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The future of cash – do the facts add up?

“I use cash less.”

Most of us would agree with this statement. It seems logical that spending habits must be changing as a result of the growing number of contactless payment options and the increasing prevalence of online shopping.

But before we jump to any conclusions about cash’s long-term future, it’s important to look more carefully at the facts.

While cash as a payment method is straight-forward and tangible – analysing the way it is used is more complicated.

The most commonly accepted evidence of cash’s decline in the UK is the decreasing number cash transactions – in other words, cash’s share of the payment pie. This figure dropped from 64% in 2005 to 45% in 2015. The total number of cash transactions has also dropped by 28% in the same timeframe.

So cash is done for: end of story.

Or is it? There is some striking evidence that paints a different picture. Access to cash is at an all-time high thanks to a network of 70,000 ATMs. Bank of England figures show that the number of UK notes in circulation continues to grow year-on-year. Meanwhile, 23rd December 2016 saw the all-time record for LINK ATM withdrawals in a single day.  Evidently, despite a range of alternative methods, it could be argued that there is more cash in the economy than ever before.

Different views

How do we explain this? It’s often forgotten that there are social factors behind the way people pay. Consumer spending behaviour can be difficult to model: particularly since a key attribute of cash is its anonymity. Preferences can quickly change. Purely economic predictions based on current trends will get you so far, but won’t explain why eBook sales have plateaued or why vinyl records have enjoyed a resurgence.

In UK, and many other countries, the provision of cash is a social contract. Just look at the widespread disruption in India following the withdrawal of the 500 and 1,000 Rupee notes. Cash is an essential commodity: that’s why MPs have been vocal in ensuring the majority of UK cash machines are available free of charge – and why the there’s concern about protecting current inter-bank agreements over ATM fees to ensure this.

Indeed, looking at another set of figures, you could argue there’s a strong case for maintaining a cash status quo. According to Payments UK, the value of all payments made by cash decreased by only 3% in nominal terms from 2005 to 2015 (not accounting for inflation), from £261bn to £253bn, while cash withdrawals have increased 4% in the same timeframe.

So, depending who you are and what importance you place on the different figures, you could make a case that cash use is declining, increasing or remaining the same.

This makes predicting cash’s future less straightforward then one set of figures would suggest. When it comes to cash use, it’s all about the context.

Mark Trevor, Commercial Director, Vaultex

Vaultex’s full report, ‘Cash use in the UK’ paper, presents the range of evidence for three arguments – that cash usage is growing, declining and staying about the same – and places them into context. It weighs up the statistics and their impact from the perspective of an ATM operator, retailer and the general public.