Is a cashless society inevitable, asks Nick Kerigan, managing director of future payments at Barclaycard.
One of the questions I’m regularly asked is how much longer cash has left as a pre-eminent payment method in the UK. It’s inevitable, people say, given the huge growth we’re seeing in digital, mobile and wearable forms of payment, that cash’s days are numbered.
The answer isn’t that straightforward.
Technology, as well as being the defining attribute of modern society, has given rise to a seismic shift in how businesses sell and consumers buy. In this transformation, it has given rise to rapid developments in payments: from Chip & PIN to e-commerce, contactless cards, mobile and wearable ways to pay.
Consumers now have diverse payment opportunities that have brought with them additional convenience, security, choice and flexibility. They like this choice, and we see it in Barclaycard data showing that one in ten transactions made in the UK today is contactless and in London, contactless accounts for almost 4 in 10 of all card transactions £30 and under.
Conversely, cash transactions have seen a steady decline - in 2015, cash accounted for 47% of all retail transactions, down from 52% in 2014. This is supported by Barclays’ own data which shows a year-on-year decrease in cash deposits, while the number of electronic transfers such as Bacs and Chaps is increasing.
Though this evolution in modern payments has been at the expense of physical cash, rather than strongly preferring any one payment method, consumers simply like being able to pay in the way they want, when they want.
This is echoed in the growing demand for a seamless omni-channel experience. Take Starbucks as an example, the success of its app as one of the largest mobile wallets globally, is because it offers customers the ability to collect the loyalty points, order on the mobile and collect their purchase in-store without having to queue, and to pay for their drink through it where they do buy in-store.
It’s a fascinating example of how, where it works in both the merchant’s and consumer’s favour, new payments types can succeed. One role that the payments industry can usefully play is facilitating greater use of cross-channel digital payments by ensuring the necessary infrastructure is available, and that consumers and merchants have access to them.
There are clear opportunities to do just that. Around under half of all UK SMEs do not accept credit and debit cards, despite this being the preferred way to pay for the vast majority of shoppers, and a fifth of small businesses admit they have no plans to introduce electronic payment options any time soon. They are consequently losing out on almost £9bn in sales.
Furthermore, in the UK there are 3.5 million Britons who solely use cash due to their social and economic circumstances, including vulnerable members of society who do not have a bank account. Through the rollout of financial products such as ‘basic’ bank accounts and credit cards for those with limited credit history, increasing numbers of people have access to both payment cards and digital payment solutions for the first time.
The UK has very few policies directly limiting the use of cash, but other countries are starting to use limits to reduce usage. For example, The Riksbank - Sweden’s Central Bank - has actively discouraged Swedes from using it and consequently cash now accounts for just a fifth of transactions in Sweden, well below the global average of three-quarters. And when it comes to shopping, 95% of Swedish retail sales are electronic. Swedish buses and the Stockholm metro do not accept cash, retailers are legally entitled to refuse coins and notes, while even street vendors and churches increasingly prefer card or phone payments.
Whilst Sweden has gone further than most in reducing cash acceptance, the Nordics are not alone in its fast-increasing “cashlessness”. Singapore boasts the highest usage of payment cards in the world, accounting for almost two thirds of all transactions. And 40% of Koreans prefer to pay via card, leading The Bank of Korea to plan for a "cashless society" by 2020.
For businesses, the benefits are financial and well as convenient. Cash doesn’t come for free - there are large sums involved in its production, transportation, storage and usage, and switching to newer payment methods can both speed up the purchasing process and give businesses greater customer insights.
However, it’s important not to forget why customers adopted new payments technologies in the first place: convenience. Rather than necessarily removing the opportunity for people to pay in cash, the challenge for retailers is to accommodate the growing convergence of the online and offline worlds, and to create a seamless experience that mixes and matches the best of both. The challenge for payment providers is to support retailers in delivering that seamless experience, by making it easy and simple for them to accept a multitude of payment types.
It remains to be seen if evangelists like Sweden will fully transition to cashless, in any case, these countries provide tremendous insight for nations following in their footsteps. But as always - listening to the customer is the key, providing ways to shop and pay, anytime, anywhere.