“One tuna sandwich sir? That’ll be £4. Cash? I’m sorry we don’t take that anymore.” So instead you pay for the sandwich the same way you now pay for a metro ticket, a cup of coffee or a taxi fare -- with a wave of your mobile phone. You put the grubby banknote back in your pocket and consider where you might be able to get rid of it later. Maybe you could spend it at the local market.
On the way home a billboard for a new film catches your eye and by touching it with your phone you download a trailer and some discount coupons. At the supermarket you buy so much that you’re asked for your pin number but you refuse their offer of cashback. You wonder why they’re still bothering to ask this in 2020 when fewer and fewer people want the wretched stuff any more.
The decline of cash
Cash, at least in the physical sense, is no longer king. Ever since the first credit cards were introduced by Diners Club and American Express back in the 1950s a growing proportion of our daily spending has been cashless. Coins and banknotes have increasingly been replaced by ‘megabyte money’ that exists only as digits on a computer screen and can be moved effortlessly around the globe in the blink of an eye. This is, of course, very handy if you’re a national government and want to inject £200 billion into the economy, but equally it’s convenient if you want to pay for a restaurant meal or a tank of petrol, too.
According to the European Central Bank, a total of €1.68 trillion was put on the plastic by Europeans in 2008 and although the recession might have seen a few over-used cards snipped in half since then, the trend is clear. Spending on cards has increased by an annual rate of 12 per cent over the last five years and after five thousand years it seems the days of metal and paper money may be numbered. Later this year Steve Perry, executive vice president of Visa Europe, expects that spending on cards will eclipse the value of cash transactions in the UK for the first time. By 2015 he estimates we will be putting £2 in every £3 on plastic. So much for the credit crunch.
The move to an increasingly cashless society is a change of profound significance, both psychologically and economically, but it’s a transformation that many consumers seem happy to make. The rise of internet retail, the availability of credit and the improved security of ‘chip and pin’ have all added impetus to the traditional convenience of card payments. Even mobile network operator O2 has launched its own NFC payments service.
But let’s not kid ourselves; this isn‘t all happening just for our benefit. As another unsolicited letter arrives on the doormat breathlessly announcing that you’ve been pre-approved for cards it’s clear there are wider economic interests at work.
Why do we want a cashless society?
Paradoxically, cash costs money. It’s so expensive in fact, that businesses are often only too keen to offload it back onto their customers. For example, that cheerful cashback offer at the supermarket checkout is designed to keep the hard cash in the supermarket’s system to a minimum. A few banknotes may not seem much of an inconvenience but overall McKinsey estimates that the real cost to a retailer of handling cash is a significant 1.3 per cent of the purchase price.
On an larger scale, the European Commission estimates that the total cost of different payment methods is equivalent to as much as 3 per cent of GDP, with cash accounting for more than two-thirds of the total. When compared to the 2.1 per cent of GPD represented by the EU’s entire agriculture sector it‘s clear that this is a huge sum. It suggests that the simple act of transferring money from one person to the next costs the EU €370 billion a year -- more than the entire economy of Poland.
It’s hardly surprising to hear then that serious efforts are being made to wean us off cash. This year will see the rollout of the Single European Payment Area (SEPA) designed to reduce cross-border transfer costs in Europe and promote spending on cards. McKinsey claim the move could save European banks €50 to €100 billion a year. In the US, credit card companies have sought to increase the use of cards to pay for small ‘top-of-wallet’ purchases by waiving the need for signatures on purchases under $25. By July, Visa says it will expand the initiative to 98 per cent of its retail categories including department stores and hair salons.
While this may mean that we get a bit more time to discuss our holiday plans with the hairdresser it doesn’t eliminate our need for cash, especially when it comes to smaller payments. In the UK 80 per cent of the 27 billion cash transactions that take place each year are for items totalling less than £10. However, what now heralds a truly revolutionary shift away from coins and banknotes is the advent of contactless payment systems. This technology could soon reach a critical mass and although cash won’t be completely phased out like the cheque in 2018, it may soon seem as quaintly nostalgic and largely redundant as public telephone boxes do today.