We need to talk about cash. Remember those annoying little discs of copper and nickel that used to weigh down our pockets and purses? And what about the paper and polymer banknotes we once used to pay for bigger items, such as petrol or groceries?
We are fast becoming a cashless society. Debit card transactions overtook their cash equivalents in 2017. Millions of us now wave a contactless card to buy low-value items such as newspapers and coffee. Or we might use our cards to shop online.
The technology is improving all the time — there are even cards linked to smartphone apps, enabling us effortlessly to keep a detailed record of what we are spending and budget accordingly. Cash — who needs it?
However, our growing dependence on electronic payments and the digital economy is not without risk. Older people and lower income groups are at risk of financial exclusion. It can put small businesses at risk of losing customers. And as more of us leave cash behind, the potential fallout from cyber attacks and unexpected outages increases.
I know how this feels. I was on holiday in Canada during the Great Northeast Blackout of 2003, when 10m people in Ontario and 45m people across eight US states — including New York — were without power for up to two days because of a “software bug” in the power grid.
It was scary. Only those with cash could function. In Ontario, supermarkets, petrol stations and restaurants refused credit and debit cards. Banks closed. I had to lend our friends cash to buy food.
For most of us, this is a temporary annoyance. But people who rely on cash are experiencing this problem in reverse. It is becoming more difficult, not to mention costly, for them to access notes and coins.
Last month, Burslem in Stoke-on-Trent became the first large town to lose all of its free cash machines. Now the banks have departed, locals must drive elsewhere, or pay 95p to withdraw their money.
Many people on tight budgets find it easier to manage their finances with cash. Some 76 per cent of transactions in convenience stores are cash. Unlike a debit card, when cash runs out, you do not become overdrawn or get hit with charges.
In February, Which? called for the government to appoint a “cash regulator” following the loss of 2,500 cashpoints in the second half of 2018, and the closure of 3,300 bank branches since 2015.
MPs on the influential Treasury select committee are alive to problems that would face many if the availability of cash is reduced further. Nicky Morgan, the chair of the committee, said the UK’s cash machine system was “broken” and needed to be rethought to avoid vulnerable people being cut off.
And despite the reduction in branches and ATMs, cash is by no means dead. As a nation, we still withdraw £10bn per month. Banknotes and coins still account for up to 20,000 transactions a minute. The need for alternative sources of cash is urgent — particularly in areas branded “ATM deserts”.
Lloyds Bank announced last week that it will pay shopkeepers to offer customers cashback and Link, the UK’s largest cash machine network, is set to launch a similar pilot with convenience stores.
I used to be offered cashback at the supermarket, but when was the last time that someone at the checkout asked if you wanted this service? With so many paying on plastic, there must be less physical cash in the tills.
Out Christmas shopping in central London, I tried to pay for a £5 item with a £20 note. The shop assistant said she did not have enough change. In the end, she had to go into the backroom and break the note using cash from her own handbag. I was very grateful, as I needed £5 to pay my taxi fare back from the station (you don’t get Uber where I live).
Is Britain ready to go cashless? If you ask me, definitely not. But this question is being posed by the Access to Cash review, funded by Link.
The preliminary review made it clear that 25m people in the UK would find it problematic to live without cash and 17 per cent would find it almost impossible. It also noted that 97 per cent of us still carry cash; the average is £41. Some 18 per cent of those surveyed said they carried cash in the event IT systems go down.
Although not all of these incidents hit the headlines, Which? research has identified glitches take place on average once a week. The final Access to Cash review will be published in March.
Last year, the UK Finance Payments Market Reportreported that in space of ten years, cash use had halved from six out of ten transactions to three out of ten. In 15 years, it predicted that cash transactions could reduce further to one in ten.
What will happen to those who rely on cash if the infrastructure is swept away?
After FT Money covered the issue last week, some readers suggested older people could be given “digital training” to get online (indeed, there are already high street banks offering just that). But getting to grips with technology is only one part of the problem. Who will pay for those on low incomes to get a smartphone, tablet or broadband connection?
The recent reporting season shows us that the banks are saving a lot of money by closing branches. Which? estimates that a fifth of households now live more than three kilometres from a bank branch. Counter services at Post Office branches provide some back-up. However, some of these are also being closed because they are no longer profitable.
Natalie Ceeney, chair of the Access to Cash review, said: “Our research does show that if we fail to plan and prepare for a cashless society it would do significant harm to the millions of people who would be left behind.”
Another issue I hope the review will consider is the impact on charities. The preliminary review notes that 74 per cent of us use cash for charitable donations. In December, the Big Issue announced that it was undertaking an eight-week trial using card readers to pay for the magazine. The machines cost about £30 and some buskers and churches already use them.
Some of these examples may be lost on those who are happy with their digital banking apps and contactless cards. But would you really be prepared to sweep away cash completely — or could those cumbersome physical notes and coins be a valuable back-up?
Lindsay Cook is the co-author of “Money Fight Club: Saving Money One Punch at a Time”, published by Harriman House. If you have a problem for the Money Mentor to look into, email firstname.lastname@example.org