Why should retailers be cautious of jumping on the cashless economy bandwagon?
The past decade has brought incredible innovation in the finance sector. With a revolution in digital payment technology, the emergence of SaaS businesses built on open APIs, and the move to the cloud - businesses now have greater visibility over finance
than ever before, a wealth of transaction data, and the means to optimise their operations.
The pandemic saw an acceleration of digital transformation in multiple sectors, not least payments, prompted by social distancing and the growth of e-commerce with cash usage declining sharply; cash accounted for 59 per cent of Europe’s point-of-sale transactions
in 2022, down from 72 per cent in 2019, according to the European Central Bank.
Combined with the growth of alt-fi and cryptocurrencies, the innovation has been fast enough and dramatic enough to prompt discussions about a ‘cashless society’ in the future.
But this is a bad idea, and a false economy. The answer lies not in turning cash buyers away, but by automating cash acceptance where possible.
Cash usage is declining overall, as e-commerce continues to grow, payment technology continues to evolve, and retailers continue to encourage cards as an in-person payment method.
Part of this is financial. The British Retail Consortium estimated that in 2016, the average retail cash transaction cost 0.15 percent of turnover, compared with 0.31 percent across all payment types.
But this is only part of the picture - while there is a direct cost in card payments - most costs of cash acceptance are indirect. Between leakage (theft), staff time consumed by accepting payments, and the considerable back-office costs of managing and
running till floats, cashing up and depositing funds at the bank, cash costs estimates range between 1 percent and 10 per cent of transaction value, depending on which study you read.
The other reason is that some believe customers prefer cashless retail.
The jury may be out when it comes to supermarkets, but self-service screens are often preferred when buying a ticket, or in quick-service fast food retail, as they can add positively to the customer experience, and these machines are often card-only.
But this doesn’t mean that customers don’t like paying in cash. Cash remains a useful budgeting tool for people with lower, fixed incomes and those ‘unbanked’ who don’t use credit or debit cards - a surprisingly high number of people and not just the very
old or the very young. As lockdowns eased post-pandemic, we saw a global increase in the use of cash in 2022 as people started to go back to normal.
Over five million adults in the UK alone rely on cash in their day-to-day lives and cash remains the preferred payment method for 21% of the population, according to the Bank of England, with cash “vital” for the 1.2 million people with limited access to
banking services and “can be an essential budgeting tool for the 3.8 million in financial difficulty.”
Quite apart from companies having a social responsibility to retain cash payment options from a financial inclusion perspective, it makes commercial sense too.
From our experience, retailers who reintroduce or increase cash acceptance also see an increase in overall takings - savings made by going cashless tend not to offset the loss of revenue that comes from not accepting cash.
This is the inconvenient truth with cash: its use may be declining globally, but from a financial inclusion and commercial perspective it seldom makes sense to go completely cashless - better to continue to support it, but automate it to reduce the cost
of cash management.