Cash isn’t dead..and unlikely to be either

Cash isn’t dead..and unlikely to be either

My first post in this focussed on a survey from the US which suggested that cash would be dead in the US within a generation. And as my blog points out, that is highly unlikely for many other reasons, not least because millions of US citizens can only use cash currently.

This second post was triggered by a report hosted on LINK’s website, (the UK ATM operator) that had some interesting numbers in it. Some of the data was incorrectly reported in places as signifying the death of cash in the UK. To be clear, that isn’t what LINK or the report claim.

I think we need to step back from the figures first, and see what they’re actually saying.

By volume, cash represents 45% of all transactions in the UK. That is a significant shift, in a relatively short period of time – indeed, a drop of 6% last year, around 1 billion transactions lower than in 2014. This is what caught the eye of many people, and why they made their predictions.

But let’s look at the figure another way – at 17 billion transactions, that’s both more than nearly all the other payment types added together, and 70% more than the payment type with the second highest usage (debit cards).

That's not to say we shouldn’t dismiss the changes. In 2005, cash accounted for 64% of transactions by volume. By 2015 that had dropped to 45%; by 2025, the forecasts suggests just 27%. I think that's a triffle low, but we're only differing by a percentage point or two.

However, we still have to put that number in context. With a forecast drop of over 1/3rd over the coming decade, it would still leave the volume of cash transactions with a greater combined total of Faster Payments, CHAPS, Direct Debit and Direct Credit that we see today. It's therefore as much that the other payment types are growing as payment types falling.

Once you scratch below the surface, it becomes clearer.

One concept I have talked about in my reports  Noncash Payments: Global Trends and Forecasts, 2014 Edition is that of payment occasions and payment frequency. The occasion is why you make the payment – utility bill, mortagage payment etc – and the frequency you make it.

One of the reasons for the large decline in share of payments has been in the growth of contactless payments, and in particular, their usage for the London Transport system. This is a good example of how occasion and frequency make an impact. Until recently, most commuters in London would use an Oyster card, with cash rarely used (and indeed, banned on many buses). This took a large volume of cash transactions out of the mix – previously that saw 2 transactions a day, times every day commute, equalling approximately 550 cash transactions a year.

With Oyster, that became a card transaction to top up the balance on the oyster card, rather than a per journey transaction. Even estimating topping up once a week (more likely to be monthly I would imagine), that’s 52 transactions a year maximum.

The difference today is that many people now use their contactless debit cards instead of an Oyster card, resulting in a card payment every day – so from 52, to more than 200 a year.

The net result is cash usage drops significantly, with a corresponding smaller increase in card volumes, followed by a larger increase in card volumes. Yet still just one payment occasion.

The point in highlighting this? Reducing cash will have to be done on an occasion by occasion basis. There are some big wins out there – even just making all transportation cashless for example – but the challenge is that there is a very long tail of occasions that rely on cash.

The second challenge is whether the Government even allows cash to die. The case for removing cheques is much easier to make, and far easier to do, yet the Government has told the industry that it can’t. On that basis, it’s difficult to see under what circumstances that the Government would ever allow even a discussion about cash retirement.

Cash lives. Long live cash.

Cash is Dead! No. It isn’t! Pt 1

Cash is Dead! No. It isn’t! Pt 1

There is an old Christmas tradition in the UK of going to the panto . It's silly, it's fun, and it's all about children. Audience participation is part of the experience, including calls of "He's behind you!" (or "Look behind you!"), and the audience is always encouraged to hiss the villain and "awwwww" the poor victims. Another convention is "arguing" with a character – "Oh, yes it is!" and "Oh, no it isn't!"

Survey: Cash is dead!

Rest of the world: "Oh, no it isn't!"

Two announcements caught my eye this week, both seeming to proclaim cash is dead, or will be, in our lifetimes. I think this is great news – it means I’m going to live to be hundreds of years old ;-).

I'm splitting the blog in two, as the sources and claims are very different.

The first is a survey by Gallup of US citizens. The headline is 62% of them thought it likely or very likely that we would be a cashless society in their lifetime.

That would be a massive shift. The Federal Reserve estimate that 40% of all transactions in 2014 were in cash. At a crude estimate, that’s somewhere in the region of 70 billion transactions that would need to convert in the next 30 years or so.

Second, the same Fed research shows that if they were unable to use their preferred payment type, 60% chose to use cash as their second choice.

Most importantly, there are significant social issues to address first. FDIC research shows that c. 7.7% of the US population are estimated to be unbanked, with a further 20% underbanked. That means, crudely, over a quarter of the US population rely on cash. They use it for budgeting (known as "jam jarring"), and they may not even qualify to have a form of electronic payment. Even if they do, such as a prepaid card, the fees and breakage on the card make the card far less attractive than cash, which is free.

This is why most discussions use the term less cash, rather than cashless, and why places like Sweden have actively ensured that cash will remain an option, rather than accelerating its demise.

In short, despite what consumers might think or say, the chances of cash dying in the US is far, far lower and further away than the survey suggests. Removing cash from certain use cases is going to be tricky as it would be perceived as penalising lower income families. Even barring cash for higher value transactions will be difficult, as Germany found earlier this year.

Cash isn't dead. It's not even mildly unwell 😉

Cashless Britain – not coming to a town near you soon

Cashless Britain – not coming to a town near you soon
There have been a number of reports in the UK since the beginning of the year heralding a cashless Britain, suggesting that cash “dies” this week. Of course, I’m being somewhat tongue in cheek, but it was suggested that February 2015 would be the last month that cash was king. That’s true in many ways – the share of cash on a total transactions basis will drop below 50% for the first time in the UK this year. But that doesn’t really tell the whole story. Firstly, “not cash” isn’t a single payments type of course. There are debit and credit cards, ACH payments,  still (shudder) some cheques. Fact 1 – by volume of transactions, cash is by far the most dominant, as at 50% share, it’s obviously the same size as all the other payment types …combined. So cash isn’t dead, and not even mildly under the weather! Secondly, the decline isn’t quite as dramatic as it may first seem. There are lots of new payment occasions being created (iTunes, mobile phone subscriptions, cable TV etc) that are electronic only. And conversion from cheque to direct debit generally sees an increase in payment volumes (ie quarterly cheques becoming monthly direct debit). Fact 2 The net result is significant growth in the overall size of the pie, biased to electronic payments – yet the share of cash has only decline by a few percentage points rather than the significant drop implied. This is particularly important to remember in the coming months. Early indications suggest a significant increase in contactless is coming. Fact 3 It’s a migration from Oyster that will drive massive contactless growth this year, rather take-up of contactless. This is important as Oyster had already forced a conversion from cash, with individual cash transaction (ie for each journey) into a single top-up transaction. The switch to contactless is unbundling this back into individual transactions, albeit applying a daily cap. We’re not saying that contactless isn’t going to grow impressively, just we mustn’t simply look at the headline numbers and draw conclusions. It’s not all negative. That Oyster habit converted to cards will help create a contactless habit which will spread. Coupled with the raising of the limit of £30, and with many cash payments being below that value, there is the possibility to see some levels of cash replacement that could move the needle. Cash is far from dead but we are certainly moving into a LessCash rather cashless world.