By Chris Davies, Managing Director, Global Payments
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When you stop to consider the impact that digital technology has had on our lives over the past decade, it seems anachronistic that we still use notes and coins to pay for goods and services, a system which has barely changed since the very earliest days of human civilization.
The wholesale shift to electronic communication has been a defining feature of the past decade – an individual could live their life virtually paper free if they chose to. While the same could be said for living without cash (which several journalists and authors have now successfully demonstrated) this has not seemed to diminish its broader use. Despite our passion for innovation, and the often underestimated costs associated with carrying cash which trickle down to us all, it appears that we cannot shift our attachment to paper money.
Spending on cards is increasing of course, but there has not been a corresponding decrease in the number of ATMs, which is indicative of our sentiments towards cash. The number of ATMs in Europe actually increased by 0.9% in 2011 to 0.44 million, according to statistics published by the European Central Bank (ECB) in September 2012. Realistically, we are unlikely to see a cashless society anytime soon, but there are signs that new payment methods could be starting to edge out cash in many every day transactions.
The sustained presence of cash in a society populated with technologically savvy consumers is arguably an issue of both habit and trust – individuals like to use methods of payment that they are accustomed to and which make them feel secure. Those routines are gradually being changed as alternative payments become part of the retail landscape. The explosive growth of e-commerce, for example, has led many consumers to habitually use e-payments without even really considering it. In 2011, according to a report from OfCom published in December 2012, the per-head spending on e-commerce was £1,083 in the UK – a significant amount and higher than anywhere else in Europe.
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By GlobalDataBroadly speaking, for larger value transactions, spending on plastic has developed a clear lead, especially in retail. According to statistics from the UK Cards Association, in December 2012, the share of plastic card spend in the retail sector was 74.7% – a 3% year on year increase.
Where cash has traditionally kept a stronghold is in low value, everyday transactions, the introduction of new payment methods such as contactless is challenging this monopoly. Figures from the Payments Council released in February 2013 in their report "The Way We Pay", showed that cash still made up three out of five daily one-off transactions in 2011 – however, it also found that the use of debit cards is increasing as are contactless payments.
What is likely to be the real game changer in this space is mobile payments – when consumers become accustomed to tapping their phone to make payments for everyday items.
The introduction of an affordable, popular handset with near field communication (NFC) capabilities to the UK market will have huge potential to reduce cash usage. The recent launch of an NFC-enabled smartphone in the UK could be a tipping point for incentivising both retailers and consumers to engage with mobile payments – for items both large and small.
From a demographic perspective, the generation that has grown up with smartphones and digital technology will be especially comfortable with this method – so as they come to represent a greater share of the population, cash usage is bound to reduce.
Nudging consumers to adopt these habits is a faster route to reducing the use of cash. Oyster cards for example have become the normal way of paying for tube travel in London – commuters rarely think twice about tapping to pay for travel. There is no doubt that the original financial incentive provided for adopting Oyster has helped to encourage its widespread adoption. With the subsequent introduction of contactless payment on London buses with compatible cards, cash is already looking as though it will be edged out altogether for ticket purchases in the near future.
There are obvious incentives for retailers to start going down the same road – not least because of the high cost of maintaining an infrastructure to handle cash, as well as the obvious uses of electronic payments in their marketing and sales efforts. So when retailers decide to adopt their own "nudges" for consumers, it could feasibly mark the beginning of the end for our cash habit.
