Article

The 'cashless street': useful experiment or shameless PR stunt?

Who benefited from the one-day, cash-free tryout in a Manchester, UK, shopping district? We can give you a hint: It wasn't the customers or the merchants.

July 18, 2014

by Lee Williamson
Research Analyst, Cash Management Solutions

Last month, an experiment on Beech Road in Chorlton, Manchester, transformed it into the U.K.'s very first "cashless" street.

For one day only the majority of the shops and businesses stopped accepting notes and coins, forcing customers to pay with credit or debit cards. The experiment was organized by card payment provider Handepay to see if we are ready for a cashless society.

The experiment was met with a mixed reception from the businesses on Beech Road. While many backed the scheme, most still gave customers the option to pay in cash, for example, the Horse and Jockey pub only took in 10 percent less cash than normal. Others didn’t really see the point of it as they admitted that they would never turn away customers with cash and several retailers refused point blank to get involved.

Despite the mixed reception, the real question that should be asked of the experiment is who — if anyone — really benefits? Let's consider the effects on all groups involved:

Customers

A key principle in economics is choice, and this can be applied to payment methods. Customers face a trade-off when they pay for an item between using a card and using cash. There are certain goods that customers would prefer to use one payment for over the other — for example, customers might prefer to use a credit card for expensive purchases so that they don’t need to carry that much cash and can pay over time.

On the other hand, cash will likely be the preferred choice for small purchases, due to the freedom and convenience it offers, and for those who want to better manage their finances and spending.

By removing the option to pay by cash you are giving the consumer no choice at all and removing an alternative payment method should card systems go down — as we have experienced recently in the UK.

Furthermore to make this lack of choice worse, the experiment actually limits the choice to the least preferred option for UK consumers — according to the latest annual payments report from the British Retail Consortium, cash transactions made up 52 percent of all UK transactions in 2013. Benefit: None

Businesses

The experiment doesn’t make great sense for businesses on two fronts. Firstly, following on from the choice principle, if businesses restrict customers to purchasing by card only they are losing out on those customers (and the revenue they bring) who want to pay by cash. For some businesses this could include large proportions of certain demographic segments such as elderly people who generally prefer cash.

Secondly, as well as reduced revenue, there is a huge disadvantage for businesses in terms of the costs associated with cards. According to the BRC annual payments report it costs retailers 40.9p on average to process a credit card transaction, 8.8p for a debit card transaction and only 1.3p for a cash transaction. The sheer scale of these differences could have a major impact on the margins of any retailer, however for some, particularly small businesses, restricting customers to only pay by the most expensive payment type could risk profitability.

While the opposite argument could be that it streamlines business operations by ensuring there is no need for the operational infrastructure of accepting cash, there are very few high-street businesses where this would outweigh the negatives. Benefit: None

Credit Card Payment Providers

Finally a winner? There is no denying that a cashless society will benefit credit card payment providers. By removing cash from the payment decision, consumers have no choice but to use cards. This results in these companies receiving a fee from the business after every swipe. Benefit: More card transactions, more profit — at the expense of businesses

Experiment outcome

Setting aside the question whether a cashless society is feasible (the answer to which seemed to be a resounding "no"), the experiment itself came under considerable doubt given that it was organized by a card company — the only stakeholder who stood to benefit from it.

This did not go unrecognzed. Alicia Herhenteris from the independent Café On The Corner, said “We were completely opposed to it. When we saw it was sponsored by a card company we decided it wasn’t something we wanted to be a part of.”

Finally the experiment was also unnecessary as it was very clear beforehand that we are not ready for a cashless society. With 52 percent of all transactions made with cash, an aging population and increased pressure on high street businesses post-recession, removing cash from the economic landscape would have a significant negative impact.

The question we should really be asking is why we would want a cashless society? Having the option to pay by card only would remove our privilege of choice, sacrificing the greater freedom that cash gives us and putting local businesses at stake.