Has coronavirus signalled the end of cash?

How do you pay for goods and services in 2020? Whether it’s an old-fashioned £10 note or your smartphone, your choice of payment methods has never been higher. From contactless cards to PayPal, consumers now have a wide range of options when it comes to settling up.

The Bank of England say that, in 2017, debit cards overtook cash as the most frequently used payment method in the UK. And, during the coronavirus pandemic, cash usage has declined drastically.

So, does this mean that the UK is heading for a completely cashless society? Has coronavirus accelerated this process? And what would be the implications of no more cash?

Why cash is so vital for millions of Brits

In recent years, cash usage in the UK has reduced sharply.

More and more shops are going cashless, as bank branch closures make it harder for retailers to deposit their cash.

Major retailers such as Tesco have piloted stores that only accept cards and digital payments, while British Gas announced last year that customers would no longer be able to pay their bills in cash at PayPoint terminals in shops.

Cash has also become less easy to access. In the year to February 2020, 13% of all free-to-use ATMs in the UK closed while the number of ATMs that charge a fee jumped from 7% to 25%, costing consumers £29 million more in fees.

While it may seem as if it’s simply an inevitable sign of progress, access to cash is a huge issue for millions of people.

The Guardian reports that there are approximately 1.2 million people in the UK who are ‘unbanked’, meaning they do not have access to a bank account. For example, people without legal immigration status in the UK are legally not allowed to open even a basic account.

Older people are also likely to struggle in a cashless society. About 2.3 million people aged 70 or above don’t have an internet connection at home. And, the closures of banks and ATMs in rural areas – at least 3,303 have closed in the past five years – disproportionately affect older people.

Former Financial Ombudsman Service boss Natalie Ceeney, one of the authors of the Access to Cash Review, says: “The UK is fast becoming a cashless society – without knowing what this really means for consumers or for the UK economy.

“Those who rely on cash are the most vulnerable people in our society. They may live in a rural area where they can’t get the decent broadband or mobile signal they need for online banking. Or they may be older or on low incomes.”

Could the pandemic have signalled the end of cash?

As coronavirus hit the UK, many retailers moved to contactless transactions for hygiene reasons (you don’t have to touch the machine). Indeed, the contactless payment limit was raised, from £30 to £45.

A recent survey by the consumer group Which? found that one in 10 people were refused by shops when trying to purchase essential items with cash during the pandemic.

Cash usage during lockdown plummeted. While ATM usage in the UK has been declining by around 6% to 10% a year, cash withdrawals from ATMs were down by around 60% during the ‘stay at home’ period.

Brett Scott, author of The Heretic’s Guide to Global Finance, says: “Covid has been a massive win for the digital payments industry, and the digital world more generally, as people retreat from the physical.”

So, what would the end of cash mean?

Experts are keen to point out that moving to a cashless society could have serious repercussions.

Brett Scott sees the debate as a battle between state-run banks (who want to preserve access to cash) and payment companies such as Visa and Mastercard.

“Imagine you go to a casino and you have cash with you – state money,” Scott says.

“The casino gives you chips, which you can cash out when you leave. A similar thing goes on in the private banking sector. Every time they close branches or cut ATMs, they’re preventing you from exiting their system. Our ability to exit the banking sector is the single greatest thing that holds banks in check,” he adds.

A cashless society could also lead to other issues:

• Digital systems create data and so many commentators have privacy concerns. When it’s possible to see what everyone is buying, there could be moves to block certain payments and control spending. Cash payments are completely anonymous
• Increasing cyber threats could pose a serious risk to a completely digital economy
• Small traders could suffer as they have to pay fees on digital and contactless payments
• Service industry workers could suffer. For example, leaving a tip in a restaurant or café is often done using cash. Or, having a collection for a coach driver on a trip could be impossible without coins in your pocket
• Many charities rely on cash donations. Would you buy a Big Issue if you had to use a contactless payment? And how would you pop your loose change into a collection tin?

Ceeney concludes: “Many people may want a completely digital future, but we need to make sure that this shift doesn’t leave millions behind or put our economy at risk.”