In line with our risk management framework, today we published our Q4 2019 performance update.
Is cash still king?
In this fast-paced world we live in today, where convenience reigns supreme, the end of cash as a means of paying for things feels somewhat inevitable. After all, there isn’t much you can’t use your card to pay for these days. Taxis, pizza deliverers, and even certain roadside fruit sellers all have a card machine, while many retailers (and buses in London) have even removed the option of paying with cash entirely.
It all collectively results in dwindling queues outside cashpoints, and a whole lot of swiping and tapping. But as the hassle of counting up change and shuffling through notes slowly ebbs away, the question becomes: is this really a good thing for ourselves as consumers? Certainly the ease and efficiency of electronic card and contactless payments is not in dispute, and, as much as we Brits do enjoy queueing, it’s fair to say that the fewer minutes we lose to standing in line during our busy lives, the happier we are.
But there are certain ramifications with this too…
Most current account holders do not pay any fees when depositing or withdrawing money, nor when swiping or tapping their debit cards to pay for something. However, the retailer or seller will be subject to the cost of renting the card terminal – not to mention a percentage charge for each transaction (usually 8p per £100 spent by customers). For credit cards, this fee escalates to 80p per £100 spent, while you can safely double this figure when it comes to reward or premium cards.
As you can imagine, retailers are seldom in the business of charity, so these costs will inevitably be passed onto the consumer and built into the prices. Even the so-called freebies from reward schemes are not really as free as you might think.
And it all plays into the hands of the bankers, who continue to profit further from card transactions. At the very least, a cashless society would mean no transaction could go ahead without the use of their services, while the option to keep cash in the piggy bank at home – particularly pertinent if negative interest rates were to come into effect – would be removed.
It is also generally considerably cheaper to use cash on holiday at present (save for specialist currency cards), especially if you are making a series of small purchases. Most banks charge both a non-sterling fee and a transfer fee for transactions which take place abroad. At least with the present option of still converting local cash into foreign currency, banks do not have us over a barrel with respect to these fees. However, if cash were to no longer exist, we would likely be at their mercy.
An unstoppable force?
It may be too early to start speculating about a cashless future, but the trend in this regard is both significant and undeniable. Recent research conducted by the Payments Council showed that cashless methods of payment in the UK have now overtaken their cash counterparts, and at a percentage ratio of 52 to 48. To put that into perspective, Germans paid for 82 per cent of transactions in cash in 2014, and Australians 65 per cent.
The above trend in the UK sits in interesting contrast to the amount of notes and coins in circulation, which have tripled since 1996, and increased by 8.2 per cent over the past year alone; taking us to a current total of just under £80 billion. Yet, as at July 2015, it was estimated that roughly half of these banknotes are kept under the pillow, held overseas, or used to fund the black economy.
The latter, of course, is the downside to coins and notes, and offers a reasonable opportunity for banks to take the moral high ground in terms of promoting cashless payments. Yet with the poor rates of interest they currently offer on savings, it is at least somewhat understandable why some Brits would choose to keep some of their money in cash, and while the threat of a public backlash - not to mention the spectre of widespread bank runs - will likely keep negative interest rates at bay for some time, many consumers may rightly feel that there is little to be gained from keeping all their savings in the bank.
What does the future hold?
The various pros and cons to the different methods of payment leave us at a fascinating juncture. The relative share of cash transactions is on the decline, yet the amount of cash itself in the economy is on the rise. Some may wish to write those who don’t embrace a cashless world off as dinosaurs, Luddites or conspiracy theorists.
But while card and electronic payments clearly have their place in the world, perhaps the demise of cash may not be the utopia some may imagine. For the time being anyway, it would seem that cash - although no longer king – may be set to stick around for a little bit longer.
Main image "Banknotes, money, cash" by Howard Lake. Image subject to copyright. A link to the image and appropriate licence can be found here. You must not use or reproduce this image other than in accordance with the licence.
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