The proportion of cash payments has been steadily falling in the UK for the past decade. But while there are some benefits in only accepting cashless payments, this is likely to be a step too far for most firms, as David Adams reports
At some point during 2019, debit cards will become the most frequently used payment method in the UK, overtaking cash – the nation’s favourite payment method for more than 2,000 years – according to research from UK Finance.
How often do you still use cash to pay for a railway ticket, or in shops, restaurants and pubs? In more than 16,000 Church of England churches you can now contribute to the collection with a contactless payment. Even the local Big Issue vendor takes cards.
UK Finance figures show that the proportion of payments made in cash in the UK has fallen from 62 per cent in 2006 to 34 per cent in 2017, and may drop to just 21 per cent by 2026. It is true that some other countries have gone further towards getting rid of cash: it now features in only 15 per cent of point of sale transactions in Norway and Sweden, and 23 per cent in Denmark.
But the UK figure of 34 per cent is much closer to those countries than it is to both France (68 per cent) and Germany (80 per cent).
If the UK did become predominantly cash-free, what would that mean for small businesses? It would save time and effort spent managing cash and remove security risks associated with keeping cash on business premises or moving it to the bank. The fact that banks continue to close local branches is another reason some small businesses would welcome the change: for many, the bank is now a long drive away.
There would be downsides: there is a risk in becoming over-reliant on fallible technology, and many retailers feel that abandoning cash altogether might mean they are sometimes unable to take payments, or will lose customers who prefer to pay in cash. Some businesses in rural areas face difficulties accessing reliable fast broadband services.
While some consumers prefer using cards or mobile payment apps, people on lower incomes tend to use cash more often, partly to control spending and partly because they may not have unrestricted access to card and/or digital financial services.
Concerns have also been raised about some people with disabilities, who find it hard to use a PIN.
In 2018, FSB contributed to the Access To Cash review, which asks whether the UK is ready to go cashless. The report, published in March, concluded that, while cash would still be used in 15 years’ time, it could account for as little as 10-15 per cent of transactions. It warned that if a transition from cash to digital payments continues at its current pace, “millions are likely to be left behind” – with rural communities particularly damaged.
FSB has expressed serious concerns about declining numbers of local bank branches and free-to-use ATMs. It cites research from Which? that suggests closures of ATMs mean one in five consumers (22 per cent) would be less likely to use local businesses. FSB’s view is that cash remains an important part of the payments mix.
“We don’t envisage a situation any time soon where cash has been completely eradicated,” says Tony Baron, chair of FSB’s Treasury Policy Unit. “We don’t want to push towards a cashless society that doesn’t seem necessary and leaves a lot of people behind.”
Some small businesses are embracing cashlessness. Browns of Brockley, a café near Brockley railway station in south-east London, has been cashless since January 2017. Owner Ross Brown says one factor in the decision was the amount of time it took to count money.
“I really resented paying people to count pennies,” he says. “It’s fine if 100 per cent of your takings are in cash, but not when it’s 10 per cent or 20 per cent and you’re still taking the same amount of time to cash up. When we talked to our customers about going cashless, 99 per cent either didn’t care or were happy to do it. I can’t imagine going back.”
He cites another argument in favour of the UK becoming more cashless: a reduction in opportunities for businesses to evade tax through cash-in-hand payments. “If you just halved the money that is being evaded in tax we would be so much better off as a nation,” he says.
Other types of small business are adapting the way they work as cash declines. ClassForKids is an online technology platform for small businesses or organisations that run children’s activities, such as music lessons or sports clubs. It lets them manage bookings and student data, send invoices and payment reminders, take cashless payments, and record offline cash payments.
The platform was launched five years ago and now serves more than 7,500 businesses. At launch, the number of offline payments dwarfed those made online, but now they are almost equal, according to CEO Nikki Th’ng. “During the past 18 months, online has caught up,” he says. “Now, when organisers come onboard, they want to move straight to online payments.”
Another small business owner weighing up the pros and cons of moving away from cash is Naomi Sleigh, owner of the Big Shots café in Brighouse, West Yorkshire. The day First Voice speaks to her, she is recovering from a ram-raid robbery that took place a few days earlier, when thieves drove a car through the doors of the café and stole cash from the till, as well as causing thousands of pounds’ worth of damage.
Clearly, the robbery would have been less likely to happen if the business had not been storing cash on its premises (although the thieves did also help themselves to some alcohol). But while Ms Sleigh finds the idea of getting rid of cash attractive, she is still reluctant to abandon it completely.
“Cash is time-consuming,” she says. “You’re busy anyway, then you’re spending time counting money, then you’ve got to go to the bank. There is a bank near the shop,
but I don’t get the best deal I could, because I’ve gone with the bank near the shop.” She says that when her business opened two years ago there were roughly the same number of cash and card transactions, but today cash is only used in about one in three.
However, a sizeable number of customers, particularly those in older age groups, still like cash. “Eventually I think we will go cashless, but at the moment I couldn’t take that step,” says Ms Sleigh. “With a small business, you have to make things easy for people, because every penny counts. You’ve got to be careful not to alienate people.”
If the UK really is on its way to becoming almost cash-free, every business owner needs to consider how it might affect them and their customers. But those who are keenest to dump cash might be wise to remember that it’s a good idea to offer flexibility in terms of how customers contact you and pay for your goods or services online. While removing the choice of using cash might feel like progress, it could be a backward step.
FSB Payments can help make it easier for members to take non-cash payments. For more information visit www.fsb.org.uk/benefits
Many small business owners may be only dimly aware of another change in financial services: the launch of open banking in January 2018.
Created in response to the 2015 EU Payment Services Directive and a 2016 ruling by the UK Competition and Markets Authority (CMA), open banking makes it easier for fintech companies to create new applications and services that access bank transaction and account data (with the permission of the account holder) to create new applications and services.
It means account holders, including businesses, should find it easier to find better deals for financial services. Businesses can also use open banking to streamline accounting processes, as accountancy software can now interact with bank accounts to reconcile transactions in real time.
More than 100 regulated service providers are now developing open banking apps and services, including the small business lender iwoca, which has open banking connections to three banks (Barclays, HSBC and Lloyds); and Marketplace, run by the mobile-only Starling Bank, which could allow customers to view all their financial data in one location.
“We’re hoping open banking will really open up the market,” says FSB’s Treasury Policy Unit chair Tony Baron. “If you are considering changing your financial services arrangements, this is a good time to start looking around. Other financial services providers will be able to access your data, to give you a more informed decision about their products. That will put more pressure on your current provider and help you get a better deal.”
Readers can learn more about the services available from the open banking website (www.openbanking.org.uk/customers/regulated-providers) and via the Open Up Challenge website (www.openupchallenge.io), which contains details of new services.