We’ve been trading with paper currency for over 500 years but the age of the banknote may be coming to an end. For the first time last year cash transactions made up fewer than half of all the payments made in the UK.
The use of paper currency has been steadily declining for years but 2014 was a watershed moment as less than half of purchases were made with cash. The rest were made with a combination of other payment forms including credit cards, debit cards and mobile payments.
The stats have raised questions about whether Britain is moving towards becoming a cashless society.
Where cash is not king
The notion isn’t as mad as it might first sound. Many other countries have been moving towards a cashless society for a while.
The Danish government is considering allowing shops to be able to ban cash and only accept debit, credit or smartphone payments instead.
“We’ve recognised what merchants have been telling us for some time now,” said Sofie Findling Andersen of the Danish Chamber of Commerce. “Using cash is expensive, because it takes time for salaried employees to handle, and it’s also a security concern.”
It is highly likely that the Danish government will bring in a new law and from January 2016 some retailers, including clothing retailers, restaurants and petrol stations, will be able to refuse cash.
Denmark isn’t alone in banning cash. Sweden – which ironically was the first European country to introduce banknotes back in 1661 – has allowed businesses to reject cash for years. The country has a growing movement of people wanting bank notes to be banned completely which includes ABBA’s Bjoern Ulvaeus.
In fact, cash is so unpopular in Sweden that one church in Karlshamn has installed a card reader as the vicar was tired of people saying they couldn’t donate as they didn’t have any money on them.
Carrying less cash
Brits are also less likely to carry cash these days.
A survey last year by Kalixa Pro found that 71% of Brits carry less than £20 in cash with the average just £17.79. Of the 2,000 people they surveyed 82% said they prefer to pay for purchases of over £20 with a card.
But we are a long way off abandoning cash completely.
“True, cash usage is decreasing but this is a slow, ongoing trend rather than a wholesale move away from cash,” says Mark Bowerman, a spokesperson for the Payments Council. “It is still the primary payment method in the UK; by volume 48% of all our transactions were by cash last year and the next biggest payment type was the debit card on 24%.”
Cash not going anywhere here
The Payments Council estimates that we will still be making 12.7 billion transactions worth £238 billion in 2024.
“Cash is still king and it becomes even more important to us in those years when the economy is on a downturn, as it is far easier to budget with cash than any other payment method,” says Bowerman.
“Virtually all of us use cash to some extent – particularly for low-value transactions – and students, the elderly, those on low incomes and people with a disability use cash extensively, and many on a day-to-day basis.”
Another, albeit more unusual, reason why cash is here for the long term is crime. Cash transactions provide a level of anonymity that is hard to replicate with any other form of payment.
As a result paper money is still relied upon for crimes ranging from money laundering to tax evasion. After all, it is difficult to pay someone ‘cash in hand’ if cash has ceased to exist.
Security also remains an issue. Many people don’t yet completely trust online payment methods.
Before we abandon cash completely retailers and online vendors will have to work hard to demonstrate that they can be trusted with the information they would receive if people pay with alternative payment methods such as mobile apps. Until more of us believe these methods are absolutely 100% secure, we’ll continue to fall back on cash.
“The prospect of a totally cashless society in the UK remains some way off as we expect consumers will find it hard to wean themselves completely off hard currency due to its physical nature and flexibility,” says Spiros Theodossiou, vice president of product strategy at online payment system Skrill.
“Much like the decline of newspapers, people need some time to change ingrained habits and tradition even though digital payment alternatives may be more suited to our modern lives.”