Ross Macmillan, Head of Research and Intelligence at allpay Limited
With experts predicting the end of cash for the last five decades, it’s no surprise that with the increasing use of mobile payments and digital wallets, they’re at it again.
However, for all the talk about cryptocurrencies and virtual accounts – the value of banknotes in circulation in the UK has actually increased threefold over the past 20 years, according to the Bank of England. As at end-July 2015, the total value of Bank of England notes in circulation stood at £62.6 billion.
And with more than 18 billion cash payments made in 2014, according to Payments UK, which accounted for 48% of all payments made in the UK, you could argue cash is alive and far from dead.
Although it’s true that cash is declining as a whole – and that consumers are less likely to use cash for transactions than they were in the past – it’s very much alive and kicking (and even showing growth) in some markets….
What’s not to love about cash? According to a Bank of England Survey in 2014 consumers feel cash offers a unique set of attributes: It’s fast, convenient, universally accepted, helpful for budgeting and anonymous. It also provides immediate final settlement with no reliance on technology or central infrastructure.
Using cash to pay a bill can also be easily facilitated through national networks like the Post Office, PayPoint or Payzone outlets – so bills can be paid when customers are out doing their shopping. According to Payments UK, newsagents accounted for the highest percentage of all consumer cash payments in 2014 by volume.
Consider some of the major household bills like rent, council tax, water, TV Licence, gas and electricity. Every year hundreds of millions of payments for household bills are made with coins or paper providing flexibility and convenience for the likes of the rurally isolated, unemployed, un/under-banked, digitally excluded, elderly or vulnerable. If they were unable to use cash, they’d incur arrears on their bills and fall into debt. In fact, according to industry data, in some of these sectors between 10% and 39% of payments are still made in cash and cheque. In energy and housing for example, there has been an increase in volume, albeit small, between 2014 and 15.
There is good recognition across government of the near two million adults in the UK who don’t have a bank account – and as such, there are good examples where central departments have included provision for the payment of bills in cash such as self-assessments, court fines and vehicle tax.
Through the extension of the Post Office Card Account (POCA) – which allows claimants of benefits, pensions and tax credits to receive funds directly into a POCA to withdraw in cash and pay bills, they have preserved a service still used by around 2.5 million people, including more than 1.3 million pensioners.
In housing and local government, welfare reforms such as the ‘bedroom tax’ and localisation of council tax benefit has required some people to pay a bill for the first time – with a large proportion in the sector preferring to budget and pay their bills in cash. When it comes to paying energy bills, some six million households rely on pre-payment meters to track and pay for their energy use, which usually involves cash top-ups at the local shop or Post Office, allowing them to tightly manage their expenditure.
Elsewhere, individual commitments like club subscriptions, loan repayments, catalogue and mail orders and charity support still have high volumes of cash and cheque payments.
Peace of mind
It’s clear that bill issuers may be missing a trick by excluding cash from their payment acceptance offerings – as catering for all demographics will increase collection rates.
Cash may also be the first choice for a consumer due to a fear they may have in submitting their bank or card details given the regular and well-publicised spate of security breaches.
According to Payments UK, of the 1.6 million consumers who rely predominantly on cash to make their day-to-day payments, nearly 40% are aged 65 or over. It adds that younger people are far less likely to rely on cash in this way, perhaps reflecting the fact that generally they tend to be more comfortable with electronic payment methods.
If bill issuers need any more convincing that cash is not to be written off just yet, recent EU changes to interchange have also made cash, in some instances, more cost effective for some higher value bills compared to a debit card payment. A debit card payment is now largely charged as a % of the value of the bill, made online or over the phone – making the offering of cash a cost-saving measure. Cash may now be behind a direct debit and standing order as the next most cost-effective payment method.
While it’s easy to get swept up in the hype of bitcoins and biometrics, bill issuers should ask themselves how easy it is for their customers to pay. For some, any number of the new payment methods may be unavailable to them, may be intimidating or may result in security fears.
Bill issuers should remember to cater to all of the people they serve and do all they can to offer a multi-channel approach that acknowledges all needs and circumstances. If not, they’re at risk of losing loyal customers and worse still the cash they have in their pockets.