The death of the world’s longest reigning monarch, Queen Elizabeth II, ushers in a new era. King Charles III now rules the Commonwealth and his reign means a long list of practical changes that need to be made. Included in this docket is the task of introducing new currency bearing His Majesty’s likeness. But in an increasingly digital world, some are asking if it’s even worth it.
Forbes has referred to him as “King Charles The Cashless”, citing that more than 23 million people in the UK used virtually no cash last year. With research predicting that Britain will be almost cashless by 2024 it seems a certainty that we’ll go cashless as a society under his reign.
There are currently 4.7 billion Bank of England notes in circulation. Together they are worth about £82 billion. And yet, cash payments made up just 13.4 per cent of sales last year, down from 27.4 per cent in 2019. This figure is predicted to drop further to just 7 per cent within three years’ time. Like landlines, cassette tapes and even CDs, it seems cash could soon be relegated to museums.
Cash has fallen out of favour at rapid rates since the Covid pandemic. Research suggests that nearly three-quarters of people prefer to use cards for payments with only 14 per cent opting for notes and coins.
Of the one in three people who say they rarely carry cash, 47 per cent say it is for security reasons and 82 per cent said it is easier to pay by plastic or digital wallet.
Such is the love loss between consumers and cash that more than half think that notes and coins will be out of circulation by 2030.
And it’s not just consumer preferences that are changing. Consumer-facing businesses are understandably dealing with less cash but even B2Bs are more frequently opting for the convenience, time- and cost-savings and security of digital payments.
The decline in the use of cash is being accelerated by retailers and other businesses who are reluctant to accept it because of the administration time, costs and higher insurance premiums.
Read More: First B2C and now B2B: The Shift to Digital is Consolidating
Cashless payments and the uptake of digital wallets have meant significant changes to how we bank.
The chief of the UK’s largest ATM network has warned that cash has as little as five years left – citing a catch-22 effect of less cash meaning fewer ATMs, which in turn leads to even less cash.
“The cost of providing cash infrastructure, which includes the ATMs, security and bulk cash centres is huge at £5bn a year,” said John Howells, chief executive at Link. Many of these costs are fixed and will not change as consumers move to digital payments. Since the beginning of the pandemic, “cash use is down by 40 per cent – and is still falling,” he added.
“We have 5-10 years to fix digital payments before cash becomes unworkable, and need to start planning how to get the new system working for all.”
So what’s next? With the demise of cash, we’ll see a new digital status quo.
China, Japan and Sweden have begun trials of central bank digital currency. The Bank of England and the European Central Bank are preparing their own trials. The Bahamas has already rolled out the world’s first official digital currency.
A cashless world is not only more convenient, but many agree would have a significant impact on reducing crime and black market trade, as well as having a positive impact on government economic policy.
Dr. Eswar Prasad, a professor of trade policy at Cornell University and the author of a forthcoming book on digital currencies, explains:
“Central-bank digital currency can also be a useful policy tool. Typically, if the Federal Reserve wants to stimulate consumption and investment, it can cut interest rates and make cheap credit available. But if the economy is cratering and the Fed has already cut the short-term interest rate it controls to near zero, its options are limited. If cash were replaced with a digital dollar, however, the Fed could impose a negative interest rate by gradually shrinking the electronic balances in everyone’s digital currency accounts, creating an incentive for consumers to spend and for companies to invest.”
Of course, the advent of a digital currency is one that requires much consideration in order to minimise disruption and any negative impacts on those most hesitant to adopt it. Some experts warn that a lack of preparedness for a decline in cash could leave some behind.
Around 1.7 million people in the UK do not have a bank account, and 90 per cent of them are on low incomes and have low overall household income.
One of the ways to transition this underbanked segment to a digital world is for fintech leaders need to innovate in order to deliver cost-effective and user-friendly solutions.
Another is for government policy to change to support this.
One of the main reasons why people are unbanked is due to an inability to formally prove their identity, Gus Tomlinson, identity and fraud product director EMEA at GBG, a provider of digital identity and fraud solutions, recently told The Fintech Times.
“Credit history and physical documents, like passports and driving licences, are currently used to verify an individual. But in the UK, many people don’t have these documents – more than 11 million Brits do not have a passport, for example. And this leads to people, often the most vulnerable people in society, being excluded.”
One solution, she suggests, to ensuring digital identity is made equal and accessible for all, is for the government to open up access to the data it holds (including school records, National Insurance Number, medical records) so that identities can be verified more easily.
Education is also a part of the solution, according to Nabeel Irshad, VP, government & public sector, fintech ESG UK & Ireland, Mastercard UK and Ireland.
“Banks and other providers must improve the digital skills of those who lack them by providing better, more inclusive access to information on financial services.”
Much like the modernisation of telecommunications infrastructure, the digitisation of cash is happening rapidly and brings with it significant benefits for consumers and businesses. Making sure that these benefits are maximised and disruptions minimised requires the type of creative and innovative solutions fintechs are renowned for, in collaboration with governments and regulators.
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