Last month, an experiment on Beech Road in Chorlton, Manchester, transformed it into the UK’s very first ‘cashless’ street.
For one day only the majority of the shops and businesses stopped accepting notes and coins, forcing customers to pay with credit or debit cards. The experiment was organised by card payment provider Handepay to see if we are ready for a cashless society.
The experiment was met with a mixed reception from the businesses on Beech Road. While many backed the scheme, most still gave customers the option to pay in cash, for example, the Horse and Jockey pub only took ten percent less cash in than normal. Others
didn’t really see the point of it as they admitted that they would never turn away customers with cash and several retailers refused point blank to get involved.
Despite the mixed reception, the real question that should be asked of the experiment is who – if anyone – really benefits?
Customers
A key principle in economics is choice, and this can be applied to payment methods. Customers face a trade-off when they pay for an item between using a card and using cash. There are certain goods that customers would prefer to use one payment for
over the other – for example customers may prefer to use a credit card for expensive purchases so that they don’t need to carry that much cash and can pay it off over time. On the other hand, cash will likely be the preferred choice for small purchases, due
to the freedom and convenience it offers, and for those who want to better manage their finances and spending. By removing the option to pay by cash you are giving the consumer no choice at all and removing an alternative payment method should card systems
go down – as we have experienced recently in the UK. Furthermore to make this lack of choice worse, the experiment actually limits the choice to the least preferred option for UK consumers – according to the latest annual payments report from the British Retail
Consortium, cash transactions made up 52 percent of all UK transactions in 2013.
Benefit? None
Businesses
The experiment doesn’t make great sense for businesses on two fronts. Firstly, following on from the choice principle, if businesses restrict customers to only purchase by card they are losing out on those customers (and the revenue they bring) that want
to pay by cash. For some businesses this could include large proportions of certain demographic segments such as elderly people who generally prefer cash. Secondly, as well as reduced revenue, there is a huge disadvantage for businesses in terms of the costs
associated with cards. According to the BRC annual payments report it costs retailers 40.9p on average to process a credit card transaction, 8.8p for a debit card transaction and only 1.3p for a cash transaction. The sheer scale of these differences could
have a major impact on the margins of any retailer, however for some, particularly small businesses, restricting customers to only pay by the most expensive payment type could risk profitability. While the opposite argument could be that it streamlines business
operations by ensuring there is no need for the operational infrastructure of accepting cash, there are very few high-street businesses where this would outweigh the negatives.
Benefit? None
Credit Card Payment Providers
Finally a winner? There is no denying that a cashless society will benefit credit card payment providers. By removing cash from the payment decision, consumers have no choice but to use cards. This results in these companies receiving a fee from the business
after every swipe.
Benefit? More transactions means more profit – but it comes at the expense of the businesses
Experiment Outcomes
Irrespective of the outcome of whether a cashless society functions (which seemed to be a resounding no), the experiment was brought under significant question given that it was organised by a card company – the only stakeholder who stood to benefit from
it. Fortunately, this did not go unrecognised; Alicia Herhenteris from the independent café On The Corner, said: “We were completely opposed to it. When we saw it was sponsored by a card company we decided it wasn’t something we wanted to be a part of.”
Finally the experiment was also unnecessary as it was very clear beforehand that we are not ready for a cashless society. With 52% of all transactions being in cash, an aging population and an increased pressure on high-street businesses post-recession,
removing cash from the economic landscape would have a significant negative impact. However, regardless of being ready or not,
we should really be asking why we would want a cashless society? By only having the option to pay by card we would be removing our privilege of choice, forgoing the greater freedom that cash gives us and putting local businesses at stake.