We’ve been debating a cashless society and the challenges for years in the UK. But as card payments overtake notes and coins, could it be something that becomes a reality in our lifetime?
For many of us, not having access to cash seems alien, even if we rarely handle money. While there aren’t any societies that are truly cashless yet, some are moving towards it at a faster pace. In Sweden, for example, only around 2% of transactions consist of cash. Many shops and restaurants in Sweden will only accept card or mobile payments and, in some places, banks have stopped handling cash too.
It can be difficult to imagine never having notes in your wallet or a pocketful of change, yet it could be closer than you think.
Cash payments have declined 59% in a decade
It wasn’t too long ago that cash was king in the UK, with plastic reserved for larger purchases.
Today though, you’re far more likely to use your card or mobile to make a payment than you are to use money. Many trends have influenced this shift, including online shopping and contactless payment options.
According to a report from the National Audit Office, there has been a 59% decline in the volume of cash payments between 2008 and 2019. Between 2018 and 2028, it’s expected that there will be a further 65% reduction in the use of cash. By the end of the decade, using cash for payment could be rare.
The fact that The Royal Mint is set to go a decade without making any 2p or £2 coins due to demand slumping highlights this.
In recent months, the Covid-19 pandemic has had an impact too, with many shops, restaurants and bars protecting staff by only taking card payments. Statistics show there was a 71% decline in the market demand for notes and coins between early March and mid-April 2020. This coincided with the limit for contactless card payments rising from £30 to £45 in April.
Figures from UK Finance show card payments are overtaking cash. Some 51% of the £40 billion payments made in 2019 were made via credit, debit or charge card. The use of cash fell 15% and made up less than a quarter of all payments.
So, while a cashless society may seem like it’s some way off, it is something we could be moving towards.
Cashless society could leave vulnerable and rural communities behind
The Access to Cash Review warned at the beginning of the year that the cash system is reaching a ‘tipping point.’ It added that moving towards a digital future could leave millions of people behind, with the elderly and those in rural communities particularly affected.
In 2018, Access to Cash published its final report and the review assessed the recent steps and where gaps remain. The review noted some initiatives have started but questions whether they have gone far enough, stating that the situation for consumers is deteriorating. One example used is that 25% of ATMs now charge customers to withdraw their money, up from just 7% a year earlier. Collectively, this cost consumers £29 million.
Natalie Ceeney, Independent Chair of the Access to Cash Review, said: “The UK is fast becoming a cashless society – without knowing what this really means for consumers or the UK economy. Many people may want a completely digital future, but we need to make sure that this shift doesn’t leave millions behind or put the economy at risk.”
It won’t just affect those highlighted in the report either. Using cash for transactions if often recommended as a way to help those struggling to get a grip on their finance. Physically handing money over can make sticking to budgets easier. Even if budgeting isn’t a challenge for you, you may prefer using notes and coins to keep better track of where your money is going.
Bank of England: Cash is still important
Despite innovations and statistics pointing towards a cashless society in the future, the Bank of England has maintained that cash still plays an important role.
There is over £70 billion worth of notes in circulation. Despite the rise of cards, this is roughly twice as much as there was a decade ago.
Reinforcing the bank’s view that physical money remains important is the recent investment in switching to polymer notes that are more durable than the traditional paper ones. The first plastic £5 entered circulation in 2016, with £10 and £20 plastic notes following in 2017 and 2020 respectively. A polymer £50 will follow.
The Bank of England adds: “While the future demand for cash is uncertain, it is unlikely that cash will die out any time soon.”
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.