Growing numbers of us rely on card payments to buy goods and services, but cash remains vitally important to millions of people, especially those who are vulnerable.
Recent years have seen a steep decline in cash use, especially as hundreds of bank branches and ATMs have closed. However, the cost of living crisis has seen growing numbers turn to cash to manage their finances, highlighting its importance, particularly for people with limited or no access to digital services.
How we pay for things is a far more complex topic than you may think, so here we look at some of the key trends in how we make payments, what is influencing the way we spend, why cash is so important and what this new bill is doing to protect it.
How does the UK spend money?
Cash has seen a gradual decline in recent years, but in the wake of soaring living costs, the tides appear to be turning.
The Post Office has reported that in October 2023, Brits withdrew £821m from Post Office branches and cash machines, which is 6% more than last year (£777m in October 2022).
Myron Jobson, Senior Personal Finance analyst at interactive investor, says: “While digital innovation has transformed how we spend our money, cash remains king for some people as a budgeting tool amid the cost-of-living crisis
“While contactless payments are easy and frictionless, the worry for some is they could encourage reckless spending which could lead to debt issues at a time when many are feeling the cost-of-living squeeze on their finances.”
While cash use is currently on the rise, trade body UK Finance still predicts that it will continue to decline over time. In 2022, half (50%) of all payments made in the UK were via debit card, 14% via cash, 10% by Direct Debit, and the remainder were made using a mixture of other methods such as credit cards, bank transfers, standing orders and cheques.
In addition to this, more of us than ever are choosing to bank remotely with 65% using online banking and 53% now using mobile banking.
With many people managing their money digitally, banks are investing in their digital and online offerings, seemingly at the expense of their physical presence on the UK’s high streets. Since 2015, nearly 5,000 bank branches have closed across the country, leaving many without easy access to banking, according to consumer association Which? Find out what you can do if your bank branch closes in our guide What to do if your bank branch closes.
For a lot of people, however, making electronic payments is just not an option. Many don’t have access to the relevant technology to enable them to manage their money online, or simply aren’t ready or able to pay for things digitally. If the UK were to go cashless today, it’s estimated that over 10m people would struggle to cope, according to the Royal Society of Arts (RSA) and Link. Several retailers, including Asda, Co-op, John Lewis and Aldi, have pledged to continue to accept cash, so as not to exclude any customers who don’t want to use digital payments.
So while it’s true that more and more people are using technology to make payments, there is still a huge amount of cash in circulation in the UK. The Bank of England estimates that there are currently over £81 billion worth of notes in circulation in the UK, which is roughly twice as much as a decade ago. This is equivalent to just over £1,000 per person, although, of course, the majority of this money is in tills, banks and ATMs, rather than stashed under people’s mattresses.
What is influencing the way we pay?
UK Finance suggests that the shift from cash to electronic payments has been gradual thus far because it often requires people to change the habits of a lifetime, altering the way they manage their money more broadly. According to the Access to Cash Review, which aimed to highlight the importance of cash availability in the UK, there are some key behaviours and developments, outlined below, that are likely to promote the use of electronic payments, which could see us being largely cashless as early as 2026.
An increase in the number of businesses accepting cards or electronic payments
Processing cash is becoming increasingly expensive for business owners, which means many prefer digital payments, and in some cases are no longer accepting cash at all as a way to reduce their overheads.
An increase in online shopping
Online shopping saw a huge spike during the pandemic, as many of the UK’s shops were forced to shut during lockdown. Amazon’s profits for last year show us just how dramatic this impact was with profits of $9.9 billion announced for 2023, compared to $2.9 billion the year before.
The growing usage of cards and mobile apps on public transport
Transport for London stopped accepting cash payments in 2014, with many other cities gradually following suit.
Improvements in broadband coverage and mobile connectivity
This can be a major hurdle for many people in more rural areas who simply do not have access to the IT infrastructure that makes electronic payments an option. As broadband and mobile networks expand even further, this is likely to increase the availability of card or electronic payments in all areas.
The closure of bank branches and ATMs
Hundreds of bank branches have closed for good in recent years, making it harder for people to get hold of cash and forcing them to consider different payment options. Almost 300 bank branch closures were announced in 2023 alone. In addition to this, fewer people are using ATMs to withdraw cash (which accounts for 90% of all cash withdrawals. In March 2020, ATM withdrawals had fallen by 60% from the previous year according to the Bank of England. Even once life opened up more following the pandemic, the number of withdrawals in the summer of 2020 was still 30%-40% lower than at the same time in 2019. It’s important to note that these figures are less pronounced in less privileged areas, where cash dependency remains high.
New innovative services which make digital payments even easier
These innovations include biometrics, which measure people’s physical characteristics such as facial features or fingerprints to enable them to make payments.
The digital payments system is not without difficulties, however, and the Access to Cash Review suggests that while the above could move us towards a cashless society, there are several factors which could prevent this from happening. These include:
- Consumers losing faith in digital payments because of repeated systems failures – Consumer group Which? suggests that at least one UK bank has a system outage every day, with some banks worse offenders than others.
- Increased consumer concern over privacy – When it comes to money, one of our biggest concerns is privacy and security which makes many people understandably nervous about digital payments and online banking, where the control is largely out of your hands.
- Major economic crisis – Any economic uncertainty often sees a spike in cash withdrawals. When the first lockdown was announced in the UK, there was an increase in demand for banknotes which is likely due to people taking precautionary measures in times of uncertainty.
Why is cash important?
While for many people digital payment methods are the easiest and most convenient way to pay for things, this is not true for at least 17% of the UK population. Even if access to digital payments was made available to everyone, many people could find themselves in serious difficulty if we were to go cashless.
In particular, it would likely affect less privileged areas, and the most vulnerable individuals in our community, such as elderly people, disabled and people in debt or who are on low incomes and who have limited or no access to digital services.
What is being done to protect cash?
In May 2022 the Government announced the ‘Financial Service and Markets Bill’ which aimed to support consumers by protecting their access to cash.
Since then, the bill has been passed as law, and the Financial Conduct Authority (FCA) has been named as the regulator for retail cash access. This month (December 2023), the FCA announced its rules for maintaining access to cash for the millions of people who depend on it.
The suggested rules outline that certain banks and building societies will need to assess gaps in access to cash and take steps to make sure it’s reasonably available for their local communities. While the rules don’t prevent banks from closing branches, they will ensure that the process is more considered, and will strive to maintain access to cash wherever there is a real need.
Sheldon Mills, executive director of Consumers and Competition at the FCA said: “We know that, while there is an increasing shift to digital payments, over 3 million consumers still rely on cash – particularly people who may be vulnerable – as well as many small businesses. It’s important that we support consumers impacted by recent innovations.
‘These proposals set out how banks and building societies will need to assess and plug gaps in local cash provision. This will help manage the pace of change and ensure that people can continue to access cash if they need it.”
In addition to the above, several groups and organisations are campaigning to protect the future of cash, and the role it plays in society. These include:
- Cash Matters – a pro-cash movement, which aims to offer facts, figures, and news on cash, give pro-cash movements and petitions a platform and show the relevance of cash as an integral part of the payment landscape now and in future.
- Access to Cash – an independent review that aims to look at consumer cash requirements for the next five to fifteen years. Access to Cash aims to understand our cash needs, identify implications of cash access (or lack of), review the evidence on future trends in cash usage and ATM coverage, identify and analyse options for retaining nationwide access to cash and propose a way forward.
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