Has COVID-19 killed cash? - How the pandemic is shaping the future of payments
Over the last four years, the percentage of contactless payments in the UK has seen substantial growth – from making up a mere 7% of all payments to accounting for 27%[1]. Whilst this switch to digital was already in progress prior to the pandemic, it is undeniable that COVID-19 has accelerated this transition. Amidst the pandemic, consumers were concerned by the risk of exposure through traditional means of payments such as cash and chip-and-pin card payments, turning to contactless methods more than ever before.
The number of payments made using cash fell by 35% in 2020, with 13.7 million people in the UK leading a ‘cashless life’ last year, compared to 7.4 million in 2019[2].
Coronavirus has changed consumer habits significantly, as evidenced by the 75% increase in people registered for mobile payments reported by UK Finance in 2020[3]. This change is reflected in Her Majesty’s Treasury and the Financial Conduct Authority’s decision to further increase the limit on contactless spending from £45 to £100 this year. This reflects the growing popularity of contactless payments, with figures from UK Finance suggesting that 83% of people in the UK are using contactless technology[4].
Additionally, whilst prior to the pandemic each adult in the UK visited an ATM an average of three times a month, visits are now less than twice a month – which aligns with the increase in cashless spending shown in recent data[5]. Although people are withdrawing more money when the do visit cash machines, with the average amount increasing by over £10 in the last two years, there has been a fall in the overall amount withdrawn. According to cash machine network Link, consumers are withdrawing almost £100m less per day than pre-pandemic[6].
However, despite the widespread adoption of contactless payment methods and decrease in use of cash, cash access remains vital – especially for those in underprivileged communities. As Nick Quin, head of financial inclusion at Link, rightfully pointed out, ‘even though we’re withdrawing almost £100m less per day, millions still rely on cash, especially in the most deprived areas of the country’[7]. The latest Financial Lives survey from the Financial Conduct Authority showed that over 5 million people in the UK rely on cash every day, further demonstrating the importance of ensuring people have access to cash machines[8]. There remains a greater reliance on cash in areas such as Liverpool and Bradford, which have shown a comparatively small fall in ATM usage when contrasted with wealthier parts of Edinburgh and London, which have shown a fall in ATM usage by up to 60%[9]. Therefore, socioeconomic factors clearly have a great impact on how individuals choose to spend their money, and whilst cash usage is on the decline as a whole, suggesting that cash is dying out would completely disregard the millions in less privileged areas who primarily or completely rely on cash.
Nonetheless, whilst saying that COVID-19 has ‘killed’ cash would be an oversimplification, it is evident that the pandemic has reshaped the future of payments – or at least accelerated the digital financial revolution – and this can be seen globally. Americans had been slow to adopt contactless payment prior to the pandemic, with just 3% of cards in use in the US in 2018 being contactless compared to 64% of cards in the UK. Though this has since changed significantly, as contactless payments in the US have risen by 150% since March 2019[10]. Furthermore, Sweden – which is regarded as the poster child of cashless countries – is expected to become the world’s first cashless society by March 2023[11],.
Thus, evidently, COVID-19 has acted as a catalyst for the global shift toward digital payment processes, however we have not yet reached the point of becoming a completely cashless society. Cash remains an economic necessity for many people across the UK, especially the 1.3 million Brits who do not have bank accounts[12], making it crucial that we protect access to cash machines despite the decrease in the amount withdrawn from them.
[1] https://uk.finance.yahoo.com/news/one-in-four-payments-now-contactless-in-uk-as-covid-speeds-death-of-cash-083029551.html
[2] https://www.theguardian.com/business/2021/jun/16/cashless-society-draws-closer-with-only-one-in-six-payments-now-in-cash
[3] https://www.ft.com/content/c4c39abc-93b2-46f5-a731-9dd95840b841
[4] https://www.theguardian.com/money/2021/oct/15/contactless-card-limit-to-more-than-double-to-pounds-100-from-friday
[5] https://www.bbc.co.uk/news/business-58946985
[6] https://www.link.co.uk/about/news/consumers-withdraw-100m-less/
[7] https://www.bbc.co.uk/news/business-58946985
[8] https://www.fca.org.uk/publications/research/financial-lives-2020-survey-impact-coronavirus
[9] https://www.bbc.co.uk/news/business-58946985
[10] https://www.forbes.com/advisor/banking/banking-after-covid-19-the-rise-of-contactless-payments-in-the-u-s/
[11] http://knowledge.wharton.upenn.edu/article/going-cashless-can-learn-swedens-experience/
[12] https://qz.com/1516563/cashless-societies-are-harmful-for-the-poor-elderly-and-homeless/
