Will cash become a thing of the past?
THE Queen may have her head on our banknotes but she rarely gets the chance to admire her likeness because, in common with a number of other members of the Royal Family, she never carries cash.
Now what was once an idiosyncracy restricted to a charmed circle of cosseted blue- bloods is set to become the norm as consumer spending undergoes a technological revolution.
Cash transactions are being replaced not just by credit and debit card payments but purchases and transfers via contactless cards, mobile payment services like Paym, smartphone apps such as Apple Pay and even smart watches.
Indeed the latest figures show that electronic payments have outstripped the conventional kind, with cash’s share of transactions falling to 48 per cent, according to payments industry trade body Payments UK. Cash volumes are expected to fall another 30 per cent over the next eight years to 34 per cent of transactions.
Just as cheques have all but disappeared, now accounting for less than 1 per cent of consumer transactions according to Payments UK, banknotes and coins could follow suit.
This trend is being driven by a combination of advances in technology, the demand for ever more convenient means of payment and what one commentator has described as the banks’ “war on cash”.
Convenience is certainly one of the main boons of contactless transactions, which can now be made at 250,000 shops. All a payment requires is a quick swipe of the card over the retailer’s Point Of Sale ( POS) device.
This method has become so popular, particularly among the younger generation, that the sight of a customer in a check- out queue reaching for a banknote can elicit an automatic frown from the next person in line.
Smartphone apps are only marginally less user- friendly than contactless, demanding as they do the keying in of the phone’s security password before the swipe and pay movement.
Banks are all in favour of new payment methods – and not only because they keep their customers happy. As Channel 4 News economics editor Paul Mason recently pointed out, central banks in countries such as Japan and Sweden recently introduced negative interest rates.
This means that customers with money on deposit not only don’t receive interest payments, they also have their accounts docked.
The obvious thing for the canny investor to do in such a situation is to withdraw all funds and keep them in cash – safe from the grasping hands of the money men.
“But the banks are ahead of us,” wrote Mason earlier this week. “Last September, the Bank of England’s chief economist, Andy Haldane, openly pondered ways of imposing negative interest rates on cash – ie shrinking its value automatically.
“You could invalidate random banknotes, using their serial numbers. There are £ 63billion worth of notes in circulation in the UK: if you wanted to lop 1 per cent off that, you could simply cancel half of all fivers without warning.
“A second solution would be to establish an exchange rate between paper money and the digital money in our bank accounts. A fiver deposited at the bank might buy you a £ 4.95 credit in your account.” In Norway two banks have gone even further: they no longer issue cash from branches. And last month the country’s biggest bank DNB called for the government to outlaw cash in a bid to force people to spend or invest in growth markets rather than keep their wealth under the mattress.
QUITE apart from the demands of macroeconomics, the authorities do not like cash because of the sort of people who value it so highly: tax- dodging tradesmen, drug dealers and terrorists. No surprise to hear then that in underworld circles the note is known as the Laden”.
Eliminating cash would also mean an end to bank runs as there would not be any funds to withdraw in physical form, just digital money lodged in cyberspace. This would mean no repeat of the queues of panicked
“Bin investors outside Northern Rock in 2007 for example.
But not everyone is happy about every step towards a cashfree world. The fact that contactless transactions do not require a PIN number means that they can be completed by anyone in possession of a stolen card that has not been cancelled.
More disturbingly there are stories of thieves carrying POS devices on public transport with a view to stealing money electronically. They simply key in an amount less than £ 30 – the maximum permitted via contactless – and then unobtrusively touch the device on the wallet- carrying pocket of their victim.
But nothing seems likely to stop the march of digital money. Last week Payments UK revealed that usage of Paym is doubling every six months. It also reports that of the 1.6 million consumers who “predominantly” used cash in 2014, 40 per cent were 65 or over. In contrast, more than half of the 2.3 million who “rarely” used cash were under 35. Cash will soon no longer be king.