What is a cashless society? Surely not one where there is the equivalent of £1000 in bank notes in circulation for each person. That, according to the Bank of England, is the current situation in the UK and the aggregate demand for bank notes is increasing. Indeed, the number of notes in circulation has trebled in the past two decades.
£62 billion sounds a lot, so at any one time where is it all? The Bank believes that half the notes in circulation are for use in the domestic economy and hoarding, whereas the remainder is held overseas or in the shadow economy. While there are important issues to be considered there, not surprisingly, my main interest is in the volumes of cash within the domestic economy. At any one time banks hold £10 billion, consumers £3-4 billion and merchants between two and five billion pounds.
This raises a number of questions. Why does the UK’s love affair with cash continue when there are new means of payment available? What are the implications for banks and merchants of the large volumes of notes floating around the economy? In particular, what implications does it have for their bottom line?
Whether it’s speed, convenience or the anonymity cash gives, large numbers of people still love to carry notes and coin in their pockets. Whether it’s the outcry caused when Sir Winston Churchill was announced as the replacement to social reformer Elizabeth Fry for the new £5 note, the campaign to have Ada Lovelace, Founder of Scientific Computing on the £10 or the more recent, perhaps mischievous, wave of support to have the face of celebrity chef Ainsley Harriot on the new £20 note - the UK public continues to demonstrate real interest in the future of their currency.
In the meantime the Bank of England Chief Economist’s dream of a digital currency that will enable negative rates of interest remains just that.
In 2014 18 billion payments were made in cash to a value of £250 billion – 48 percent of all payments in the UK – and things aren’t about to change too quickly. Though the number of cash payments will fall by 30 percent over the next ten years, they will still be to a value of £245 billion.
While people need cash there will need to be convenient means of distribution. In the UK 91 percent of people use the 70,000 cash machines at least once a month. Cash machines were used 2.8 billion times to withdraw £289 billion in 2014. Customers accessed a further £33 billion using other methods – cashback, cheque cashing, passbook, counter withdrawals etc
For the British Retail Consortium there is a clear logic for merchants continuing to accept cash. They claim that the cost of accepting cash is eight times cheaper than a debit card and thirty times cheaper than a credit card.
Though we have focussed on the UK, the continued importance of cash is a global phenomenon. As just one example, Glory Global Solutions recently commissioned a Retail Doctor Group study that considered consumer attitudes to cash in Australia. It found that despite the increasing availability of other payment methods, cash remained the most popular means of payment being used by 87% of consumers.
Of course we have to look at this in the context of a changing environment where new payment systems that try to replicate the characteristics of cash - ubiquity, simplicity, anonymity and security - are being introduced. In some instances their adoption has led to a flattening or small decline in cash usage, but everywhere you look it remains a massive payment mechanism and it’s not going to disappear any time soon.
The message for banks and retailers around the world is obvious - the costs of handing and storing cash are a business cost and, as with all costs, they need to be minimized.
While cash remains king so the automation of transactions, note recycling, cash in transit management and improved processes have an essential role to play in increasing productivity, lowering costs and impacting on the bottom line. Now is a good time to automate.