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By: Bob Partridge, EMEA Sales Director, Cash & Logistics, Fiserv and David McLaren, EMEA Business Development Director, Cash & Logistics, Fiserv

10166_20090419Despite the rise in alternative payment methods such as card and electronic payments, recent reports suggest that cash in circulation and cash usage continues to increase in the UK. Figures from the UK Payments Council in June 2013 revealed that businesses and consumers made £20.8 billion in cash payments in 2012, compared with £20.6 billion in the previous year. These findings are supported by a study released by Market Platform Dynamics, which found that cash use is increasing in many other developed countries. The study examined ten markets including the US, UK, France and Germany and of them only Sweden expected to see a decline in the use of cash.

The number of cash machines in use in the UK is also at an all-time high, with more than 66,000 ATMs in existence, according to the report from the UK Payments Council entitled ‘UK Cash and Cash Machines 2013’. This rise may be driven in part by an industry initiative to increase the number of ATMs in underserved areas in the UK, as well as an increase in charging IAD machines. The report also reveals that the average withdrawal is £66 per transaction.

The trend in the UK is also reflected globally according to ‘Global ATM Market and Forecasts to 2017’ a study from RBR, the research and consulting firm. This is largely due to the rapidly rising demand for cash withdrawal services from emerging markets.
These studies demonstrate that the volume of cash in circulation is increasing in spite of the continuing rise in alternative payment methods and a decline in the overall value of cash. But what is behind the rising fortunes of cash?

One of the sectors hard hit by the economic crisis has been the retail industry. Consumers have understandably restricted their spending on non-essential items as a result of lower household incomes and rising inflation. This has impacted retailers and led them to actively encourage customers to purchase goods in cash as it is the cheapest form of payment for them to process. It costs a retailer approximately 22 pence to process £100 worth of cash. In comparison, to process the same amount on debit card, it costs a retailer approximately £1.80. The cost increases to almost £4 for credit card payments. For smaller retailers in particular, this has the potential to impact profitability, so many have introduced minimum spends or charges to pay by card in order to encourage customers to pay in cash. Newer forms of payments, such as Near Field Communication (NFC), are also expensive for retailers as it requires an initial investment to buy and implement the technology in store. The £20 maximum spending limit on NFC also means its profitability is limited.

Many retailers are also now providing a cash-back facility which they actively promote to their customers when they make a purchase with them. This may also be impacting on cash usage and circulation figures. Retailers publicise their cash-back facility with store signage, and the checkout operators verbally offer this when you pay, encouraging consumers to withdraw cash they may otherwise not have.The infrastructure already exists to manage and process cash, so while retailers are still feeling the effects of the economic crisis, we expect to see retailers continue to encourage consumers to use and pay for their goods in cash.

The other key benefit of cash to struggling consumers is that it allows them to keep a closer eye on their spending and therefore manage household budgets more effectively. The Payments Council report shows that in 2012, 7.2 million adults made all of their day-to-day purchases by cash, an increase of around 700,000 compared with 2011. An interesting example of this has been witnessed among petrol forecourt operators who are seeing customers withdraw cash to pay for petrol, rather than pay using a card.

Looking at the use of cash on a global level, it appears that emerging economies are still heavily reliant on it as the main form of payment. In Russia in 2012, the amount of cash in circulation increased by 11.2% to 7,676 billion roubles, according to research by the Central Bank of Russia (CBR), compared to 6,903 billion roubles in 2011. Similarly, in Romania, 93% of all payments were made in cash according to statistics from the European Central Bank. Its report on ‘The Social and Private Costs of Retail Payment Instruments’ shows the volume of cash payments as a percentage of total payments in a sample of European countries. In comparison, developed countries which have the necessary infrastructure for electronic payments, are much less reliant on cash. The Nordic countries particularly favour electronic forms of payment; in Denmark and Finland the volume of all payments in cash was 37% and 36% respectively.

We are seeing that during challenging economic times both retailers and consumers turn to cash, for their own reasons. For retailers, cash is the cheapest and easiest form of payment to process; whereas for struggling consumers, cash enables them to budget more effectively. Together these two groups are driving the surprise rise in cash usage, after almost a decade of seeing volumes decline. Given that card payments all rely on the availability of technology and electricity, it seems that cash will always remain a vital part of our lives due to its reliability and simplicity.