Small Slivers Of Hope In The Global War On Cash

Authored by Nick Corbishley via NakedCapitalism.com,

2022: The Year That Many Brits Learnt to Love Cash Again

However it may seem, the title of this article does not include a typo. It mentions the year 2022, not 2023, for the simple reason that the publication of data on payment habits in the UK has roughly a one-year lag. As such,

it wasn’t until late 2023 that it became apparent that the use of cash had rebounded in 2022, for the first time in ten years.

This is potentially an important trend reversal. Until recently it seemed that the British public, with a little helpful nudging from the government, high street banks and retailers, payment card companies, fintech firms and tech giants, was intent on abandoning cash as quickly as possible. A decade ago, around 60% of payments in the UK were made using cash; by 2021, with the COVID-19 pandemic raging, e-commerce booming and the contactless revolution in full swing, that figure had slumped to 15%. As in many other countries, the amount of cash in circulation did increase during this time, but this was a sign of hoarding, not of increased payments.

At the beginning of this year, Mastercard, a company that has singled out cash as its number one enemy and whose former CEO (and now World Bank Managing Director) Ajay Banga described physical money as “public enemy number one”, unveiled the findings of a survey it had commissioned into payment trends in the UK. Those findings, the company said, pointed to a further decrease in cash usage in the UK, which aligned perfectly with the company’s broader goals, exemplified by its current slogan: “World Beyond Cash”.

But then something rather unexpected happened (though we did kind of call it in August 2022): cash began staging a come back. In September this year, a report on payment trends by UK Finance, the country’s largest bank lobbying group, included a striking finding: cash payments had risen in 2022, for the first time in a decade. The number of cash payments had risen by 7%, the report noted, adding that surging inflation had prompted many people to turn back to cash or use it more often than before to help them manage their budgets.

This trend was further confirmed earlier this month (December 2023), when the British Retail Consortium (BRC) released the findings of its annual payments survey, which covers 2022. Like UK Finance, the BRC survey found that cash use had increased. From the Daily Telegraph:

Coins and banknotes accounted for nearly a fifth of transactions in 2022, according to the British Retail Consortium (BRC)’s annual Payments Survey.

Its report said: “This year’s Payments Survey shows an increase in cash usage for the first time in a decade, up from 15pc (in 2021) to just under 19pc of transactions (in 2022).

“Faced with rising living costs, cash was a useful tool for some people to manage their finances and track their day-to-day spending.”

The increase also reflects a natural return to cash following the move to contactless during the pandemic, the report said.

It is the first time since the BRC’s reports started in 2013 that cash usage has increased year-on-year.

The BRC report tries to make light of this trend reversal, describing the use of cash in shops as still “fairly minimal,” adding that it reflects a “natural return” to cash following the huge shift toward contactless during the pandemic. There may well be some truth to this and one should be wary of reading too much into this potentially short-lived trend reversal. Card payments are still the number payment choice for UK citizens and it is quite possible that this rebound in cash use is merely a dead cat bounce (apologies to cat lovers).

But it is also worth bearing in mind that this is the UK’s largest retail lobbying group doing the talking here. The companies it represents, including large retailers, big banks, tech firms and payment companies like Visa and Mastercard, have a clear bias toward non-cash payments. For example, retailers and banks prefer people to use contactless payments as much as possible because: a) they are quicker to process, which means more sales per hour and more fees for the banks; and b) people tend to spend their money in a more carefree manner, which also means more sales for the retailers and more commissions and fees for the banks.

This was already known when contactless cards began making their appearance almost two decades ago, as a 2006 Financial Times article makes clear:

Mr Williams, [controller at The Bailey Co, parent company of Arby’s, a fast food restaurant chain based in the US], has found that customers spend about 50 per cent more when they use a contactless card than when they pay for their food with cash: “I think it is psychological: because customers are not pulling cash out of their wallet, they spend more.” Arby’s has also made productivity gains with less time being spent on counting money and taking it to the bank, Mr Williams says.

Another benefit to retailers is that cards allow them to capture data about their customers from small transactions.

“If contactless cards offer merchants better information on their customers, that could prove to be valuable,” says Mr Uzureau.

These are all major perks for retail businesses, banks and payment processing companies like Visa and Mastercard, but can be major shortcomings for individual consumers, particularly in times of hardship such as now.  As inflation has surged in the UK, more and more people have struggled to make ends meet, and many are turning to cash for relief. It is an example of how one broadly negative trend — the gradual pauperisation of large swathes of the population through austerity and inflation — can give rise to a broadly positive trend: the rediscovery of the benefits of cash.

As in the US, tightening household budgets have triggered a surge in what has become known as “cash stuffing.” As Forbes reported in August, this is nothing more than “a new name for the time-honoured, simple but effective budgeting method known as the ‘envelope system’ or ‘envelope budgeting””:

Cash stuffing involves taking your spending money, converting it to cash and stuffing it into envelopes marked with spending categories like rent, bills, groceries and gas.

You determine how much money you want to spend in each category on a weekly or monthly basis. Then, you put that much cash in each envelope and commit to only spending what’s in your envelopes.

While you can use a spreadsheet or a budgeting app to do this, many people find using physical cash and envelopes to visualize their spending to be more effective. Money in a bank account can seem more abstract, and you might not be able to keep track of how much you have left to spend at all times. If you go to grab cash out of your groceries envelope and see you have $40 left, you know exactly how much you can spend at the supermarket without going over budget.

On December 14, the British tabloid The Sun on Sunday ran a feature on how two mothers had saved hundreds of pounds in one month by switching from contactless to cash. One of the mothers realised that if she continued the practice she would be more than £5,512 better off over the course of the year. While this may be anecdotal, a survey by the consumer affairs magazine Which? found that 52% of respondents believe that using cash helps them to keep better track of their expenses. One in five of those who don’t use cash said they will start if inflation continues to rise.

“ When you pay with coins and notes it feels more like you are spending money,” clinical psychologist Dr Marianne Trent told the Sun on Sunday.

“In many ways it doesn’t feel as real if you are using plastic and it’s easy to tap away without realising just how much is coming out of your account.”

The Post Office has been offering intermediary cash services for banks in recent years and since the summer of 2022 has seen a sustained surge in the amount of cash being deposited and withdrawn at its branches. In November this year, personal cash withdrawals across the Post Office’s 11,500 branches totaled £878 million, the highest amount on record. Nearly half (44%) of respondents to a recent Post Office survey said they will be using cash to help budget during the festive period.

What’s more, the overall volume of cash deposit transactions, including by businesses, was up more than 450,000 year-on-year (+8.5%), suggesting that businesses in particular are responding to bank-imposed cash limits by depositing smaller values but at higher volumes at their local Post Office. As we reported a few months ago, this is happening despite the fact that large banks in the UK, with the help of the Financial Conduct Authority, are making it increasingly difficult for people to not only deposit cash in their branches but also use the intermediary services offered by the Post Office. 

This raises a key point: cash use is rebounding despite the concerted efforts by the government, banks and retailers to limit its use, which I believe makes this trend reversal all the more impressive.

The UK’s high street banks have already closed some 5,000 branches over the past eight years — at a rate of around 54 per month — and 15,000 cashpoints, or ATMs, over the past five, with hundreds more scheduled to close this year. Both large and small retailers have also refused to accept cash. The government could, of course, step in and do what many state and local governments in the US have done and pass a law prohibiting businesses from not accepting cash.

But that’s not happening. Instead, government is getting in on the act. Many local authorities, for example, have already banned cash as a means of paying for parking. The government even recently proposed closing all rail ticket offices, which would force all passengers to use card-only vending machines or make their purchases online. But the idea triggered such a visceral backlash, particularly from organisations representing the blind, wheelchair-bound and other disadvantaged groups, that the government ended up shelving it two months later.

There have been other small victories along the way. In November, the supermarket chain Booths became the first large British retailer to axe almost all of the self-service tills in its stores, which tend to favour quicker, less fiddly non-cash payments, saying the decision was in response to feedback from customers. A similar trend is taking place in the US where major retail chains such as Costco, Walmart and Wegmans are rethinking their self-checkout strategies, in large part due to an explosion in shoplifting. One study of retailers in the US, UK and other European countries found that companies with self-checkout lanes had a loss rate of around 4%, more than twice the industry average.

There was positive news for cash lovers from other parts of the world this year, too.

In Switzerland cash is once against the most frequently used means of payment after losing ground during the pandemic. The same goes for my country of residence, Spain, where three out of four Spaniards continue to use cash on a daily basis, according to a Bank of Spain survey.

Earlier this month, the BBC reported that cash “continues to rule” in India despite a recent boom in digital payments sparked by the Modi government’s demonetisation program, which will go down in history as one of the largest government-led attacks against physical money. The people of Nigeria also stuck with cash despite the central bank’s disastrous attempts to force its floundering CBDC, the eNaira, on the population. As we reported in February, the government and central bank eventually backed down, but only after visiting untold economic pain on millions of Nigerian citizens.

In some countries, including Slovakia and Austria, governments have taken steps to enshrine the use of cash in the national constitution. Austria’s attempt to protect the use of cash through legal means was denounced by Brussels’ European Commission representative in the country, Martin Selmayr, who argued that it contravened EU law. When asked on the matter in November, Paul Gentiloni, the EU Commissioner for Economy, responded that “Member States cannot legislate or adopt legally binding acts in that area, unless the EU empowers them or if they do so for the implementation of EU acts.”

In other words, according to the European Commission, no national government in the Euro Area can pass laws to protect the use of cash — at least not without its say so! The Commission, which has been waging a decade-long war against cash and which, together with the European Central Bank, is determined to launch a digital euro, claims to have sole jurisdiction in this area.

It is a reminder that while small but key victories have been achieved in defence of cash this year, the global war against physical money continues unabated.