Consumers continue to tap into the new trend for contactless payment technology – but experts also point to a cash comeback. Here’s why.
Cash usage in Britain is predicted to decline to just 21% of all transactions by 2026 from 40% in 2016.
This past weekend, the old pound coin was consigned to the scrap heap. Conventional wisdom has it that high street bank branches and cheque books will soon follow.
However, hard cash is far from dead yet. In fact, new research reveals the value of bank notes and coins in the UK economy is rising at a surprising rate. Furthermore, the total value of all banknotes and coins has surged to almost £83 billion.
Research shows the average person has around £77 in cash in on their person and at home – most of it in £20 notes (apparently).
US, Europe continue to splash the cash
UK consumers are not alone in retaining their love affair with old-fashioned currency. In the US, $1.5 trillion (£1 trillion) of US dollars were in circulation last year. That’s an increase of 6% compared with 2015.
The same trend is also evident in Europe. As such, despite the rise of contactless technology, €1.1 trillion (£1 trillion) of euro notes were circulating in August – again, that’s an increase of 6% on 2016.
Contactless smartphone payment systems such as Apple Pay and Android Pay, and so-called “cryptocurrencies” such as Bitcoin, are the future. So how come old-fashioned cash is in such rude health?
The reasons for the cash comeback
Insecurity around the post-Brexit economy could be one answer.
“We are certainly aware that in previous times of economic uncertainty, people have gone back to cash,” David Fagleman of Cash Services UK told the Observer. “So it could well be something that happens again over the coming years.”
In addition, financial instability caused by rising living costs and low wage growth may also be to blame.
“It tends to be that people who are less well-off will use cash as a budgeting technique,” said Victoria Cleland, chief cashier at the Bank of England. “If you were in a situation where you saw more people struggling, you would expect to see a higher demand for cash.”
Moreover, people can more easily keep track of their money and avoid debt using physical rather than digital money.
Stopping criminals from cashing in
Cybercrime against financial institutions and consumers is exploding, but cash is still the currency of choice for criminal organisations worldwide.
As a result, the Bank of England is introducing new, harder-to-counterfeit polymer notes, beginning in September with the £10.
Tax-avoiders also favour cash. Official figures estimate that the ‘hidden economy’ could be costing Britain as much as £6.2 billion.
However, a rise in interest rates by 1% could result in demand for cash fall by 2%. Plus, the wider trend is that cash usage will continue to decline as the uptake of contactless payment technology increases.
Read about the latest trends in contactless payment technology and cybercrime in Future Banking.
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