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Thursday 26 April 2018

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The war against cash

Written by Scott Thompson
07/09/2015

Is cash a goner or very much alive? Scott Thompson goes in search of an answer to a question that continues to dominate the payments landscape

Brits spent more than £2.5 billion via contactless cards in the first half of 2015, compared to £2.32 billion for the whole of 2014, according to The UK Cards Association. Spending has risen from £287 million per month in January 2015 to £567 million in June 2015. And further growth is on the cards as the maximum amount for a single purchase increases this month from £20 to £30.

There is further good news for those waging war against cash. Forty three per cent of Brits see contactless payments as the future, whilst a quarter think that in five years’ time they will no longer need cash to pay for goods or services. This rises to 39 per cent of people in ten years’ time, and 48 per cent 20 years from now. According to new Lloyds Bank research, involving 2,070 bank account holders, 63 per cent of those surveyed will still be using credit and debit cards (63 per cent) as well as cash (52 per cent) on a day-to-day basis by 2025. This is followed closely by contactless payments with 48 per cent expecting to use it on a daily basis in the next decade. In addition, 27 per cent will make payments using wearable tech such as watches or wrist bands in ten years time, one in five will be regularly using their fingerprint, and seven per cent believe they will make payments using a microchip embedded in their body by 2025. Nine per cent of those aged over 45 plan to still be paying by cheque in 2025 compared to just four per cent of 18 to 44 year olds.

Claire Garrod, head of personal current accounts at Lloyds Bank, said: “Whether it is contactless, wearable tech, or fingerprint ID, people are increasingly expecting to use new technologies to make payments rather than rely on cash. The benefits of these new developments are gradually being understood and embraced by banks and their customers, to make payments more convenient without compromising security.”

Not everyone is quite so enthusiastic, however. NFC/contactless has been hyped for so long and is taking too long to scale, as the use cases are somewhat limited and the infrastructure expensive to deploy, and so there is still a good portion of retailers who have not upgraded their terminals accordingly. That was the verdict of the Payments Innovation Jury Report, issued earlier this year. All in all, it has felt a bit like a solution looking for a problem.

And there is also the fact that, whilst those in the contactless camp may be busy writing its obituary, cash isn't on its death bed. In fact, it is still a key player, accounting last year for 52 per cent of consumer payments at the Point of Sale and comfortably the most frequently used method of buying goods. And in absolute terms, the use of cash at the PoS (in both volume and value terms) is only slightly lower than it was 15 years ago. But such resilience at the checkout does not tell the whole story. Aggregate demand for Bank of England notes has grown quickly, increasing by around three-quarters over the past decade, and has outpaced the growth in GDP since the 1990s. Today there are nearly three-and-a-half billion notes in circulation, totalling over £60 billion. That was a key message to come out of Bank of England chief cashier Victoria Cleland’s speech at the Follow the Cash 2015 Conference, which took place in Bristol this month.

Cleland's comments came as the Bank of England announced that the next £20 banknote will be printed on polymer. In December 2013, the Bank said that the next £5 and £10 banknotes would be printed on polymer following a 10 week public consultation that found 87 per cent of respondents were in favour of the change. The £5 note featuring Winston Churchill will be issued in autumn 2016, with the £10 note featuring Jane Austen entering circulation a year later. The Bank says that it made the decision to move to polymer for the £20 note following extensive research into the developments in security features for notes printed on cotton-based paper and polymer since the 2013 decision was made. Featuring a visual artist nominated during the public nominations period held earlier this year, it will enter circulation in three to five years’ time.

"It is true, that as a society, we rely on cash less than we used to. Technology has delivered alternative methods and changed the way we pay," Cleland observed. "Today, it is possible to purchase goods and services with debit and credit cards, using chip and PIN, or contactless technology. You can also buy items using new smartphone technology such as Apple Pay, or over the internet. You can make regular payments via standing orders and direct debits, and one-off payments using the Faster Payments Service. While much more limited, you can also pay for some goods and services using new digital currencies such as Bitcoin - our initial estimates suggest there are probably only a few hundred Bitcoin transactions in the UK each day. And here in Bristol, you can pay local retailers using the Bristol Pound, one of a number of local currency initiatives that have been launched across the UK over the last decade. Although my team is responsible for a much older payment method, we are not luddites, and we welcome the additional choice and convenience that consumers can now enjoy."

She added: "Cash is not a lazy incumbent, and does not fear technological innovation. It seeks to exploit it. Our banknotes have evolved considerably since the large handwritten black and white notes from the late seventeenth century. We have always made use of the latest technology to provide the best quality and most secure notes."

So whilst cash is no longer the only show in town, and it certainly can’t claim to be the new kid on the block, it’s still vitally important. "Cash is not ready for the retirement home, and certainly not the funeral home. And because there is a lot of life left in cash, we need to work together to keep it healthy and fit for purpose. In the UK, the move to polymer notes and the rollout of a Code of Conduct for local recycling are important individually, but we can only achieve full confidence in banknotes by delivering both together. Everyone in the cash industry has a role to play. And all of us, alongside the public, will benefit from the success."

Meanwhile, the aforementioned Lloyds Bank research shines a light on an issue that refuses to go away. Thirty four per cent of those surveyed expect to be using a mobile device as a day-to-day method of payment in the next five years. However, there is still some way to go to persuade many people about the benefits of mobile payments, with 47 per cent saying they don’t feel that this will ever be a main method of paying for goods and services, although those that said this were significantly more likely to be aged over 45 (59 per cent of those aged over 45 vs. 37 per cent of 18 to 44 year olds). When asked about why they don’t currently use the likes of Apple Pay, two in five did not think it is secure or safe. 18 per cent didn‘t have the right phone, 17 per cent were in the dark about mobile payments, with 16 per cent also unaware of how to use the technology.

Those in the payments industry perhaps sometimes forget that there are still people uncomfortable with the brave new world that so excites them. They also see notes and coins as the most inclusive method out there (used internationally and across all sectors of society). Attitudes are shifting somewhat, particularly amongst younger people, yet for the time being cash remains very much a part of our DNA. The war against it will rage on but, although the banks, card schemes etc are packing heavy artillery, the target will continue to elude them for many years to come.



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