When was the last time you used cash? The most likely answer, according to numerous studies, is not since before the start of the pandemic.
In October, months before COVID-19 was on our radars, UK Finance reported that card payments now accounted for half of all transactions in the country for the first time.
The shift away from cash towards digital payment methods has been building gradually for years, but the idea of the UK becoming a truly cashless society has, until now, been considered near impossible if not decades away.
Unsurprisingly lockdown has dramatically accelerated this shift. Not only have the majority of shops which remained open been accepting card payments only, but the massive shift online all but forced the nation to pay by card.
As lockdown eases and retail begins to reopen its doors to the paying public, is the UK likely to fall back into old habits, or has this acceleration in card usage spurned a permanent change in customers’ behaviour and attitudes towards cash?
According to Visa’s European chief executive Charlotte Hogg customers’ “behaviours have fundamentally changed” and those who’ve become accustomed to paying by card will continue to do so.
Its rival Barclaycard reported earlier this month that a whopping 90 per cent of face-to-face transactions were made contactlessly during April, while cash payments declined 15 per cent.
This dramatic rise in contactless payments is in equal parts down to necessity and convenience.
“We can’t underestimate how much not wanting to touch a pin pad is putting people off chip and pin payments, and with the younger generation of individuals embracing their phones as their only real payment method, we’re starting to see a seismic shift in payment habits,” Global Payments’ UK managing director and president Nick Corrigan told Charged.
This aversion to making any form of physical contact, especially with heavily used cash and card machines, will have “big implications” for retailers in the future, according to research from global product and service design company Foolproof.
Foolproof’s research found that 80 per cent of customers will permanently change they way they interact with publicly available technology after the pandemic, going so far as to suggest ATMs could be done away with (in their current form) altogether.
Foolproof’s co-founder Peter Ballard explained: “There are strong indications that these attitudes may become more ingrained in our post Covid-19 future. This underscores the need for changes to future product and service design, and we need to accept that people will want to touch things far less than they are required to do now.
“We suggest leading on intermediary changes which reduce touches to purchase such as, styluses, improved mobile payments and QR codes as a way to pay, whilst having a longer-term strategy for the trajectory towards being completely touchless.”
While contactless payments have become largely necessary for shoppers to avoid contact as much as possible, the jump in contactless spending limits from £30 to £45 has made it dramatically more convenient.
Barclaycard, which processes nearly 40 per cent of all UK card transactions, says that more than 40 million transactions have been made above £30 since April 1.
Despite the acceleration in digital payments, many are still fighting for cash
Corrigan believes that technological advances enabling this spending limit to be raised even further will in turn see further increases in contactless usage.
“If we think of types of payments like a pyramid, the bottom layer would be made up of the lower-price transactions, like train tickets,” he said.
“The top end of the pyramid are the higher transactions for more expensive purchases, like laptops. We’ve seen such an explosion in contactless payments because the increased spend limit has allowed transactions higher up that pyramid to be made.
“To get to 100 per cent in the UK, we’ll need to see that limit rise again. That comes with having the right kind of biometric security in place to ensure people feel comfortable with spending higher amounts contactlessly with cards, just as they do with digital wallets.”
Another recent but no less significant factor which could have huge implications for the continued rise in card and contactless spend, is the Supreme Court’s ruling in June that multilateral interchange fees (mifs) which are charged to retailers each time a credit or debit card payment is processed – breach UK and EU competition law.
In essence the fees which retailers are charged to process card payments, often a major deterrence for smaller businesses, are now considered in breach of competition law and illegal.
Despite the acceleration in digital payments, many are still fighting for cash.
It seems the real barrier to becoming an entirely cashless society is not technological, but rather social. Older shoppers who are not digitally native, especially those in rural areas with limited access to cash, are the target of “Community Access to Cash” groups springing up across the country.
These groups, largely funded by banks, are piloting services like home cash deliveries, special deposit ATMs and retailer cashback programmes to ensure the millions that want it, still have access to cash.
This seemingly also has the support of the government, with Business Secretary Rishi Sunak announcing ahead of the March budget that people “across Britain work hard for their money, with millions relying on coins and notes to make their daily payments.
“That’s why, at next week’s Budget, I’ll be making sure they can continue to access and spend their earnings in whatever way they want.”
While its clear these programmes wouldn’t be necessary without a dramatic shift towards digital payments, its not clear why so many are sticking by cash. Is it purely familiarity? Or unfamiliarity with digital technology?
If we are to truly become a completely cashless society, we’ll need to see financial services providers focus on delivering digital solutions
CEO of London-based data science consultancy QuantSpark Adam Hadley believes this is at least in part purely habitual.
“It might go up a little bit more but it’s unlikely to ever reach 100 per cent”, he told Charged.
“There are enough exceptions where you’re talking about small payments of £1 or £2 – and many have a habit of using cash for certain items
“Also, some older consumers, in particular, might be reluctant to use contactless payments so it will take some time. Contactless use is already high, but I’d say 95 per cent is the maximum we can expect to see.”
Another key consideration is the relative anonymity of cash. This does not necessarily mean that those wanting to use cash want to hide their activity for nefarious reasons, it could also mean they want to hide their activity from nefarious actors.
As Corrigan points out: “One key barrier to becoming completely cashless is the social divisions that still exist today; the fact that we still have an unbanked, or more commonly, underbanked population.
“For some of these individuals, access to financial services can mean becoming vulnerable to the negative sides of financial services though, such as payday loans and other lines of credit with high interest.
“If we are to truly become a completely cashless society, we’ll need to see financial services providers focus on delivering digital solutions, much like prepaid cards, whereby users can top up a digital card cash card to avoid becoming victim to traditional problem areas.”
While we’re closer than ever to becoming a purely cashless society, and the shift towards that eventuality seems to be accelerating, deeply engrained behaviours and sheer force of habit mean doing away with cash altogether is still a near impossibility.
But with cash usage poised to drop by 40 per cent in 2020, 10 per cent faster than the rest of Europe, digital payments have for the majority of people in the UK become “the norm” and will represent the vast majority of payments within a short number of years.