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Nick Ogden


Nick Ogden - ClearBank

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Ignoring the hype in the move towards a cashless society

07 October 2010  |  4576 views  |  2

There’s been a lot of talk recently about the idea of ‘cashless society’ and numerous journalists seem to be jumping on the bandwagon in a bid to write a colourful story. This usually involves testing out the concept by living without cash for a week or so, throwing in a few humorous anecdotes along the way – no money for the tooth fairy, no money for a trolley at Sainsbury’s – and then all too quickly concluding that it’s a bit of a harebrained idea and won’t fly with the British public.

However, what these features don’t take into account is: firstly, there are already many developments that have been made in the area of e-money that show we’re actually already getting there (look at Barclays contactless and London’s Oyster cards); secondly, no one is advocating the removal of cash from society overnight and finally, cash is expensive and moving towards card and other forms of payment makes more economic sense.

For the consumer, it’s win-win. Coins and notes won’t disappear overnight, but for those who are increasingly keen to use alternative ways of paying and managing their money because they judge them to be equally - if not more - convenient than cash, and also safer, there are now plenty of new technologies, especially coming through devices such as the mobile phone.
Recent developments by Alcatel Lucent, for example, show that there is demand among mobile operators to be able to offer their customers e-money services through their mobile. And why not? Over six million people in Africa are already paying for goods on their mobiles, proving that electronic payment systems can be more reliable and secure than cash. In addition, it is technological developments such as these on which the Payments Council has based its predictions about decreasing cash usage over the next five years.

And what about the cost of cash? A report by the European Commission earlier this year estimated that the total cost to society of all payment methods including cash, cheques and payment cards was 2 – 3 per cent of GDP. To put that figure into context, the entire EU agricultural sector accounts for 2.1 per cent of GDP, which essentially means we spend more on payments than we produce on food.
When broken down, the EC estimates that cash accounts for more than two-thirds of that figure and McKinsey, the consultants, have gone as far as putting a number on it. They have estimated that society spends about £180 a year per person to cover the cost of cash and the ‘real’ cost of cash to a retailer is 1.3 per cent of the purchase price.

The move towards a cashless society is just that. A move. It won’t happen overnight and we’ll still need pounds and pence for the tooth fairy, but the ball is already rolling and millions of people are already benefitting from the added security and convenience these new payment methods can bring.


Comments: (3)

Keith Richbell
Keith Richbell - eftpos Payments Australia Ltd. (ePAL) - Sydney | 08 October, 2010, 04:50

I know its been said thousands of times before, but the one thing cash is not is a payment method with an audit trail. The black economy has thrived on cash ever since it was invented as an alternative to bartering. As the saying goes "as long as there is sex, drugs and taxes cash will still be king".

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Nick Ogden
Nick Ogden - ClearBank - London | 08 October, 2010, 14:26

Keith your are indeed correct. However, cash is about to get an audit trail! The changes to the Electronic Money Directive (EMD) that come  into effect on the 30th April 2011 have already contemplated this and there will be systems available in the UK very shortly that can deliver this, so watch this space…

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A Finextra member
A Finextra member | 12 October, 2010, 12:59

I agree with the overall thrust of Nick's blog that "the move towards a cashless society is just that" but I strongly disagree with some of his comments about the cost of cash. The European Commission's figures for the cost of cash appeared in December 2005 as part of the EC's Impact Assessment for the PSD, and in any case referred to other estimates; while the McKinsey reports relate to 2008 and the stated cost to a retailer of cash (1.3%) is several times that calculated by the British Retail Consortium (0.18% in 2009).

RBR's recent report The Future of Cash and Payments - for which I was the lead author - found that the cost of retail payments in Europe in 2008 was 1.17% of GDP, with cash costing the equivalent of 0.60% of GDP or EUR 129.50 per person. Naturally I believe that these figures are better than those quoted above; but they were based upon detailed original analysis and calculations and have yet been proved to be inaccurate!

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I am passionate about business change and have been fortunate to have had some success with my various start up ventures. I am also fortunate to be a director of the UK Faster Payments Scheme.

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