Cashless society some way off as notes still reign

Cash may be king, but the customer as consumer will drive the future for digital and contactless payments, says Catherine Mcpherson

What Scot doesn’t love a conversation on legal tender? It’s been the focus of many a joke, with those of Michael Mcintyre and Kevin Bridges coming to mind. Most people will be familiar with the adage that “cash is king”. There has been talk that the advent of Apple Pay and other digital payment schemes could see cashless economies arriving in our lifetime. For all the chatter, what is going on? Are government or regulators giving any indication as to their thoughts?

We are starting to see changes in our payments industry. Customers will be able take a picture of a cheque and upload the image to their banking app for clearing. The move to image cheque clearing will see clearing times cut to two working days. In the cards space, contactless payments are on the rise. In digital banking, the foundations are being set for increased competition and innovation.

Bank account conditions have been changed and digital platforms are being updated to allow for change. Customers will be able to see bank accounts with different providers in once place through account information service providers – and make payments without their credit or debit card through payment initiation services providers.

You don’t need to be working in banking or payments to have had your inbox flooded by GDPR emails. The General Data Protection Regulation has brought a number of updates to data protection legislation. Increased protection of data alongside a push for more competition and innovation has had companies scratching their heads over the “privacy paradox”.. Mary Meeker commented on this when delivering her 2018 internet trends report which has been dubbed “the most highly anticipated slide deck in Silicon Valley”. Her comments on regulators and data ring true here.

The Competition and Markets Authority (CMA) and the Financial Conduct Authority have both commented on the opportunities for innovation, technology and data to improve competition for consumers. They are also clear on the responsibilities owed to consumers.

When discussing the regulatory sandbox, the Financial Conduct Authority has been clear that converting an existing process to make it digital won’t automatically result in innovation and improved customer outcomes. In their written evidence to the House of Lords Select Committee on Communications: The Internet: To Regulate or Not to Regulate, the CMA raised concerns about those with low digital literacy not being able to access the same services as those who are more internet savvy.

In March, HM Treasury called for evidence on Cash and Digital Payments in the New Economy. The Bank of England responded to this call for evidence, stating that:

* whilst the use of cash is evolving there is a significant public demand for banknotes and they expect this to remain for the foreseeable future

cash payments dropped between 2006 and 2016, from 62% to 40% of all payments

banknote usage is highest amongst those aged 16-24 and 65+

there are regional differences in usage – cash is prevalent in the North East and West Midlands. In London and the South East less people carry cash.

1 in 10 people do not carry cash, increasing to around 1 in 5 among 25-34 year olds

Despite regional and generational differences the need for cash remains. It certainly wouldn’t be fair to say that all young people are switching to digital payments.

For the eagle-eyed Scots, the Bank of England make clear that they are the sole issuer of banknotes in England and Wales, whilst the Government authorises seven commercial banks to issue banknotes in Scotland and Northern Ireland. There is a voluntary code that seeks to minimise the counterfeiting of banknotes (Code of Conduct for the Authentication of Machine-deposited Banknotes) which has applied to Bank of England banknotes since 2013. It will be extended to Scottish banknotes by March 2019.

The publishing of the Bank of England response, on 31 May, was remarkably timely, as the systems of VISA went down the next day. Across Europe people were unable to make VISA payments. You might have felt smug if you were one of 2.7 million people entirely reliant on cash across the UK.

Ultimately, the success and uptake of all these digital channels comes down to us as consumers. As Mark Carney, Governor of the Bank of England, stated in his Mansion House speech in June: “The customer, not cash, will reign supreme.”

Catherine Mcpherson is a Senior Solicitor in Morton Fraser’s Corporate banking and asset finance team