Cashing out: are we really moving towards a cashless society?

  • 9 June 2022
  • Blog | Professionalism and Ethics | Blog

As the limit on contactless payments moves to £100 in the UK, we seem to be one step closer to a cashless society. According to Capgemini’s World Payment Report 20211, nearly 45% of consumers frequently use mobile wallets to make payments, up from 23% in 2020. In fact, 53% of respondents had further increased their use of digital payment channels through the pandemic and were likely to continue using them. 

The pandemic significantly accelerated the shift to digital payments, because more people were shopping online from home, and because of a fear that cash could be a carrier of the virus. When COVID-19 took hold and people were encouraged to maintain social distancing and limit contact with each other, it was natural to want to go contactless in the shops, rather than handling cash. Despite Bank of England research in late 2020 showing that “the virus does not survive at high levels for very long on banknotes”2, this shopping behaviour had become habitual for some. 

By 2017, debit cards had already overtaken cash as the most frequently used payment method in the UK. According to Capgemini, global non-cash transactions are poised to grow at 18.6% CAGR (2020-2025 forecast), driven by next-gen payments, and are projected to reach 1.8 trillion in volume by the end of the forecast period. Even within B2B, non-cash transactions are growing, increasing to nearly 200 billion transactions by 2025, from 121.5 billion in 2020. 

How cash is holding on 

Despite this apparent direction of travel, cash continues to be important, both in the UK and worldwide. According to the Bank of England, there are more than £70bn-worth of notes in circulation, which is roughly twice as much as a decade ago3. This cash is sitting in wallets, shop tills, banks and ATM machines and even being hoarded at home as savings. 

In our Country Spotlight in the winter edition of Chartered Banker Magazine, we spoke to Toshio Taki, Head of Sustainability and Chief of Public Affairs, Money Forward, and Head of the Money Forward Fintech Institute. He explained that the Japanese government has introduced targets to boost cashless payments, but that there are still many people who prefer to use cash.  

“We live in a market where we embrace cash and cash is so effectively distributed,” he said. 

This is true in other economies as well, and there are other reasons to keep cash circulating. According to ING research4 from September 2020, 40% of Europeans choose cash for smaller amounts because it is “quick to pay”. Although 58% said they used cash less in 2020 than the year prior, three in 10 respondents strongly disagreed with the statement “I would prefer it if cash no longer existed”. 

The importance of cash 

A keynote speech by Fabio Panetta, Member of the Executive Board of the ECB, at the Deutsche Bundesbank’s 5th International Cash Conference in June 20215, explained why faster digitalisation doesn’t necessarily spell the end for cash any time soon. 

“Despite the significant drop in the use of cash for payments, we have seen a parallel, huge rise in the demand for euro banknotes over the past year: an increase of €190 billion – or €550 per capita – between March 2020 and May 2021,” he said. 

“One possible explanation for this apparent paradox… is that during the crisis people turned to cash as a tool to manage uncertainty. 

“And cash also has unique features which underpin its demand. For example, it is often the only way to guarantee financial inclusion, as it allows users to make payments at no cost. In the euro area, there are 13.5 million adults who are unbanked and rely mostly on cash,” he added. 

Evidence continues to show that without cash, both merchants and consumers would be worse off, particularly those on a low income, older people and the unbanked. So, while cashless payments will likely continue to grow, they won’t stop the use of banknotes and coins in the near future.