Cash: down, but not out

There’ll be lots of new kinds of money, but no real end to cash

Introduction

IT babblers say that IT moves at exponential rates, so cash has no future. Saloon-bar theorists say you can’t change human nature, so cash will always be king.

So it is with discussions of electronic money. Thankfully, though, the truth is a bit grittier. There will be lots of new kinds of money, but no real end to cash.

Asia certainly shows that electronic tokens of wealth have a big future, even if that future isn’t an exponential one. In China, the IT giants Alibaba and Tencent don’t just organise mobile payments, but also receive people’s salaries from their employers: cash suffers. In India, students, artisans and employees of Infosys have long benefited from identification cards that double as bankcards: again, that restricts the role of cash. Indeed, when the Indian government scrapped 500-rupee notes (each worth a bit more than £5), it abolished no less than 86 per cent of India’s cash by value.

Africa has also done much to popularise pocket complements to cash. It was first to establish airtime on mobile phones as a store of value that works across national borders.

There is, then, no special magic in cash. It’s costly and dirty to handle, often deteriorates in use, and can very occasionally prove almost worthless (Weimar Germany, Zimbabwe).  Obviously, too, the range of options available to people beyond the realm of cash has grown enormously.

Cash is growing worldwide

Yet reports of the death of cash are an exaggeration. The world market for printing banknotes, which today must boast ease of handling, durability and traceability, is set to grow from less than $10bn in 2018 to nearly $12bn in 2023; meanwhile, the actual volume of cash in worldwide use could grow by five per cent a year, so that 2026 will see nearly a trillion banknotes and 200 billion coins changing hands. (1)

In Europe cash is stubbornly persistent

In the Eurozone, it’s true that, once countries such as Greece, Cyprus and Malta build more of a card payments IT infrastructure, they may use cash not for 70 per cent of the value of their transactions, as at present, but for as little as 33 per cent or lower, as is today the case in Benelux, Estonia, Finland and France. Yet the European Central Bank is clear that the use of cash at point of sale ‘is still widespread…. This seems to challenge the perception that cash is rapidly being replaced by cashless means of payment’. (2)

What about Scandinavia, where the use of cash is very low? Even there, the game is far from over. In Sweden, the proportion of people aged 16-84 using krona for their most recent purchase plummeted from 39 to 13 per cent just between 2010 and 2018. However, a solid 27 per cent still feel negative or very negative about the decline of cash. (3)

It’s the same story in Denmark, where an astonishing 46 per cent of Danes carry around with them the equivalent of just €13 in krone. In Denmark the use of cash is in decline, and it’s possible to live without using it. Nevertheless, a full 50 per cent of the population agrees that ending cash would be ‘problematic’. Danmarks Nationalbank, the central bank, is adamant: ‘Denmark is not heading for a cashless society. Citizens who wish to hold cash will still have the option to do so’. (4)

In the UK in particular, cash has some new winds behind it

With cash, there’s convenience and familiarity, and the proclivity of corner-shops and SMEs to use it. There’s the feel of the stuff, too: in families, the crispness of new banknotes in an envelope given to a child on a birthday remains something to be savoured. Then there’s the universality of cash: with it, collections for colleagues at work are easy, and a friend can always help you out if you’re short.

However, these historic factors are far from the only things that assure a future for cash. Today’s trends also favour it – and especially in the UK. These trends include:

1. Until 2015, Automatic Telling Machines in the UK were increasing in number – and the dip in 2016 was pretty modest. At 1.3 ATMs per thousand adults in 2016, the UK is one of the countries with the highest penetration of cashpoints in the world – among major countries, it lies only behind Canada (2.23) and Russia (1.69). (5) This kind of ease of withdrawing cash will help support it in future
2. For a small but appreciable minority, electronic money is simply not part of their landscape. In 2018, 8.4 per cent of UK adults – 4.5 million – have never used the Internet, let alone gone Internet banking Among people over 75, 51 per cent of men use the Internet, but only 38 per cent of women (6)
3. Many banks, like large institutions everywhere, face problems of legitimacy – not just because of bad general management (Northern Rock, The Co-operative Bank, TSB), but also because of setbacks in cybersecurity, and the accompanying issue of communicating those setbacks to the public. That, and the June interruption of the Visa card payments network, can make cash look preferable to Internet banking
4. Popular suspicion of large branded virtual institutions – not just banks – has grown
5. Recent revelations about electronic privacy have reinforced a desire for anonymity
6. Since the 2008 financial crisis, there may have been more desire for authenticity in money matters and for certainty about where one stands financially – a task that can be trickier in the virtual realm than a quick glance at a pile of banknotes
7. Among sizable sections of the public, there’s a yearning for a sense of national identity in an ever more global world. With English and Scottish banknotes, for example, one handles images of the Queen and promises by the Bank of England, which may offer some subconscious reassurance
8. Criminals, whether blue-collar or white-collar, prefer cash (7)
9. It can be harder to forge what have become polymer banknotes than it is to hack banks.

The human element

Deeply bound up with the trends we have discussed is the likely survival of branch banking, and of face-to-face interactions within bank branches.

Branch closures and branch automation, of course, will continue. The branches that remain, and some of the smaller one-stop shop specialist branches that may still be opened, will go on shifting interpersonal dialogues away from transactions, and on to advice – and to what management consultants McKinsey call ‘complex service interactions’. (8) Moreover, as McKinsey notes of digital banking:

‘Customers are not merely logging in to check balances or buy simple products and services. Many bankers have long thought that human interaction is needed to make a complex sale, but our research suggests that is not true. Customers are happy to buy and be advised online and via remote advisors even for such products as a mortgage loan — provided they can easily find the best product for their needs, and get enough information to be confident in the purchase.’ (emphasis added)

Yet that’s a big ‘provided’. In the UK, McKinsey found, just 22 per cent of consumers had, in 2016, a high willingness to switch to getting advice online – even when the service included screen-sharing, voice and video.

Putting remote bank staff on consumers’ video feeds may not quite be right, either. In the US, people are already worried about what are called ‘deep-fake’ videos, where politicians are traduced by clever footage purporting to be them. So even home video banking with live faces may, before very long, fall victim to impersonators who aren’t in fact human.

For many Brits, and especially older ones with sizable, complicated collections of financial assets, banking advice will still largely rely on the personal touch. In the branch, both bank employee and customer will continue to use the Internet, no doubt. Yet the resilience of the branch and its staff, and the convenience of dealing with cash in bank branches, will together do much to assure the longevity of the folding stuff.

Footnotes and References

1. Smithers PIRA, ‘The Future of Banknotes to 2023’, 2 April 2018, and ‘New research shows banknotes consumption to remain vital even as cash cycles undergo profound change across the next decade’, 11 August 2016
2. Henk Esselink and Lola Hernández ‘The use of cash by households in the euro area’, European Central Bank, Occasional Paper, No 201, November 2017
3. Sveriges Riksbank, Payment statistics, 14 March 2018
4. Danmarks Nationalbank, ‘Danish households opt out of cash payments’, Analysis, 12 December 2017
5. The World Bank, ‘Automated teller machines (ATMs) (per 100,000 adults)’, chart
6. Office for National Statistics, Internet users, UK: 2018, 31 May 2018
7. Europol, Why is cash still a king? A strategic report on the use of cash by criminal groups as a facilitator for money laundering, 2015
8. McKinsey, ‘The future of customer-led retail banking distribution‘, September 2017