Small slivers of hope in the Global War on Cash.
However it may seem, the title of this article does not include a typo. It mentions the year 2022, not 2023, for the simple reason that the publication of data on payment habits in the UK has roughly a one-year lag. As such, it wasn’t until late 2023 that it became apparent that the use of cash had rebounded in 2022, for the first time in ten years.
This is potentially an important trend reversal. Until recently it seemed that the British public, with a little helpful nudging from the government, high street banks and retailers, payment card companies, fintech firms and tech giants, was intent on abandoning cash as quickly as possible. A decade ago, around 60% of payments in the UK were made using cash; by 2021, with the COVID-19 pandemic raging, e-commerce booming and the contactless revolution in full swing, that figure had slumped to 15%. As in many other countries, the amount of cash in circulation did increase during this time, but this was a sign of hoarding, not of increased payments.
At the beginning of this year, Mastercard, a company that has singled out cash as its number one enemy and whose former CEO (and now World Bank Managing Director) Ajay Banga described physical money as “public enemy number one”, unveiled the findings of a survey it had commissioned into payment trends in the UK. Those findings, the company said, pointed to a further decrease in cash usage in the UK, which aligned perfectly with the company’s broader goals, exemplified by its current slogan: “World Beyond Cash”.
But then something rather unexpected happened (though we did kind of call it in August 2022): cash began staging a come back. In September this year, a report on payment trends by UK Finance, the country’s largest bank lobbying group, included a striking finding: cash payments had risen in 2022, for the first time in a decade. The number of cash payments had risen by 7%, the report noted, adding that surging inflation had prompted many people to turn back to cash or use it more often than before to help them manage their budgets.
This trend was further confirmed earlier this month (December 2023), when the British Retail Consortium (BRC) released the findings of its annual payments survey, which covers 2022. Like UK Finance, the BRC survey found that cash use had increased. From the Daily Telegraph:
Coins and banknotes accounted for nearly a fifth of transactions in 2022, according to the British Retail Consortium (BRC)’s annual Payments Survey.
Its report said: “This year’s Payments Survey shows an increase in cash usage for the first time in a decade, up from 15pc (in 2021) to just under 19pc of transactions (in 2022).
“Faced with rising living costs, cash was a useful tool for some people to manage their finances and track their day-to-day spending.”
The increase also reflects a natural return to cash following the move to contactless during the pandemic, the report said.
It is the first time since the BRC’s reports started in 2013 that cash usage has increased year-on-year.
Th BRC report tries to make light of this trend reversal, describing the use of cash in shops as still “fairly minimal,” adding that it reflects a “natural return” to cash following the huge shift toward contactless during the pandemic. There may well be some truth to this and one should be wary of reading too much into this potentially short-lived trend reversal. Card payments are still the number payment choice for UK citizens and it is quite possible that this rebound in cash use is merely a dead cat bounce (apologies to cat lovers).
But it is also worth bearing in mind that this is the UK’s largest retail lobbying group doing the talking here. The companies it represents, including large retailers, big banks, tech firms and payment companies like Visa and Mastercard, have a clear bias toward non-cash payments. For example, retailers and banks prefer people to use contactless payments as much as possible because: a) they are quicker to process, which means more sales per hour and more fees for the banks; and b) people tend to spend their money in a more carefree manner, which also means more sales for the retailers and more commissions and fees for the banks.
This was already known when contactless cards began making their appearance almost two decades ago, as a 2006 Financial Times article makes clear:
Mr Williams, [controller at The Bailey Co, parent company of Arby’s, a fast food restaurant chain based in the US], has found that customers spend about 50 per cent more when they use a contactless card than when they pay for their food with cash: “I think it is psychological: because customers are not pulling cash out of their wallet, they spend more.” Arby’s has also made productivity gains with less time being spent on counting money and taking it to the bank, Mr Williams says.
Another benefit to retailers is that cards allow them to capture data about their customers from small transactions.
“If contactless cards offer merchants better information on their customers, that could prove to be valuable,” says Mr Uzureau.
These are all major perks for retail businesses, banks and payment processing companies like Visa and Mastercard, but can be major shortcomings for individual consumers, particularly in times of hardship such as now. As inflation has surged in the UK, more and more people have struggled to make ends meet, and many are turning to cash for relief. It is an example of how one broadly negative trend — the gradual pauperisation of large swathes of the population through austerity and inflation — can give rise to a broadly positive trend: the rediscovery of the benefits of cash…
Continue reading on Naked Capitalism
Nick Corbishley 