Nowadays, it’s getting rarer and rarer seeing money in its original and physical form, cash. A huge shift in focus during the pandemic aimed to get more people using contactless payment methods in order to reduce the chance of contracting COVID-19 through social contact.
Money, at its core, has three main purposes: an accountable unit, a means of payment and a store of value. Central bank money, otherwise known as fiat money, basically establishes sterling as the unit of account for essentially all transactions in the UK. Fiat money, which is centralised and controlled by the government and Bank of England, is widely used as both a means of payment and a store of value. However, the use and functionality of commercial bank money depends on both its relative efficiency and public confidence that it can be exchanged for central bank money in the form of cash.
With the societal conversion to digital payments increasing rapidly during the pandemic, tech start-ups have shaken up the payment infrastructure of the UK leading to a systemic revolution in how we interact and use money. With the establishment and rise of cryptocurrency, mobile payments, contactless transactions, and online banking, is money in its purest form on the verge of going extinct in the near future?
How Established Is Digital Banking & Payments Currently?
There’s no denying that digital payments have rocketed over the past few years, not least during the pandemic. According to UK Finance, contactless payments now account for over a quarter of all UK payments, with the total number of contactless payments made in the UK increasing by 12% to 9.6 billion payments across the UK. 87% of Brits made a purchase online in 2020, whilst 76% of people use internet banking on a regular basis.
In the last four years alone, contactless payments have risen dramatically from accounting for just 7% of all payments to 27%. 83% of people in the UK use contactless payment in some form which is reflected in over 135 million contactless cards being in circulation, which covers 88% of debit cards and 81% of credit cards.
Moreover, for many people even keeping a form of debit or credit card on their person isn’t favoured, with over 17.3 million people (nearly a third of the UK adult population) able to use mobile payments by the end of 2020, an increase of 7.4 million people compared to 2019. As the acceleration of technology corresponded with the remote/hybrid working influx, over two-thirds of UK adults (72%) used online banking and over half (54%) used mobile banking.
On the other side of the coin, is the decrease in cash payments accounting for just 17% of all payments in the UK, with a fall of 35% compared to 2019. The overall attitude in handling physical money has changed, with 13.7 million consumers using cash only once a month or not at all in 2020, a significant increase from 7.4 million consumers the previous year.
Is The Western Banking Infrastructure About To Be Overtaken?
With the clear evidence that the direction of digital payments and banking is only going one way, are we about to see a complete reconstruction of the global financial system? The advancement and popularity of ‘neobanks’ has seen a whole new market created for people who wish to view, control, and process their finances using a digital-only format. This global shift represents an opportunity for fintech companies operating in emerging economies, to embrace the internet age whilst providing power and accessibility for people on a mass scale.
A report by S&P Global Market Intelligence, found that in India mobile payments exceeded cash machine withdrawals for the first time in history. This shift is being seen across the world, with the number of debit and credit cardholders forecasted to rise by 5.8% in the Philippines and by 5.5% in Indonesia between 2020-2024, according to the technology consultancy Omdia.
Last year, Ghana’s central bank settlement system introduced a universal QR code that enables payments using a QR code via a phone or bank account. Governments in emerging nations are adopting this new-found direction, with India and Thailand among those to develop national real-time payment systems, enabling instant bank account transfers using mobile apps. Already in India, you can transfer money and make payments via WhatsApp.
Omdia’s Financial Services Senior Analyst, Phillip Benton, believes, “Smartphones are becoming more affordable and financial inclusion is increasing. Coupled with rising incomes and increasing urban populations, it has the foundations of a strong payments growth for years to come.”
Has The Reign of ‘Cash Is King’ Come To An End?
During the pandemic, the contactless payment limit was increased to £45 with it now being double that at £100. Many businesses were forced to accommodate a contactless payment system, whether that be in the form of a card machine or an online payments system, in order to match the public attitude of steering clear of cash. In truth, many businesses and outlets presently do not take cash payment due to the shift in consumer behaviour as well as the reliance on human verification, accountability etc.
With the cryptocurrency market worth over $3 trillion worldwide, the death of cash is beckoning, particularly as younger generations much prefer digital methods to account for their finances. Fintech companies such as Monzo, Xero, Revolut, and Starling Bank to name but a few, are rapidly growing their market value and users at a significant rate which sees no sign of slowing down anytime soon.
Saying that, it will take one brave government to announce the abolishment of cash in favour of a solely digital financial structure across the UK. The evidence suggests however, that this isn’t out of the realms of possibility in the not too distant future.
We hope this has outlined to you the increase in digital payments and the future of cash. If you require any further information on going digital, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.