The coronavirus pandemic has placed front and centre before us the question of whether societies need to use physical money. In fact, it reignites the rolling debate of whether hanging onto the use of physical cash is a wasted endeavour.
Necessity is the mother of invention. In today’s climate, where the global health crisis of COVID-19 means we are now in lockdowns and varying levels of social distancing, the need to improve and use digital payments is more important than ever.
We are currently reliant on digital services to tend to our basic needs, whether receiving payment from welfare or employers through digital systems rather than cash-in-hand, or sending money back and forth to neighbours, friends or relatives as we combine our food shopping.
It’s raised an important issue: do we even need physical money once the world returns to a new normal? Why are we clinging onto notes and coins? Even from a health point of view, it’s been pointed out yearly in benchmark reports how riddled physical cash is with bacteria.
The decline of cash
The decline in the use of cash and concurrent rise in digital and card payments has been charted for years.
Since 2017, debit cards have overtaken all other methods of payments, remaining the most frequently used and accounting for nearly 40% of all payments pre-coronavirus pandemic.
As UK Finance, the trade association for the UK banking and financial services sector, has pointed out, almost the entire adult UK population (98%) now owns a debit card and by 2024 debit cards are forecast to account for half of all payments in the country.
Contactless payments are also growing in popularity — there was a 31% increase in the use from 2018 to 2019. Even older customers are “increasingly embracing the convenience of this technology,” notes UK Finance. Some 61% of over-65s made contactless payments in 2018, up from 50% in 2017.
Overall, 69% of adults in the UK now use contactless payments, and “no age group or region falls below 58% usage,” UK finance points out.
But cash is not dead.
It was still the second most frequently used payment method in the UK in 2018, accounting for 28% of payments — even though nearly the entire population has a debit card. UK Finance says the growth in contactless and mobile payments has meant consumers are choosing to pay less with cash, with overall cash payments falling by 16% in 2018.
In fact, the fall in cash use has also been charted by ATMs.
Last year, consumer lobby group Which? pointed out that Britain will lose a portion of free-to-use ATMs. The fee to withdraw cash on each transaction — known as the interchange rate — ranges from 50p to £1.99. Companies are trying to recoup costs as fewer people head to a cash machine.
Why there’s a resistance to killing cash
Before the coronavirus pandemic, there were repeated calls to protect the use of cash — motivated by social inclusion concerns and even nostalgia.
In 2018, an independent group reviewing consumer spending called Access to Cash warned that Britain risks “sleepwalking” into becoming a cashless society and that, in turn, creates huge problems for the millions of people who live in rural areas or are in a lot of debt.
The Treasury also estimates that 2.2 million people are still reliant on cash in the UK, with the elderly, poor, and rural dwellers the most reliant.
“We haven’t taken a view in this report about the merit of a cashless society,” said the author of the report Natalie Ceeney, the UK’s former chief financial ombudsman at the time.
“We haven’t concluded that it’s impossible, or even undesirable. But our research does show that if we fail to plan and prepare for it properly, a cashless society would do significant harm to the millions of people who would be left behind.”
UK Finance has, of course, said it is working with Access to Cash Review, to look at how the banking and finance industry can improve customer outcomes and work with local authorities to identify and report gaps in cash provision.
Meanwhile, despite the former UK chancellor Philip Hammond calling 1p and 2p coins “obsolete” and a Treasury report finding that just 60% of the coins being used in transactions are either being saved or thrown away — they were still kept in circulation after uproar from the public.
But taking all this into account — we are now in a new society. The lockdown presents an undeniable social change in the aftermath.
The new era of payment
The coronavirus pandemic has forced on us an unprecedented global experiment on how we live our lives in physical isolation. From how we work, to how we tend to our basic needs — lockdowns have forced us all to adapt.
The fight for the survival of physical money has been put aside as health concerns come first.
For years, annual reports have shown that UK cash and coins are laden with life-threatening bacteria.
During the coronavirus pandemic, the World Health Organisation (WHO) advised people to use contactless technology instead of cash as banknotes may be spreading COVID-19. The WHO said the infectious coronavirus could be carried on the surface of banknotes for several days.
Even before the 23 March lockdown, the use of cash halved within days. The use of cash is also likely to significantly drop over the lockdown and social distancing period.
Currently, most essential stores only accept card payments. New guidance from the British Retail Consortium also says that stores should encourage card payments over physical money, even if lockdown restrictions are eased.
It’s also been noted that the coronavirus pandemic has made things better and easier for swathes of society’s most vulnerable — those collecting welfare — by using digital assessments and payments.
So once we return to a post-coronavirus world — what is the argument for keeping cash? If there are gaps in the infrastructure, or if greater education needs to be done for people to use digital payments (both issues that have been pointed out by UK Finance and Access to Cash reports) we should focus on shrinking that gulf instead of hanging onto cash for the sake of it.