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Get Finance Smart - Is cash dead?

The cashless direction in which the world is moving has both its advantages and shortcomings, as was clear at a recent event hosted by UK challenger bank Monzo, where speakers debated the question, ‘Is cash dead?’

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Get Finance Smart - Is cash dead?

  1. 1. GET FINANCE SMART Is Cash Dead?
  2. 2. GET FINANCE SMART Is cash dead? For hundreds of years, society has been built on cash. If I were to say the word ‘money’ to you, your mind will most likely imagine physical notes and coins. And yet in somewhat lightening speeds, markets around the world seems to be approaching the point where money no longer relies on cash. Cash is no longer king, for some. In Sweden, cash equates to just 1% of GDP1 . In China, Alipay and WeChat Pay have driven a speedy transition straight into mobile payments, with the country bypassing debit or credit cards for the most part. And it’s not just among the more advanced economies that a cashless society is close – the mobile money transfer technology MPesa has driven Kenya to leapfrog the rate at which many more advanced economies are transitioning to cash; and in Zimbabwe, liquidity and foreign currency shortages meant 96% of total transactions in the country were electronic in 20172 . The reasons behind each of these shifts towards a cash-free society are highly varied, with technology, infrastructure, politics and culture playing crucial, yet varying roles, in different markets. It follows, therefore, that the move to cashless is not a global trend, with the factors that drive a society’s relationship with cash interplaying differently in each market. In Germany, for instance, 80% of payments are in cash3 - economists offer various reasons for this resolute reliance on physical cash, reasons which include a strong desire for privacy and relatively low trust in the government4 . These barriers have both driven and been exacerbated by slow growth in payments infrastructure – even large businesses, such as supermarket chain Aldi and German branches of Ikea, only began accepting credit cards as recently as 2015 and 2016, respectively.5 The UK is among those markets that have moved away from cash, at a speed of change which has been quite remarkable. In 2009, one in six UK payments were cash; today this is just 34%, with forecasts suggesting cash payments will fall to just 16% by 20276 . However, how much further we should edge into cashless-ness is by no means a simple question to answer, as was clear at a recent event at UK challenger bank Monzo where speakers debated the question, ‘is cash dead?’ The turnout alone was impressive – whether this reflected a societal fascination with the host challenger bank or the topic is unclear, but the topic is not a simple one, and the debate was consequently fascinating. 1 https://www.weforum.org/agenda/2018/11/sweden-cashless-society-is-no-longer-a-utopia/ 2 Reserve Bank of Zimbabwe https://www.csmonitor.com/World/Africa/2018/0813/A-nearly-cashless-Zimbabwe-tests-the- limits-of-mobile-money 3 https://www.bloomberg.com/news/features/2018-02-06/germany-is-still-obsessed-with-cash 4 https://www.bloomberg.com/news/features/2018-02-06/germany-is-still-obsessed-with-cash 5 https://www.bloomberg.com/news/features/2018-02-06/germany-is-still-obsessed-with-cash 6 UK Finance
  3. 3. GET FINANCE SMART Is cash dead? CASH IS DEAD Monzo’s Simon Vans-Colina pointed out that we are already over the tipping point in the UK - in June last year, card purchases overtook cash, and from here, cashless payments only become more convenient and cheaper than the alternative for consumers, businesses and the government alike. For Vans-Colina, one of the stronger arguments against cash being that without cash, crimes such as tax evasion and illegal purchases become much more complex. “It's somewhat naive to not face up to the fact that this is the direction of travel.” – Helen Prowse, Square The second speaker against cash was Helen Prowse, UK Communications Lead at mobile payment company Square, who approached the debate from the perspective of SME’s. The environment has never been more challenging for business owners, with “loads of factors that make it hard to trade, and in particular to trade in cash”. Particularly with UK bank branches closing, cash creates far more challenges for SME’s than digital transactions. Time-strapped entrepreneurs and business owners have to ensure they have floats and a constant supply of change for any cash purchases that may be made; that the tills balance; then take the time out of their day to go to the bank to safely deposit the cash they have taken. For small business owners in the UK, it is safer, faster and more convenient to take card payments than it has ever been in cash. Small businesses that don’t have the technology to take card payments will lose out on valuable customers – Prowse explained that 81% of UK citizens say they would shop more locally if they could pay on card7 . On top of this, it is easier to spend on card – while this isn’t always positive for consumers looking to budget, it can be a great thing for SMEs. There are definite benefits to a cashless society, particularly for small businesses. But, as the speakers for cash made it abundantly clear, there is another side to consider. CASH IS NOT DEAD Natalie Ceeney from Innovate Finance, the UK’s industry body for fintech, put forward a case for why cash is not dead. “Digital does not yet work for everyone”; some of the more 7 Square
  4. 4. GET FINANCE SMART Is cash dead? vulnerable parts of the population are reliant on cash, with those earning under £10,000 a year being 10 times more likely to rely on cash, as it helps with budgeting8 - in sharp contrast to contactless technology, which makes each purchase so easy it becomes forgettable. 17% of the UK population say they would absolutely not know how to cope without cash, but almost half of the population think the complete loss of cash would be problematic9 . This argument that digital payments don’t work for all of society is so compelling that even some of the economies that were zooming towards a cash-free society, like Sweden, have slowed their approach, for fear of leaving people behind. Ceeney explained that the danger point is when not everyone's ready for cashless, but the infrastructure is gone. Once cash payments fall below a certain level, the economics of paying for a cash system come into question – in Britain, cash infrastructure costs around £5 billion a year to run, with much of this cost fixed in physical cash sorting centres and ATMs10 . If it falls too low, this model will no longer make sense, but without it, we wouldn’t be providing for certain parts of the population; a shift that will drive a further divide between people who started out more vulnerable. Infrastructure provides other challenges too – outside of the main cities, mobile signals aren’t expected to offer complete coverage of the UK, and therefore the ability to take an electronic payment anywhere, until 2030 David Clarke of Positive Money, a non-profit organisation that campaigns for reforms to the money and banking system, also argued against cash, asking “If [a cashless society is] the direction of travel, who is driving the car?” His argument was that cash gives us power and going cashless means we hand over that power to the big banks, who end up with a huge amount of control alongside a huge amount of our data. On top of this, outages mean that we can lose access to our money; having some cash in the system remains crucial for instances like this. 8 UK Access to Cash Review, December 2018 9 UK Access to Cash Review, December 2018 10 UK Access to Cash Review, December 2018
  5. 5. GET FINANCE SMART Is cash dead? WIDER IMPLICATIONS OF CASHLESS This potential societal shift undeniably has its challenges; but challenges open up opportunities, and governments, the payments sector, banks and general businesses need to consider if there is a role they can or should play. For instance, the advantages of going cashless may at first seem compelling for many businesses; but the wider implications may not immediately be clear, with businesses, banks and governments needing to consider the wider implications of a cashless society on their internal and external policies. There will be an important role for someone to fill in education. A huge opportunity exists in improving either cash or cashless options to make them suitable for all. For instance, Van-Colina explained that Monzo identified that in a world of contactless options making payments frictionless and forgettable, there is room for a good kind of friction to help us budget; the bank developed ‘locked pots’ which allow a user to lock away savings until a date they chose, allowing users to effectively drip-feed money into their spending pot While the future is unclear, these opportunities exist; and it will be fascinating to watch this debate unfold, with different countries and businesses sure to try different strategies to make the most of this change in coming years. Cash isn’t king anymore, but it’s not dead either.
  6. 6. GET FINANCE SMART Is cash dead? If you are interested in learning more about the subject of this article, please contact Sarah Emmerson, Insights Planner, emmersons@bbdoknows.com, ABOUT BBDO KNOWS BBDO KNOWS is a planning resource for the BBDO network. BBDO KNOWS offers thinking, strategy, insights and inspiration on key categories, key themes and consumer segments. If you are interested in learning more about the way BBDO thinks please contact Melanie Norris, Global Planning Director, norrism@bbdoknows.com. DISCLAIMER The information and materials in this article are for general information purposes only. Whilst we try to ensure that all information and data in this article is accurate, complete and up to date, this article should not be relied upon and you should seek advice if you intend to use or rely upon any of the insights or data contained in this article. This article must not be shared, downloaded, copied or distributed for commercial purposes without the prior approval of BBDO. © BBDO 2019 All rights reserved.