THINKTANK: Curtains for Cash?
Is it All Over for Cash? I make contactless payments just like anybody else, and it always alarms me to hear the person next in line decline their receipt. How on earth do they keep a tally of their spending, stop going overdrawn, and incurring bank charges? Maybe they are so spectacularly wealthy that it’s irrelevant, or they always run an overdraft, or maybe they just don’t care. New figures from the British Retail Consortium suggest that, 10 years after their introduction in the UK, contactless payment cards have finally won over the British public. They now account for about a third of all card purchases, up from 10% as recently at October 2015. And, for the first time, notes and coins have been evicted from their position as the UK’s number one payment method. Cards now account for more than half of all retail purchases, according to the BRC. And, in its latest annual payments survey, it claimed that debit, credit and charge cards had “firmly established their place as the dominant payment method in retail”, and were “increasingly displacing cash for lower-value payments”. So, some adherents to the new doctrine are suggesting that this is the tipping point that signals the beginning of the end for cash? But wait. Cards have accounted for the majority of retail spending by value for years, but 2016 was the first year they also accounted for more than 50% of all transactions. It is also the first time that debit cards have overtaken cash. They now account for 42.6% of all transactions, putting them a fraction ahead of notes and coins, which fell almost five percentage points to 42.3%. Contactless cards were introduced in the UK in 2007, and were slow to take off; a cautious public gradually accepting the technology in coffee shops and other low value outlets. The initial upper limit of £20 per transaction was increase in 2015 to £30. Subsequently, the technology has spread, and it is now possible to pay bus and tube fares, give charitable donations, and buy drinks at the bar with a flick of the wrist. So, much of the increased use must be down to the availability of the technology as to citizens rejection of cash. Plus, customers’ psychological barriers have been gradually whittled away. Which is good news for shops! Handing over £20 in notes – and registering the diminishing cash in one’s wallet – is so much harder than flashing the plastic cash. So, if you subscribe to the theory that these cards make it too easy to spend money, one can imagine why retailers are keen to encourage the contactless revolution. Shops also have a vested interest in the demise of cash as it costs them money to transport and deposit it. On the downside, the Bank of England last month suggested that the popularity of contactless cards was helping to fuel the rapid growth in consumer debt. Going overdrawn may also result in bank charges, further adding to that debt. So could the UK end up going cash-free? Arguably we’ve been headed in that direction since the repeal on the Truck Acts – legislation that allowed workers to insist on payment in cash – in the 1980s. So it’s had a long gestation in the UK. Now Sweden is in the vanguard, and is expected to become the world’s first truly cashless society, with a study by Stockholm’s KTH Royal Institute of Technology predicting that cash could be history there by 2030. Notes and coins may be dirty and a nuisance to transport but, in their favour, they are tangible stores of value. Electronic cash – Swedish style – is just a call on the local bank that issued it. What happens when all record of this month’s pay, and your bank account, mysteriously disappear due to a computer error? Who underwrites your money? A note issued by the Bank of England – which is wholly owned by UK government – at least carries a promise to ‘pay the bearer’ the relevant value. So you have some chance of redress. But never fear, Victoria Cleland, chief cashier and director of notes at the Bank of England, reckons the folding stuff and loose change will be around in the UK for some time yet. “Cash is very much alive and kicking,” she said in a recent speech. The value of Bank of England notes in circulation peaked in the run-up to Christmas 2016, reaching more than £70bn for the first time. So, no need to worry about that stash of notes under the mattress just yet. But maybe you should swap those old tenners for new ‘Jane Austen’ polymer notes!