COVID-19: The Beginning of the End for Cash
In recent months, we’ve witnessed a stark acceleration in the switch to electronic payments. Arguably, out of necessity rather than choice. However, this shift only intensifies the age-old debate that cash is no longer king.
New research has suggested that the Coronavirus pandemic will dramatically hasten the decline in cash usage in the UK. Enforced lockdown has led to a dramatic 60% fall in the number of withdrawals from cash machines, while card payments and online shopping, particularly for essential purchases such as groceries, have skyrocketed. With now significantly less demand for cash withdrawals and subsequently, more and more machines disappearing from our high street the way phone boxes once did, it’s highly likely that this changed societal behaviour will last long after the virus has left our shores.
Problems with cash have been well documented, and have only been intensified by reports early in the Coronavirus outbreak about the spread of the virus on banknotes and coins. Whilst the World Health Organisation and the Bank of England have stressed that the risk of transmission from cash is no greater than any other item, these concerns have acted as a catalyst for many to adopt an all-digital wallet. In addition, cash is actually quite inconvenient and increasingly unnecessary. Cash can be stolen or lost. Consumers are unable to redeem reward points for spend and cannot automatically track spending habits to help with budgeting. In today’s society, cash simply struggles to compete with the multi-dimensional attributes of digital payments.
If you add to this the UK increase of the contactless limit to £45 at the beginning of April, cash for many has all but become redundant. If already, only a third of payments are made in cash, it’s unquestionable that the additional pressure that COVID-19 has applied to coin and note exchange will see the predictions for a largely cashless society within the decade, accelerated at speed.
Halifax said the number of over-65s signing up for online banking jumped by 63% and their use of contactless has also soared.
And it’s not just digitally-savvy millennials that are driving this trend. Many older people have switched to online banking and contactless payments since March this year. Halifax said the number of over-65s signing up for online banking jumped by 63% and their use of contactless has also soared. It’s highly likely that temporary measures put in place to help limit the spread of the Coronavirus such as stores only accepting cards and contactless will clear the way for a cashless. Business banking app Amaiz’s recent research revealed that around 50% of small and medium businesses in the UK have either gone entirely cashless or plan to do so in the wake of the COVID-19 pandemic.
Of course, there are drawbacks to a cashless society. We must not forget that for many people, small businesses and not-for-profits, cash is crucial to their survival; for those without bank accounts, digital payments may reduce financial access. Many now call for regulation to ensure that retailers, restaurants and bars must also accept cash tender.
Whilst downsides are evident, for many, convenience outweighs. And as we become ever more reliant on digital services to tend to our basic needs in life beyond the curve, the decline in the use of cash looks set to continue.
The digital opportunity
Technology is revolutionising our relationship with money. The omnipresence of smartphones and the development of financial applications means that it is possible to bundle spending habit reports, savings, checking, credit card usage, loans and credit score all in one easy and secure place. In turn, this means that mainstream FinTech has created the opportunity for consumers to develop financial literacy regardless of background, age or current financial circumstances.
The cost of maintenance of a sparsely used cash system will become increasingly debilitating over the coming years. Cash will become costlier to maintain as its value to the vast majority of consumers diminishes. It is therefore crucial that banks and FinTech businesses work to bring those without bank accounts, and the elderly further into the FinTech ecosystem – suggestions such as the Bank of England’s digital notes are perhaps a good starting point.
The repercussions for organised crime and fraudulent activities are also significant in a digitally managed system, providing both a more secure currency – less liable to loss – and less room to hide significant portions of extra income.
Technology has worked to help us understand, track and manage our money in a way we’ve never been able to before. And as COVID-19 turned industries on their heads, banks had to evolve in real-time to further provide digital services that customers would have ordinarily sought assistance in branches or over the phone. As we quickly evolve into a digital-first world, banks, governments and businesses must recognise that digital payments are an opportunity for inclusion, for increased financial literacy and for long-term economic stability. They need to work collectively to ensure measures are put in place to protect those who still need access to cash and to provide a greater breadth of service digitally for those that will shift from pounds to plastic. For a cashless society is no longer stuff of the future, it’s here and due to the COVID-19 crisis is coming much quicker than we once predicted.