Cashless Society – Post-Covid, can cash ever again be king?

The use of cash plummeted in the days after the pandemic’s outbreak and has remained lower since then, but what is the longer-term outlook for physical banknotes and coins?

As public health precautions in response to Covid restricted travel and movement outdoors, the need for cash dropped off dramatically. Retailers and service providers who traditionally welcome cash payment; pubs, hairdressers, cafes and window cleaners among them, were forced to shut up shop or wring out their cloths. Even the greatest technophobes among us had no choice but to head online for our shopping needs.

Early scaremongering about the high risk of Covid transmission through handling banknotes decreased demand for cash still further, some retailers refusing to accept cash payments. According to consumer watchdog Which? 34% of people it asked said they’d been unable to pay with cash at least once since March 2020 when trying to buy something. E-commerce, contactless payments and mobile payment apps became commonplace for increasing numbers of the population and the Chancellor made contactless payments more convenient still in this month’s budget, increasing the transaction limit again from £45 to £100. Some speculated cryptocurrencies would replace hard currencies as mainstream payment methods.

The dash away from cash began long before Covid of course. A 2019 report funded by cashpoint providers Link, ‘Access to Cash’, revealed 60% of payment transactions involved cash ten years ago; by 2018 the proportion had dropped to only 28%. Cashless transaction possibilities were proliferating everywhere; on public transport, digitally via Apple Pay, Samsung Pay and PayPal and online, such that forecasters predicted cash transactions could fall to only 9% by 2028. Payments by debit card overtook cash for the first time in 2017. Wallets other than those of a digital nature looked set to become obsolete. Good news? Yes, for some.

While the speed and convenience of digital payment methods are attractive to many, the need for cash as an alternative is clear. Even before the first of the UK’s lockdowns was eased, cash use started rising again and, in periods of the pandemic when restrictions have been lifted, demand for cash has enjoyed a significant boost. Over 8 million UK adults, or 17% of the population, rely on cash for day-to-day expenditure. During Covid, people suffering ill health or self-isolating used cash to pay for the help they needed from care agencies or even friends, relatives and neighbours. Rural areas with poor broadband and unreliable mobile connectivity can make it difficult for residents to pay for things digitally and older people are particularly likely to struggle. About 1.7 million UK residents do not have a bank account, 90% of whom are on low incomes.

The divide between digital and non-digital customers is widening; those who rely on cash are increasingly disadvantaged. As ATM use diminishes, the availability of cash itself shrinks as the cost of maintaining the UK’s network of ATMs becomes uneconomical and machines are decommissioned. Which? recently reported 300 cashpoints are shut permanently every month. With the demise of high street bank branches, small businesses and charities who are also cash reliant are facing rising charges, longer journeys and riskier cash-handling practices. Those without transport who’re digitally deprived and cash dependent have fewer choices and are therefore hardest hit.

Access to cash is a shared priority between HM Treasury, the Bank of England, the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR). They meet as the Joint Access to Cash Strategy (JACS) Group and part of the FCA’s Business Payments priority involves making sure adequate cash is available for every consumer who requires it, whenever they need it.

Covid has emptied the population’s pockets of coins and notes more quickly than was already occurring pre-pandemic. However, sections of the UK population need cash to function and it’s essential that we plan and prepare effectively to replace an infrastructure model built for a high-volume cash society. An alternative system that’s economically viable in a digital world is crucial.

In March 2020 the government announced it will legislate to protect people’s and businesses’ ability to deal in cash and the FCA is carrying out research into the UK’s use of and need for cash, the findings of which it will publish later this year. It is working with industry to identify sustainable ways of safeguarding future access to cash at the same time as encouraging digital payment innovation. Collaboration between business stakeholders and communities is needed so new sources of cash are available: retailers offering cashback without accompanying purchases for example. Cash may never wholly regain its crown, but its role is fundamental and must be protected.