In the wake of the digital revolution, physical cash has slowly but surely been on the decline, with many people opting almost entirely to pay for their goods and services via digital means.
Whether it’s chip and pin card payments, contactless card payments or some other form of digital payment, cash is undoubtedly waning – a thought that just a couple of short decades ago would have seemed to be madness.
But given people’s apparent preference for digital cash as opposed to physical cash, is the clock running out on the world’s longest-running form of payment? And, if so, is that a good thing?
Let’s take a look…
The decline of cash in the UK
Once upon a time, cash was virtually the only way to pay. However, as time has progressed, we’ve seen a slight yet noticeable decline in the amount of cash being used between consumers and vendors.
Starting in around 2012, the drop in cash usage in the UK began to intensify more noticeably than in previous years. In 2019, the rate and volume at which cash changed hands was less than half of what it was a decade prior, according to research by the Payment Systems Regulator.
According to the same research, in 2019 only one in four payments were made using physical cash. When compared to 2009, in which half of all payments were settled in cash, the difference is clear to see, with cash coming out as the clear loser.
A similar trend can be observed in the number of cash withdrawals in the UK. Leading up to 2016, cash withdrawals had been holding relatively steady, until they began to fall sharply. By 2019, the number of cash withdrawals was at 50% the rate it was 10 years earlier – a huge drop in a very short space of time.
Developments like people’s gradual adaptation to online banking, digital wallets and contactless card payments can all be attributed as factors to the overall slump cash has experienced and will likely continue to experience. Given that there were over 60 million credit cards and 107 million debit cards in the UK as of 2021 – according to Statiata – while the UK only has a total population of approximately 67 million, our reliance on digital forms of payment is clear for all to see.
The decline of cash around the world
While overall cash use is on the decline globally, it’s interesting to note cash is not disappearing at the same rate everywhere.
Cash still remains the most popular form of payment at points of sale in Europe, with 59% of these transactions still using physical cash in 2022, according to data from the European Central Bank.
However, it’s also important to note that while cash remains relatively strong, it’s still beginning to experience a similar downfall according to the same data. The percentage of cash payments dropped to 59% from 72% in 2019 – that’s a 13% drop in just three years. So while we can expect the usage of cash to continue to fall, physical notes and coins may stay more prominent in certain areas over others as a result of different moods and attitudes towards physical payments.
What are the predictions about the future of cash?
While the overall usage of cash may be on the slide, it remains an essential part of the economy and the backbone of the consumer-vendor relationship in virtually every country on Earth.
Yes, if current trends and shifts towards digital technology are anything to go by, there’s a strong chance physical cash will not exist at some point in the future. But that is a very long way away from now.
Cash transactions may be on the decline, but there’s actually more cash in circulation currently than there has ever been at any point in history. Right now, there is roughly £70 billion worth of notes in circulation in the UK (for perspective, that’s enough to cover roughly £1000 per person) which is more than double what was available ten years ago, according to data from the Bank of England.
However, the same data from the Bank of England notes that in 2017 card payments overtook cash transactions for the first time in UK history, showing an unmistakable move towards digital payments. So even though cash remains an important part of day-to-day life today, its importance and its impact on the global economy will likely continue to diminish over time.
Plus, with major card companies like Visa warning we may be ‘sleepwalking into a cashless society’ the end for cash could be sooner than many are speculating.
What technology is driving cash away?
Paying by card
Debit and credit cards could be seen as the ‘cash killers’ that began the downward trend of physical money. With instant access to your savings to pay for almost any items you wish – both in person and online, the convenience of bank cards has been forcing cash into retreat in recent years.
Given the fact that card payments have overtaken cash, as we discussed earlier, there’s no doubt people have a preference for plastic over paper and that’s something that won’t be changing anytime soon. Especially considering the improvements that have been made in card payment technology. Speaking of which…
Contactless card payments
As if paying by card wasn’t already convenient enough, contactless card payments changed the way we shop and spend.
Rather than having to pull out various bank notes, count them out, hand them over to the vendor and wait for our change, every aspect of the payment process can now be compartmentalised into a simple ‘tap’ of a card.
With 69% of debit card transactions being contactless as of 2021, according to data from UK Finance, in all likelihood that number will have continued to grow since then. And given just how convenient it is to pay contactlessly, in an ever-rushing world where speed is king, people will likely continue to opt for faster, more time-efficient forms of payment, leaving cash payments falling firmly behind much of the pack.
Mobile card payments
Another step in the contactless revolution, customers are now able to pay for purchases using their smartphones in precisely the same way they would use a contactless card – by tapping them on a card reader in virtually no time at all.
The technology hasn’t taken long to catch on, either. With a third of UK adults registered to make contactless mobile payments, according to UK Finance, and over 100 million customers per month paying for goods via contactless mobile payments in the United States, we could be on the verge of yet another contactless takeover.
Does physical cash still hold a place in a digital society?
It may not be used at the same frequency as it once was, but physical cash still remains an ironclad part of society as a whole.
Even through the digitization of money we’ve seen in recent years, many people still hold physical cash in high regard from a safety standpoint. Given digital money cannot be held or seen, if all else fails, having a safety net of physical cash to get you out of a tight spot can be comforting.
And while that may sound a little extreme, given the reliability of digital currency, there are select instances where physical cash can swoop in to save the day.
For example, a recent company-wide digital shutdown of coffee superpower Starbucks saw customers across the US being forced to pay for their coffee with either collector points or physical cash. Those with physical cash could get their daily caffeine fix, while those that didn’t (which was the majority of customers) had to go elsewhere.
Are these large-scale issues commonplace? Not really, and the lack of a cup of coffee won’t be causing an international panic anytime soon. But it certainly brings the value physical cash still holds into the spotlight if an event such as this were to happen on a much more in-depth and frightening level.
Cash is here to stay (for now)
With the sheer amount of physical cash that’s traded daily across the globe, it’s safe to say the countries of the world won’t be throwing away their notes and coins anytime soon. However, as with any emerging technology, we need to keep a keen eye on the future and accept the direction in which the general opinion seems to be shifting.
Cash is here to stay, for now. Will it be here to stay forever? The evidence suggests otherwise, but only time will tell.