Clicking, swiping, and tapping, are the new ways of describing payments in the digital era. The use of cash as we know it is up against an accelerating onslaught from contactless and mobile payments especially among young people. In its 2021 Payment Markets Report, UK Finance revealed that more than a quarter of all 2020 UK payments were contactless. Additionally, research by YouGov on behalf of Link showed that over 54% of Brits are avoiding cash and instead opting for alternative payment methods.
Considering these and a lot more developments in cashless usage, would it be accurate to say that cash has lost its shine? Are we sleepwalking into a cashless society without guardrails or is our conscience clear that this is what we exactly want? Whether we are staring right into the eye of a cash apocalypse or wading through a cashless illusion, we must have a sober discussion on what this is all about.
Are We Bidding Cash Farewell?
Cash has been around us for centuries, transcending generations and dynasties. However, the developing armageddon that we are currently witnessing between cash and cashless payment options may as well be the death blow to cash as king.
Even before the covid-19 pandemic, people had already started falling out of favour with the transactional use of cash. Covid only accelerated the trend with 35% less of Britons paying via cash in 2020 compared to 2019. In the face of covid, many people have been avoiding cash for hygiene reasons and the risk it poses to the spread of the virus. Having said that, the WHO and the Bank of England are on record stressing that the risk of transmission through cash handling is low.
Despite there being no definite timeline, an extrapolation of the cashless trend in the UK may see the country become a cashless society going by 2026. Online banking and contactless payments have been billed as being convenient, safer, traceable, and quicker than cash. However, embedded in these benefits are also the downsides of cashless transactions.
Is Everyone Onboard the Cashless Train?
By all means no. According to UK Finance, 2.2 million Britons still use cash to defray their expenses. Out of this group, 1.3 million have no access to bank accounts. This means that they are at risk of being locked out of the cashless infrastructure.
Aside from that, pensioners use cash essentially to pay for their utilities. For this reason, Age UK is pushing for the legal right to access cash for all age groups to avoid certain sections of society from being locked out of cash and banking services.
Another group at risk of being financially excluded are people living in rural areas. In addition to them not having the luxury of cash machines within walking distances, many of them have no access to reliable internet connectivity to pivot to digital payments.
The homeless and low-income households are also likely to be disproportionately affected by a shift to a cashless society. This is because of their exclusive reliance on cash to pay for their expenditures.
To these and many other people, the thought of developments such as the Lloyds Banking Group closing 44 branches presumably for lack of customers is a move that is most certainly not welcome. From January 2015 to date, over 4,000 bank branches have shut down, putting entire communities at risk of running out of cash.
Free-to-use cash machines have also been disappearing at an alarming rate. Data from an Access to Cash study released in March 2019 shows that without banknotes and coins, over 8 million people will be struggling to cope. According to another study by A2Z, we still have 20.5 million people across the UK who are heavily reliant on cash, and they consider it a necessity.
Therefore, looking at the breakneck speed at which digital finance is advancing, there is a much greater risk of leaving a section of the society behind.
Why Is a Cashless Society So Alluring?
Well, private players and governments the world over, have been toying with the idea of moving consumers to digital-first payment systems. Among the reasons this push is gaining momentum by the day, include.
Cost-Effectiveness of Cashless systems
According to the Access to Cash report the UK cash infrastructure is becoming unstainable, costing approximately £5 billion annually to run. The weight of this cost is ultimately passed down to consumers in the form of increased bank charges and withdrawal of services such as bank branch closures. On the contrary, a cashless infrastructure isn’t as expensive to run with many of the fixed costs knocked down or simply inexistent.
Enhances Tax Compliance and Safety
Digital payments including mobile, online, and contactless transactions are traceable. This makes it easier to track incomes without the hurdles often experienced in cash-in-hand transactions. Also, the risk of robberies and over the counter crimes is drastically reduced.
The manufacture and distribution processes of money contribute to climate change in more ways than one. Think of the machines cranking and the materials used to produce notes and coins. Thereafter, the distribution vans and other logistics involved in the transfer of hard cash from point A to B. All this can be avoided with cashless platforms.
Speed, Convenience, and Minimal Contact
Cashless means lesser queues and minimal person-to-person contact especially during these extraordinary times. At the touch of a button, accounts get credited and debited, thereby making commerce efficient.
Ease of Tracking and Management
Cashless payments are captured on statements, and you can easily track and trace in real-time in case of suspected losses. However, for solid cash, once it is gone, the chances of getting it back are minimal. You can also block lost cards or fraudulent transactions with ease.
Is There Any Justification for Us to Hold onto Cash?
Looking at the advantages of a cashless society, you may think that holding and transacting in cash is a bad old habit. But wait a minute, there are strong reasons as well why cash still rules the streets.
Good Spend Management Practices
Notes and coins make people more aware and sensitive about their inflows and outflows. This is in sharp contrast to swiping and tapping which can easily make expenditures go unnoticed thanks to automation and compulsive tendencies.
Cash has a way of bringing people together whether it is with cashiers during shopping, or when paying your gardener or window cleaner, or when giving cash as a gift to your loved ones on their special days. Here is the deal with cash, the mere thought of handing over your hard-earned cash to someone else, is enough to create a feeling of emotional and social connection that is absent in digital finance.
Not Susceptible to Cyber Attacks
Despite its tap and go conveniences, digital payments are vulnerable to cyber risks and IT system failures. With cash, you don’t have to worry about phishing, malware attacks and identity theft. You may look old school with notes and coins, but you are safe.
What Is the Best Way Forward? Remain with Cash or Go Cashless?
This is one of those questions with “it depends on” kind of answers. If you are a baby boomer, cash-based business, or living in far-flung areas with limited broadband access, having cash is always preferable. However, if you belong to Generation Z or Alpha living in urban areas, chances are digital cash works for you.
Irrespective of the angle from which you look at the cash and cashless trends in the UK, the bottom line is that society is hurtling towards digital finance. As with any socio-economic transformation, there are bound to be implications both desirable and not so desirable. Our duty and that of the government is to safeguard access to cash for those who need it while keeping the momentum on for those shifting to digital payments.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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