Recent analysis by UK Finance revealed that, perhaps unsurprisingly, cash usage in the UK has continued its decline. This decline has been accelerated by the increased use of contactless payments and further accelerated by Covid-19, (see Link report showing that UK ATM withdrawals are down from £8.2m in February to £4.3m in April) with some retailers now only accepting card or contactless payment methods. Reflecting on this, it occurred to me that with the exception of the £1 coin that I put into my supermarket trolley, I have personally not used cash at all in the last 6 weeks and more strikingly that I hadn’t even noticed. I recall experiments conducted only a few years ago where people tried to live without cash, resulting in varying results, whereas I have now lived without cash for 6 weeks successfully, not as an experiment, and not even deliberately or with any particular effort.
It’s notable that in the Covid-19 outbreak people did not stockpile cash as some had predicted – they just stopped using it. So are we seeing the terminal decline of cash or is this just a blip?
What will happen as we move away from the current restriction to something that looks a little more normal? It seems reasonable to predict that contactless card usage will continue to increase and cash will continue to decline. It seems that we are also seeing some of the other long-standing payment solutions changing forever as, for example, we have witnessed recently with the decrease of Direct Debit. This is not only as a result of the financial uncertainty created by Covid-19 but also as a trend driven in part by the “gig economy” where people do not want to match inflexible payment schedules with their flexible and variable incomes.
I believe that the experience of the last couple of months suggests that as we come out of lockdown will we start to see increased adoption of some of the new payment solutions. For example, Request to Pay which we have seen demonstrated with the Neighbour 2 Neighbour scheme from the Request to Pay Service Ordo, has been able to provide an alternative to cash for many vulnerable people where they have a bank account but are unable to physically access cash. With the wider adoption of
Open Banking there will surely be other new overlay services offering, for example, frequent variable payments, the extension of Request to Pay to corporates, and what about the possibility of cross border Request to Pay? Some of these will replace the older more inflexible payment methods and all will continue the move away from cash. It may also be that Open Banking’s new app store will help inspire this diversification. In any case, as the experience with Open Banking increases, innovation will surely be driven by a market eager to provide value from the new capability.
On the question of whether we will ever completely replace cash (indeed should we even try?), I can see nothing that suggests that cash is not here to stay in some form. Cash is free to use (for the consumer), and critically there is no qualification to use it (the need to have a permanent address for example), it is instant and irrevocable which gives it great utility. But I do believe that its position is now reduced to an exchange mechanism of last resort, analogous perhaps to red phone boxes in that it will provide the last alternative to those with no other option.
It would be great to receive comments on whether you agree that Open Banking and Request to Pay can help bring greater choice in payments, or to discuss any of the issues raised in this blog.