests that, although people may transact with it less, cash’s place within the ecosystem – in the medium-term at least – is all but assured; too many people depend on it, central bankers are committed to it and as a store of value, demand for physical currency continues to soar.
Today, innovators are opening up new opportunities for the cash in your wallet (or under your mattress), whether that’s by making access to it easier, or facilitating payments, savings and loans. It’s not, then, without some irony that the very digital technology which many predicted would hasten its slide into obsolescence, is instead helping to save cash.
Its absence would also have a severe impact within local communities, Ceeney continues. “There’s often a local cash economy, where people do gardening, shopping and other chores, often for neighbours, for small amounts of cash, well-below the tax threshold, so this isn’t about tax evasion. Move everyone away from cash and you could destroy all of that.”
Then there are many who are shut out of the financial system for other reasons. In the U.S., roughly 22 per cent of households – a staggering 63 million citizens – are unbanked and/or underbanked, meaning they have inadequate access to banking and digital payments, or cannot access them at all, and are restricted to cash-based lifestyles as a result. Globally, it’s estimated that some 1.7 billion people are stranded outside the financial system in this way. This predicament is often described as financial exclusion.
“It’s not necessarily the people you immediately picture in your head when you think about the financially excluded,” says Robert Albrecht, Head of Paysafecash, which enables users to pay for online purchases with cash. “It can be people who look, dress and speak like you or me, but for some reason – bad credit history, perhaps, or being unable to afford the fees – they can’t get a bank account or credit card. People who are reliant only on cash and are excluded from the online economy, where products and services are often cheaper and more accessible, are at a real disadvantage in our society today,” he says.
Table 2: Cash over card
It has to do with resilience. It has to do with sustainability. We need to ensure that cash has a viable future to guarantee those social prerogatives.
"If everyone stops using cash, we'd effectively be outsourcing money supply to a third party: a bank or credit-card company." - Graham Mott, director of strategy at LINK
The Paris-based chair of CashEssentials
If everyone stops using cash, we'd effectively be outsourcing money supply to a third party:
a bank or credit-card company.
Director of strategy at LINK
People who are reliant only on cash, and are excluded from the online economy, are
at a real disadvantage in our society today.
Head of Paysafecash, Paysafe
Between 2008 and 2019, the volume of cash payments made in Britain plunged by 59 per cent.
According to a 2020 report from the National Audit Office
Download a PDF version of this report
Increasingly, retailers are no longer accepting cash leaving many excluded
There is still great demand and need for cash
There are a number of different digital cash tools available
Technology is already connecting online transactions and offline cash
Even in the future, society will still be underpinned by cash
Illustration credit: Jaiqi Wang
Download PDF version
Future of cash
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It's so important that there isn't a two-tiered system for those who can use digital and those who can't.
Founder and CEO, Monese
Between 2008 and 2019, the volume of cash payments made in Britain plunged by 59 per cent.
It has to do with resilience.
It has to do with sustainability. We need
to ensure that cash has a viable future
to guarantee those social prerogatives.
“Most importantly, [these] customers are getting access to digital-only payees – who will not accept cash or who may charge extra to handle it – online-only rates and deals, such as savings rates or foreign exchange rates, as well as a range of in-app budgeting and money management tools, and app savings features.” Cash remains a lifeline to many on low incomes, the disabled or people who live in remote areas where broadband and mobile reception is poor, says Koppel. “It’s so important that there isn’t a two-tiered system for those who can use digital and those who can’t.”