Cash: down, but not out

By James Woudhuysen, Visiting Professor of Forecasting and Innovation, London Southbank University

According to some, physical money faces extinction within the near future because of electronic payment methods.

Those on the opposite side of the debate would argue that human nature finds far greater comfort in physical currency, and as such it will always be used. However, the reality is a little more complex.

The prolific march of electronic money

In certain parts of Asia, currencies consisting of electronic tokens have promising futures.In China, companies like Alibaba and Tencent don’t simply organise mobile payments, they also use a system whereby they receive salaries from their customers’ employers. In India, students, artisans and employees of Infosys have long benefitted from identification cards that also double up as bankcards. Both of these examples demonstrate economies where physical cash becomes less needed. Indeed, when the Indian government scrapped 500-rupe notes (the equivalent of slightly over £5) in 2016, it abolished no less than 86 per cent of India’s cash value.

A strong example of this is Scandinavia. Here, the use of physical currency is very low, but in Sweden for example, the number of citizens aged 16-84 use krona for their most recent purchase plummeted from 39 per cent to 13 per cent between 2010 and 2018 alone. A similar case exists in Denmark, where an astonishing 46 per cent of Danes carry around the equivalent of only 13 euros in krona. In Denmark, the use of cash is certainly in decline, and it’s certainly possible to live without using it.

Africa has also done much to popularise alternate variations of physical cash. It was the first to establish airtime used on mobile phones as its own currency that could be used across national borders. This vast variety of payment methods suggests that there is very little that is unique about physical cash. On top of this, cash can be costly to produce, dirty to handle, often deteriorates after extensive useand on very rare occasions proves almost worthless (such as in Weimar Germany and Zimbabwe). The range of options beyond the realm of physical currency has grown enormously.

But is cash actually dying out?

The “death of cash” theories are almost certainly an exaggeration. The world market for printing banknotes – which must ensure ease of handling, durability and traceability – is set to grow from under $10bn in 2018 to nearly $12bn in 2023. Meanwhile, the actual cash in use worldwide could grow by 5 per cent per year, meaning that 2026 will see nearly a trillion banknotes and 200 billion coins changing hands.

In the Eurozone, if countries like Greece, Cyprus and Malta build more of an IT infrastructure for card payments, they can use cash for 33 per cent or less of the value of their transactions. The same case exists in Benelux, Estonia, Finland and France. However, the European Central Bank is clear that the use of cash at point of sale is still widespread. This seems to challenge the perception that cash is rapidly being replaced by cashless means of payment.

In the UK, cash is gaining popularity again

Cash carries convenience and familiarity, and with it, the tendency for corner shops and SMEs to use it. Furthermore, the feel of cash has appeal amongst families. The crispiness of new banknotes given to a child on a birthday remains something to be savoured. Then, there’s the universality of cash. Collections for colleagues at work are made easier, and friends can always help each other if one of them falls short of change.

However, these historic elements are far from the only factors that ensure the future of cash. A number of trends in the UK currently favour the continued use of it. These trends include:

  • The ATM to adult ratio is still high. Currently, the UK is one of the countries with the highest usage of cashpoints in the world – among major countries, it lies only behind Canada (2.23) and Russia (1.69). This ease of withdrawing cash will definitely help support its future.
  • Due to issues such as cybersecurity and bad general management, cash still seems preferable to many people over making payments electronically. Communicating these setbacks to the public decreases trust even further. That, and the June interruption of the Visa card payments network, can make cash look far more favourable to Internet banking.
  • Popular suspicion of large branded virtual institutions – not just banks – has grown.
  • Recent revelations about electronic privacy have reinforced a desire for anonymity.
  • The desire for authenticity in money matters and for certainty about where one stands financiallyhas grown since the 2008 financial crisis – a task that can be trickier in the virtual realm than a quick glance at a pile of banknotes.
  • Among sizable sections of the public, there’s a yearning for a sense of national identity in an ever more global world. With English and Scottish banknotes, for example, one handles images of the Queen and promises by the Bank of England, which may offer some subconscious reassurance.
  • Criminals, whether blue-collar or white-collar, prefer cash.
  • It can be harder to forge polymer banknotes than it is to hack banks.

The human element

 Deeply connected to the trends we have discussed is the likely survival of branch banking, and of face-to-face interactions within bank branches.

Branch closures and branch automation, of course, will continue. The branches that remain, and some of the smaller one-stop shop specialist branches that may still be opened, will transition from interpersonal dialogues away from transactions, and on to advice. This is what management consultants McKinsey call ‘complex service interactions’. Moreover, as McKinsey notes of digital banking:

‘Customers are not merely logging in to check balances or buy simple products and services. Many bankers have long thought that human interaction is needed to make a complex sale, but our research suggests that is not true. Customers are happy to buy and be advised online and via remote advisors even for such products as a mortgage loan — provided they can easily find the best product for their needs, and get enough information to be confident in the purchase.’

Yet this is still a big ‘provided’. In the UK, McKinsey found that just 22 percent of consumers had, in 2016, a high willingness to switch to getting advice online – even when the service included screen-sharing, voice and video.

Putting remote bank staff on consumers’ video feeds may not quite be right, either. In the US, people are already worried about what are called ‘deep-fake’ videos, where politicians are traduced by clever footage purporting to be them. So even home video banking with live faces may, before very long, fall victim to impersonators who aren’t in fact human.

For many Brits, and especially older ones with more sizable, complicated collections of financial assets, banking advice will still largely rely on human-to-human interaction. In the branch, both bank employee and customer will continue to use the Internet, no doubt. Yet the resilience of the branch and its staff, and the convenience of dealing with cash in bank branches, will together do much to assure the longevity of the folding stuff.

 Conclusion 

With the world market for printing bank notes set to grow to nearly $12bn in 2023, reports of the death of cash are exaggerated. With cash, there’s a convenience, familiarity, and tangibility that you don’t get from electronic money. For a small but significant minority, electronic money is simply not part of their landscape. In 2018, 8.4 per cent of UK adults have never used the internet, let alone banked online. Recent revelations about electronic privacy have also reinforced a desire for anonymity – a comfort that only cash can still provide.

In addition, the desire for more authenticity in money matters since the 2008 financial crash – a task that is trickier in the virtual realm than glancing at a pile of banknotes – will support cash’s future for years to come. There will be lots of new kinds of money, but no real end to cash. Cash is down, but it certainly isn’t out.

Professor James Woudhuysen was presenting his thought on the future of cash at an event hosted by marketing specialists Jaywingduring London Tech Week.

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