Figures released today provide further evidence of the UK’s rapid transition to a cashless society, with debit and credit cards accounting for over half (51%) of all payments for the first time in 2019.
According to UK Finance, the trade body for financial institutions, debit cards were the most-used method with 17 billion payments, of which 7 billion were contactless. An estimated 98% of the adult population has a debit card.
Credit card use rose 7% in 2019 to 3.3 billion payments, of which 1.3 billion were contactless.
Cards over cash
The coronavirus pandemic has accelerated the use of cards, with many retailers declining cash or stating they prefer contactless payments for hygiene reasons. The limit for contactless payments was raised from £30 to £45 in April to allow this method to be used more often.
While cash payments fell by 15% to 9.3 billion in 2019, it was still the second most frequently used method, representing 23% of all payments in 2019.
So-called remote banking also increased in popularity in 2019, following a well-established trend. UK Finance says over 80% of adults used online banking, mobile banking or telephone banking in 2019 compared to 60% in 2009.
Consumers made over one billion remote banking payments in 2019, the first year this has happened. Across all age groups, 72% use online banking and 50% use mobile banking.
Concerns have been raised that the flight towards plastic-based payments and the reduction in physical bank branches could disadvantage sections of society that still rely heavily on cash.
John Crossley, head of money at Compare the Market, the price comparison site, said: “The ‘cash is king’ mantra is clearly a thing of the past. Debit cards overtook cash in 2017 to become the most frequently used payment method in the UK. By 2028 cash is expected to account for just 9% of all payments.
“In the rush to ditch notes and coins for plastic cards, it is important the banking sector caters for those who rely on cash for everyday living, including paying bills. Cash remains a lifeline for some elderly and vulnerable people, and it is important cash remains accessible for those who wish to continue using it.”
Risk of alienation
Matt Phillips of Diebold Nixdorf, which designs and manufacturers ATMs, said: “We’re seeing questions around whether the pandemic will propel the UK into being a fully cashless society, but this by no means spells the end for cash.
“We expect usage to pick up again when restrictions ease and eventually lift. Cash is essential in our economy and removing it risks alienating thousands of the country’s most vulnerable households.”
Mr Phillips says there is an appetite across the banking sector to reduce reliance on cash, in part due to the costs of delivering cash services to remote communities. But he says there is a way to balance these challenges: “If banks collaborated more, pooled their resources and accelerated the adoption of cash recycling – where money deposited by customers is automatically verified, sorted and re-used within the ATM – it would bring down their costs and sustain accessibility to cash.”
Stephen Jones of UK Finance acknowledged the potential problems associated with the disappearance of cash: “We are fully aware that not all customers are digitally-enabled, which is why we’re working flat-out to ensure people have access to cash and that everyday banking services remain available to help the country through these difficult times.”
Shopping with cash
Consumer lobby group Which? says vulnerable people risk being left with no way to pay for essential products and services as the coronavirus crisis further accelerates the UK’s shift to a cashless society. It wants government action to ensure the cash system does not collapse.
Looking at behaviors in the pandemic, Which? found that 51% of those shopping for someone else had been paid in cash, highlighting the challenge a cashless society presents for those who are not yet ready or able to make digital payments.
The Which? research also highlighted that one in 10 people have been refused by shops when trying to pay for items with cash in recent weeks. A quarter of those were left unable to purchase the item in question on at least one occasion as they had no alternative means of payment.
In its March Budget, the government said it would introduced legal protections to ensure continued access to cash for as long as people need it.
Which? argues the pandemic means the government’s pledge risks becoming obsolete if current trends continue to go unchallenged. An estimated 10,500 free-to-use cash machines have been removed or replaced with fee-charging machines since 2017.
Link, which manages the UK’s largest cashpoint network, says approximately £1 billion is still being withdrawn from ATMs every week, but the long term trend is one of accelerating decline. It says the current level of cash usage is currently at a level that was not expected for another five years.
Notemachine, an ATM operator, says cash withdrawals have reduced by 45% since the introduction of the lockdown – although it notes the average value withdrawn has increased by 13 per cent.
Support for retailers
In addition to long-term support for cash, Which? wants the government to act urgently to ensure people can continue to use cash to pay for essential goods and services during the pandemic. This would include supporting retailers to accept cash and offering guidance on how to handle banknotes and coins safely.
Gareth Shaw at Which? said: “It’s vital that the already fragile cash system is not left to collapse completely as the UK’s shift to a cashless society accelerates.
“The government must urgently press ahead with the legislation it has already committed to before it becomes obsolete, as failure to do so risks excluding millions of people from engaging in the economy.”
Figures from the Bank of England show that people in the UK repaid £7.4 billion of consumer credit in April, double the repayment in March, which itself was a record.
Some £5 billion of repayments were on credit cards, with £2.4 billion of other loans also repaid in April.
According to James Fairclough at AA Financial Services, 85% of UK adults have spent less during the lockdown, with savings achieved on holidays, eating out, shopping and buying petrol: “Coronavirus is impacting our livelihoods, family wellbeing and the economy at large. There are doubts over when the restrictions will be lifted and, for many, what the impact may be on job security.
“Given this economic uncertainty, it is understandable that many people are planning to use any surplus money they accumulate from reduced spending in lockdown to top up rainy day savings, or clear debts.”
I am the UK editor for Forbes Advisor. I have been writing about all aspects of household finance for over 30 years, aiming to provide information that will help readers make good choices with their money. The financial world can be complex and challenging, so I’m always striving to make it as accessible, manageable and rewarding as possible.