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The 'Great Debate' about cash

At the ATM & Mobile Innovation Summit next week, panelists will argue for and against the death of money; the state of cash in the U.K. today offers talking points for both sides.

September 3, 2015 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

Every Monty Python fan knows (probably by heart) the scene in the Arthurian farce, "Monty Python and the Holy Grail," between the Dead Collector, the old man and the villager carrying him to the Dead Collector's cart. "But I'm not dead," the old man insists (to no avail,ultimately).

I think of this bit whenever the debate about the demise of cash comes up. Like the not-dead villager, cash is old, but still fit to "go for a walk."

Just this May, the U.K. Payments Council confirmed that cash in the U.K. is alive and well, thanks very much for asking. In "UK Cash & Cash Machines 2015," the council reported that Brits made 18 billion cash payments with a total value of 250 billion pounds ($382 billion) last year.

The University of the West of England, Bristol, also seems to have found cash in a healthy state, having decided to launch a masters program in currency supply chain management.

And speaking yesterday at the Follow the Cash conference hosted by that university, Victoria Cleland, chief cashier and director of notes for the Bank of England, confirmed that the U.K. certainly will have currency in need of managing:

Aggregate demand for Bank of England notes has grown quickly, increasing by around three-quarters over the past decade, and has outpaced the growth in GDP since the 1990s. Today there are nearly three-and-a-half billion notes in circulation, totaling over 60 billion pounds ($91.7 billion).

It should be noted that, according to Cleland, only about 20–30 percent of this currency is active in the supply and distribution chain, held by banks, consumers, retailers, and 70,000 ATMs dotted across the U.K.

The rest is hoarded at home and abroad or tied up in the shadow economy, Cleland said. How much of this sequestered currency will find its way back into circulation — and when — is the 42-to-48-billion-pound question.

Meanwhile, the currency that moves in what Cleland called the "transaction cycle" does get a workout, thanks to its enduring usefulness to U.K. consumers — even those who have more modern payment means at their disposal, she said:

Given the many ways that are now available to pay, I am often asked, 'Is cash about to die?' The short answer is, 'No.' Cash is still a key player in the payments landscape.

In 2014, cash accounted for 52 percent of consumer payments at the point-of-sale and was comfortably the most frequently used payment method. And in absolute terms, the use of cash at the point of sale (in both volume and value terms) is only slightly lower than it was fifteen years ago.

Signs of change

"Slightly lower" could be the result of a decline of cash in the U.K. for low-value purchases. Cash payments of less than 1 pound ($1.53) have dropped by half since 2005, the Payment Council report said.

The council explained that this might be accounted for in part by two things: 1) inflation; and 2) newer technologies (e.g., smartphones) that have eliminated some cash-only expenses (e.g., pay phones), and converted others (e.g., bus fares) to noncash payment (e.g., oyster cards).

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Also, the advent of contactless payments in the U.K. has made "tap-and-pay" faster and more convenient for small purchases than "turn your purse upside-down and see if some money falls out."

This last, however, does not explain why cash is still favored for purchases of less than 5 pounds. My theory is that one and two pound coins are too heavy to lug around in your pocket, but a fiver doesn't weigh much, so it's convenient to carry for small purchases (but not too small, or you'll end up again with a pocketful of brass).

We'll see if the theory holds in the U.S. market, which has a $1 note, but as yet, only limited contactless payments.

Speculation aside, the fact is that this year for the first time, noncash payments have overtaken cash payments in the U.K. — and permanently, barring an economic or cyber catastrophe. By 2024, Brits will make only about one-third of payments in cash, the Payments Council estimates.

The ATM angle

In her speech yesterday, Cleland praised the U.K.'s ATM industry for its willing cooperation with the Bank of England in addressing issues such as the "tatty fiver" and for embracing voluntary measures such as the "Code of Conduct for the Authentication of Machine-Dispensed Banknotes."

The ATM certainly has become indispensable (no pun intended) to the distribution of cash in the U.K. Brits obtain 85 percent of their folding money from ATMs; 47 million of them visited cash machines last year, 91 percent of these at least once a month.

But even as the central bank praises ATM operators, the central government is making it more difficult than ever for ATM owners to conduct a profitable business, issuing back-dated bills for business rates to banks and IADs that operate machines in retail stores.

Technology, taxation, and tactical assaults ("cash is dirty/expensive/unnecessary/old-fashioned/used only by criminals, etc., etc., etc.") are putting increased pressure on cash and are not going to let up, ever. But neither will consumers' sometimes inexplicable but seemingly unbreakable attachment to cash.

It's a certainty that before I fly to Washington, D.C., for the ATM & Mobile Innovation Summit next week, I will use cash (the salon I go to doesn't accept tips on plastic) and I will visit an ATM to get more of it, because ... just because. Cash never fails.

The ATM & Mobile Summit agenda includes a panel discussion on the future of cash; I'll be listening to the exceptionally well-informed panelists on both sides with interest — but not with the expectation that anything will be settled.

In the end, I suppose that what is most interesting about the debate over cash is that we are having it at all. Before smartphones and the Internet were ubiquitous, before anything NFC, before general purpose prepaid cards and virtual currencies and other noncash workarounds for the unbanked — the thought of cash becoming nonessential seemed as silly as (another Python bit) a migrating swallow carrying a coconut.

read the full textof Victoria Cleland's speech at the Follow the Cash conference

read the executive summary of UK Cash & Cash Machines 2015

learn more about the ATM & Mobile Innovation Summit

photo istock

chart courtesy Bank of England

About Suzanne Cluckey

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Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.