The End of Cash?

If you’ve had the same £5 note in your wallet or purse for months on end, you are not alone. The pandemic has sped up an ongoing trend of people using cash less often. The decline could be permanent, with significant implications for the way we spend. The Bank of England reported that the amount of cash withdrawn from cash machines in March 2020 was 60 percent lower than March 2019. By October 2020, with shops back to normal, the total withdrawal amount was still down nearly a third year-on-year. The scale of the decline was partly a lasting shift to online shopping, even after the time that was the only option, and partly an initial fear (later disproven) that banknotes could be a vector for surface transmission of Covid-19. Even now, some shops prefer card payments as they are easier to process while keeping a distance or barrier between staff and shoppers. Cash was already on the slide, however. It was used for around three quarters of payments in 2000 and that had dropped to just one quarter before the pandemic began. While cash may make something of a comeback as life becomes more normal, it’s also likely many consumers will have changed their habits permanently. For example, some shoppers may have overcome a previous stigma of not wanting to use cards for small payments, perhaps remembering a time when minimum spends were common or shops charged an extra fee for accepting card payments (which is no longer allowed). That’s no longer necessary as most banks and other businesses handling card payments now charge either on a percentage basis or a subscription model covering a set number of transactions. This means it can be viable to accept even very small card payments without facing disproportionate costs. These trends aren’t without their problems as they may speed up the decline in the availability of cash machines, particularly those without fees. This can be a serious problem for people on lower incomes who rely on cash as a way to manage budgets, older people who are more comfortable with cash, and those with physical disabilities who struggle with card readers and other technologies. One way round this problem is shops, particularly supermarkets, offering cashback. Until this year, European rules meant shops were only allowed to do this when somebody made a purchase, otherwise they would have to be registered with the Financial Conduct Authority for effectively offering a banking service. This could deter some customers who felt embarrassed by making a small purchase and then asking for cashback. The UK government has now removed this requirement and shops are entitled (though certainly not obliged) to offer cashback without a purchase. For now the limit remains between £50 and £100, depending on the size of the business. You certainly shouldn’t feel awkward about using the facility where available, as small shops in particular often prefer to reduce the amount of cash they need to keep on hand before securely depositing it in the bank.

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