Home Business NewsEconomic The future of money: the five forces killing off cash

The future of money: the five forces killing off cash

by LLB Reporter
31st May 13 12:31 pm

Cash use in the UK has dropped 10% since last year – why? And what is replacing it?

Cash is going out of fashion, and fast. UK customers used cash for 10% less of their shopping in 2012 than in 2011, according to figures from the British Retail Consortium (BRC) out yesterday. The Consortium says that it is the first time in its survey’s 13-year history that both the number of cash transactions and the amount spent in cash have dropped year-on-year. Cash now accounts for just 55% of all transactions made in the UK.

You were probably already aware of the decline of cash. You expect London restaurants and bars and shops to take card, and are surprised when they don’t. You get annoyed when one of the card readers on the Oyster machines at your tube station is broken and you have to deal with endless tutting lines of people who don’t carry cash queueing up for the machine next door. You’re particularly,You’re-particularly likely to have spotted the trend if you know any number of Londoners in their 20s and 30s, many of whom seem almost to boast that they “never carry cash”

So what’s killing cash? And how will the future of money look?

1.      A new dawn of debit card use

There have been significant increases in debit card use, accelerated by contactless payment and self-service-checkout facilities in shops, which are seeing cash payments wane. (Four in 10 check-outs now offer contactless card payments.) The value of payments made by debit cards increased 5.7% from 2011 to 2012. It’s notable that credit and charge card payment value fell by 2.1% over the same period, suggesting people are becoming more responsible with personal money management.

2.      The online retail atomic bomb

The seemingly unstoppable rise of online retail is also fuelling the move away from cash (as, clearly, you can’t pay online in cash). We Brits continue to top our own online spending records. Online retail in the UK was expected to hit almost £80bn for 2012, according to government figures. We spent more than £1bn just on downloaded music, films and games in 2012. One in three London SMEs trade solely online. The UK is, in fact, the most “internet-based major economy”, according to the Boston Consulting Group.

3.      Coupons and the recession

It’s the rise of non-cash, non-card payments that for me has the most interesting part to play in the death of cash.

Non-cash, non-card payments more than doubled in 2012 compared with 2011. In sales turnover terms rising from £1.5bn to £3.3bn. During this period the number of non-cash non-card transactions has more than tripled, from 155 million to 499 million. Alternative payment methods now account for one in every 20 transactions made in the UK.

Coupons make up a significant part of the total non-card non-cash sales turnover, at some £1.2bn of the total £3.3bn. The continued popularity with customers of sites like Groupon, Wowcher, MyVoucherCodes, LivingSocial, combined with bargain-hunting consumers using retailers’ own coupons to combat financial pressures, has of course fuelled this trend (despite Groupon, for one, having a rather rocky time of it as a business).

4.      Innovation and investment in mobile payments and digital wallets

Mobile payments and digital wallets are a particularly interesting component of the non-cash, non-card payment growth in the UK – and it is innovations in these areas where things get really exciting.

We all know about PayPal. eBay’s $1.5bn acquisition of the online payment system in 2002 seems pretty logical now PayPal is being largely credited with increasing sales and profits at eBay.

There is also tons of innovation happening in the digital wallet sector – just look at Allied Wallet, Google Wallet and O2 Wallet. (Read our interview with Allied Wallet founder Andy Khawaja to find out more.)

Over the coming years you can expect to see a huge growth in the use of mobile payments, which come hand-in-hand with digital wallets (as many mobile payment providers host digital wallets on your phone).

The very fact that our major telco providers are moving into the finance arena indicates how big you can expect the trend to become. Look at the creations of divisions like O2 Money, Orange Cash, Barclay’s Pingit, and in particular Vodafone’s M-Pesa (which the company claims is transacting two in every five Kenyan shillings in the country).

The success of mobile payment company Monitise Group proves how lucrative these moves can be. The new(ish) crop of apps that allow SMEs to take card payments from their mobiles (iZettle, Square and co) underline the trend and suggest that the adoption of mobile money payments among SMEs could really fuel the growth of mobile payment in the UK. (Mobile payment is currently much more popular in less developed countries, where banking infrastructure is far less developed and bank accounts are hard to come by.)

5.      The rise of digital currencies

You might have heard of a wee little thing called Bitcoin. But Bitcoin may be just the edge of a new dawn of alternative currencies. Other digital currencies (also known as crypto-currencies) include Litecoin and PPCoin. These are completely new currencies, independent of sovereign currencies that are created, managed and stored digitally. (Read our interview with Bitcoin millionaire Charlie Shrem to find out more.)

Digital currencies are not without their dangers. Bitcoin has often been accused of facilitating black market dabbling including drug dealing. Costa Rican-based digital currency company Liberty Reserve was this week accused of laundering $6bn. That’s not to even mention that potential global upheaval they could cause if they were more widely adopted, seeing as they transcend sovereign currencies and therefore our traditional notions of countries, borders, populations, and our current power system of governments across the world (but that’s an in-depth pondering for another day).

Digital currency is still for the most part a relatively small niche in the money mix at the moment, but a falling levels of trust in sovereign currencies could drive up uptake.

As David Wolman, author of The End of Money, writes: “The battery against cash is coming from three fronts – new technologies, scepticism about the stewardship of sovereign currencies and increased enthusiasm for alternative currencies, and greater scrutiny about cash’s myriad costs.”

Wolman’s final point is well worth noting – many of the new alternative payment methods and digital currencies, which operate outside the traditional banking system and charge nothing or significantly less th
an traditional banks.

This means a more widespread adoption of them could make the future of money very interesting indeed.

Feel-good side-note:

London is a world leader in technological innovation in financial services. Our FinTech sector (finance + technology) is full of interesting companies and easily the strongest in Europe, thanks to the unique intersections of our world-leading finance sector sitting next door to Silicon roundabout and friends.

For more info, see this index of London’s 32 hottest fin-tech companies.

1 comment

keith pearce May 31, 2013 - 3:08 pm

non of the above, banks/gov just want to take more off you by using the banking system. When did we join this totally corrupt countries policy’s? wait lets work and give all our money to wealthy bankers to loose for us. yet give them big commissions

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