From Apple Pay to Abba: How the cash industry needs to adapt to new challenges
Around the world, the use of cash is being challenged.
Scandinavians are perhaps the most radical proponents of change (or, rather, the reduction of change in people’s pockets). As of next year, many Danish businesses will no longer be required to accept cash.
Over in Sweden, former ABBA star Björn Ulvaeus, once famous for singing “money, money, money,” is spearheading a campaign for a cashless economy. And Stockholm-based start-up iZeetle, which makes credit card reading devices for smartphones, continues to bring in significant fintech investment.
Other countries are also taking bold stances. Israel has commissioned a plan to do away with cash and coins. Meanwhile, Kenya has seen great success in mobile payments platform M-Pesa, which has attracted 20 million users.
In the UK, cash was overtaken by non-cash payments for the first time last year. It’s the result of a number of cumulative changes over the years: most obviously the increase in new payment methods. Merchants are increasing embracing contactless solutions, while the proliferation of smartphones has created a huge user base for new platforms such as Apple Pay. Changing shopping habits are also playing a significant role: almost 25% of UK retail spending is now made online.
However, cash still has plenty of advantages, which helps explain its resilience: cash accounts for almost 50% of consumer payments. At a cost per transaction level, it still trumps other payment methods: according to the BRC, each cash transaction in the UK costs merchants 1.22p, versus 9.46p for debit cards and 33.85p for credit cards.
For consumers, cash remains entrenched in society, even as more options become available. While it’s notoriously hard to predict consumer spending, cash use amongst the general public remains steady.
Other macro-economic factors have also protected cash from potential usurpers. Low UK interest rates encourage cash holding and over-ordering. Meanwhile any future economic uncertainty will inevitably see cash use rise, as it did during the last recession.
Of course, these are factors that will change. Interest rates will rise, making holding large amounts of cash less tenable. There’s also a question mark around new legislation. Members of the European Parliament recently signed off on European Interchange Fee Regulation (IFR), aimed at reducing debit and credit card fees for merchants, potentially levelling the payments playing field.
Nevertheless, the evidence points to a gradual decline in cash use rather than abrupt full stop. Cash will happily exist alongside other payments methods for many years, especially with the introduction of new Bank of England polymer notes in the UK next year.
The challenge for the cash industry is to manage payment change; collaborating across the supply chain to improve the efficiency of the cash cycle. By streamlining services that have traditionally been managed independently, we can reduce risk, lower costs and improve accountability.
It’s a process that involves creating a sensible risk framework, investing in new technology and using data intelligently to allow retailers and financial institutions to optimise their cash holdings.
The payments landscape is changing, and the cash industry needs to change with it. The most successful cash management companies over the coming years won’t necessarily be those with the most expensive equipment or the biggest cash centres, it will be those most adaptable to change – in both senses of the word.
Mark Trevor, Vaultex Commercial Director