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Is Cash Dead?

By Natalie Ceeney CBE, Chair of Innovate Finance

Most of the public – not just readers of a FinTech blog – will agree that digital payments are clearly the future. They give us access to a wider range of goods and services, at lower prices. They are traceable, unlike cash – giving us better protection against crime. They are quicker and more convenient – for both consumers and retailers – offering less friction and less hassle. And they can help us manage our money far more effectively, with analytics able to help us forecast our spending. Help us budget. And help us save.

That’s not just me talking.  More than 60% of the UK population would agree with I’ve just said.

And public behaviour demonstrates this – as evidenced by the way digital payments have supplanted cash. 10 years ago, 6 in 10 all UK transactions were in cash. Last year (2018) this was down to 3 in 10, and debit card payments overtook cash as a choice of payment. In the Access to Cash Review, we have forecast that this will reduce to just 1 in 10 in 15 years.

So what’s the issue?

The issue is that digital does not yet work for everyone.

Over the past year, as well as Chairing Innovate Finance, I’ve been leading an independent review into the implications of a cashless society. We have carried out extensive research, speaking with over 120 organisations, over 2,000 consumers, and holding workshops across the UK.

Our research found that around 17% of the population – over 8m adults – would not know how to cope without cash.

Some issues were raised about privacy. About payment choice.

But for the 17% who would struggle to live without cash, their issue is about necessity – not choice.

Some, like me, live somewhere with no mobile connection where they live, making it close to impossible for taxi drivers and others to take mobile payments. And under current government plans, this won’t be fixed until 2030.

But for others, cash meets needs that digital doesn’t – yet. In our research we met people who felt comfortable using digital payments for direct debits and online shopping, but relied on neighbours or carers to do occasional shopping. Cash remains the safest mechanism for this – handling over a £20 note limits your loss to £20, and as you can see the change you get back, it’s hard to get short changed. No-one would think it sensible to encourage people to handover a contactless card.

We heard about people living in abusive relationships, where a form of control can be for an abuser to take control of a bank account. Cash can be squirrelled away, giving the victim an escape route.

We heard from those with mental health problems of their concerns with digital payments. Even if someone is well most of the time, they are aware that when they are ill, they can spend their money online, rapidly, getting quickly into debt, or exhausting their savings.

But the biggest indicator of cash dependence isn’t age – but poverty. If you earn less than £10k per year you are 14 times more likely to be dependent on cash than if you earn more than £30k. Why? If you’ve only got £50, then if you have it in cash, and only spend in cash, you cannot go into debt. It’s no surprise that most debt charities give advice to those in poverty to ‘cut up your cards’.

In all of our research we did not find any examples of needs which could NOT be solved by digital payments. But the reality is that they aren’t solved yet – or where they are, the solutions created are not yet available to everyone.

The fintech challengers in banking and payments have been some of the most innovative in developing approaches which could address some of these needs. But they are not all met – and the most vulnerable are some of the least likely to bank with a challenger bank.

We’re not alone in having these concerns in the UK. The two most cashless societies globally – China and Sweden – are panicking about people being left behind.

In Sweden, after the equivalent of the NHS announced they were going cashless in early 2018, there was a huge public backlash, and an all-party commission urged the government to ‘put the brakes on’. This wasn’t because they don’t see digital as the future – but because their approach is leaving people behind. For many, digital payments are simply not an option yet, but with shops and essential services fast refusing to accept cash, people were struggling to cope.

Sweden is also worrying about resilience. The Swedish parliament has already debated ‘what happens if we are hacked by the Russians’ with no cash as back up. Every Swede has been leafleted to ask them to keep cash at home, for contingency in case of disaster. And in China, the central bank recently had to remind all retailers that it was illegal to refuse to take cash, after similar concerns that people were being left behind. And that’s despite huge investment by AliPay and WeChat Pay in biometrics to seek to include even those with no literacy. And in the UK, in early February 2019, the Chair of the Payment Services Regulator (PSR ), and Financial Conduct Authority (FCA), Charles Randall, suggested in evidence to the Treasury Select Committee (TSC) that the UK should consider whether access to cash should – far from being phased out – become a universal service obligation.

Digital payments are clearly the future.  But they don’t yet work for everyone. Until they do, we need to protect cash, or millions will be left behind. If we do nothing – if we sleepwalk into a cashless society – this is exactly what’s going to happen.

We do need to work hard to give everyone the option to use digital payments. Fintech has a core role here, but we need to do more. We need to develop solutions for the ‘edge cases’, not just the more common needs, and the needs of early adopters. We need to work with those we’re designing for, making ‘inclusive design’ the norm, not the exception. And we need to ensure that when we’ve got great solutions, we help make their adoption widespread, so that everyone in society has the choice to pay digitally.

In the meantime, cash is fast becoming the next battleground of social exclusion. But protecting it doesn’t mean keeping the current infrastructure preserved in aspic. We can innovate in cash, just as we have in digital payments. SMEs are crying out for solutions to cash deposit which don’t require them to travel miles to a bank branch and queue. Our £5bn cash infrastructure could be simplified to make it more cost effective and resilient. We could innovate around cash access – wouldn’t cashback in local convenience stores both be good for local cash access and a way of keeping rural high streets alive? And why can we get our foreign currency by post, but not our cash?  

Fintech has already revolutionised payments. We now have to go further. Our challenge is creating digital payment solutions which work for everyone and, in the meantime, turning our creativity to keeping cash sustainable for the millions who depend on it.

About the author

Natalie Ceeney is Chair of Innovate Finance, and also the Chair of the independent Access to Cash Review. Her report was published on March 6th here.