How do you like to pay? Do you prefer to tap, wave, insert, single-click or double-click – or are you a hold out for hard cash? If it’s the latter, you’re fast becoming the exception.
Between our growing enthusiasm for online shopping, the ease and speed with which we can now make electronic bank transfers, and the inexorable rise of cards and the advent of digital wallets, more and more of us are shunning physical money. This is still a relatively recent trend. Cards only overtook cash as the consumers’ preferred mode of payment in the UK in 2017 – with contactless accounting for 40% of transactions. The shift has been dizzyingly rapid.
The big advantages of non-cash payments are that they are seamless, efficient, convenient. This clearly matters a lot to us. But has it been our decision to adopt these new habits, or have we sleepwalked into them, with a little help from those who stand to profit?
The truth is, it’s a bit of both. Merchants are keen to reduce cost and increase spend: the less friction we experience at the till, the less chance there is for second thoughts. Payment providers sell their equipment and services to merchants, so the merchants’ appetites are their primary consideration. On the other hand, we are the ones who have chosen to use cards and engage in e-commerce. If you can remember struggling with the limitations of eBay in the days of “Cash on Collection”, you’ll know that what you really wanted was PayPal. If you are old enough to remember queueing at the bank or the cheque guarantee card, you’ll know that you would have killed for instant bank transfers, debit cards and online banking.
But are there downsides to this level of convenience? What if our choice to abandon cash is chasing it over a cliff, and what would that mean? The Bank of England has committed to making physical cash available “as long as there is demand for it”. Presumably if demand ceases the Bank will stop. Handling cash presents high fixed costs; it doesn’t matter whether you are delivering £500 in £20 notes to an ATM or £50,000, the costs of driver, security and fuel are the same. Similarly, if a shop takes just £5 of cash in a day, the owner still has to run a till, maintain a float, account for cash payments and deposit that cash in a bank. The less we use cash, the higher the cost of handling it, which means fewer merchants will accept it and fewer ATMs will distribute it. Before you know it, the demand that the Bank is monitoring may have simply evaporated.
For those who can’t or won’t get banked or go digital, what happens in a cashless future?
Should we care? Well, cancelling cash has more than a few ramifications. Many of our young learn about money by handling it, many of our old only feel comfortable using it, while those on a tight budget find it helps in managing their outgoings. Having to pat pockets or rummage in purses makes us more conscious of what we’re spending than swiping or clicking.
Then there’s inclusion. True, cash is insecure; cash holders miss out on interest and are unable to build up financial histories, which are essential for getting access to a wider array of financial services. That’s why “financial inclusion” usually means bringing people out of a cash-based existence and into the formal sector. But cash alone offers a universally attainable means of paying and being paid. For those who can’t or won’t get banked or go digital, what happens in a cashless future? There are an estimated 1.3 million “unbanked” adults in the UK and many more who lack either digital confidence or access. Not everyone is happy or able to wave a card, much less to buy now and pay later. Cash may be dirty, expensive and unsafe. It may aid and abet the criminal and the corrupt, but it’s also freely accessible to everyone.
This accessibility is cash’s upside and its downside. It’s available to the bad guys as well as the good guys. Physical money may be playing an ever-shrinking role in the legitimate economy but it still plays a large one in the underground economy; while the number of legal transactions involving cash is declining, the volume and value of banknotes in circulation is actually increasing. So alongside the merchants and payment providers hoping for reduced costs, increased spending and rich seams of data about customers, law enforcers and tax collectors might also be forgiven for cheering on the cashless revolution.
The economic and enforcement arguments against cash may stack up nicely, but a payment isn’t just an economic or administrative act; it is a social one that depends on the two parties’ common acceptance of a currency and the mode of delivering it. With cash this social act is limited to two parties – the payor and the payee – and it’s private between them. Conversely, digital payments leave myriad traces – traces that accumulate into vast stores of information about us.
Depending on how you pay, this record may be more or less extensive and may be visible to a few or several organisations. It may comprise information that shows who you are, where you were, how much you spent, what you bought and from whom. Your smartphone might reveal just as much information, if not more, but it’s still possible to leave your device at home, or even go without one. The equivalent choice won’t be available if cash goes.
Abandoning the freedoms of cash may not be of any great concern if you’re as pure as the driven snow and not too worried about being tracked and ad-targeted, but are you ready to settle for a world in which every transaction is recorded and, by definition, controllable? Think about that the next time you choose how to pay, because each time you go cashless, your decision is helping to shape our collective future. There may come a time when we all, to paraphrase Lord Byron, have cause to lament: “Alas! how deeply public is all payment!”
Natasha de Terán and Gottfried Leibbrandt are the authors of The Pay Off.
The Betrayal: The True Story of My Brush with Death in the World of Narcos and Launderers by Robert Mazur (Icon Books, £14.99)
Paid: Tales of Dongles, Checks, and Other Money Stuff edited by Bill Maurer and Lana Swartz (MIT, £17.99)
This Is How They Tell Me the World Ends by Nicole Perlroth (Bloomsbury, £14.99)
Money by Felix Martin (Vintage, £10.99)