In a rush to contactless pay, cash should be protected
One major and perhaps unexpected consequence of the COVID-19 pandemic has been the massive increase in the use of contactless payments.
According to UK Finance, 7.4 million people in the U.K. are now almost “cashless.” This trend isn’t completely new. Before the pandemic, contactless payments usage was on the rise. Nonetheless, with the limit increased to £45 (about US$60) and merchants, many of whom would only accept cash previously, now insisting on contactless payments, the pandemic could prove the tipping point for making the U.K. a cashless society.
Yet this seemingly positive embrace of contactless payments raises important questions about how we can safeguard access to cash, especially for the most vulnerable members of society. This has led consumer champion Which? to call on the government to act.
The burning question is no longer how do we accelerate towards a cashless society, but how do we do this without creating financial exclusion in the process?
The coronavirus crisis has accelerated what was already on the rise, driven by growing consumer use of mobile and contactless payments. Cashlessness presents an opportunity for government, financial service providers and the wider digital economy — especially the likes of Uber, Airbnb and Deliveroo, all of which benefit from the reduced friction.
From a government standpoint, it is much easier to collect tax when everyone uses a digital currency because there is hard data that shows exactly what people owe. This added transparency also prevents money laundering. In fact, there has been a “war on cash” with the government putting anti-money-laundering flags on smaller cash withdrawals than in the past and requiring ATM operators to flag multiple cash withdrawals for suspicious activity.
Card schemes also stand to win from the shift to cashless. Schemes charge a fee for every electronic transaction, thus have a vested interest in transactions being digital rather than cash. Cash, not rival schemes or non-fiat currencies, is the single biggest competitor to the dominance of card schemes and the more people that use digital and contactless payments, the more money they make.
The result of this combined push toward cashlessness is a 60% drop in ATM use, according to YouGov. The fall in ATM use — again, operators make money from transaction fees — means the ATMs are becoming more costly and even driving potential losses. It is no surprise then that ATMs are disappearing from towns and villages across the country.
The impact of this move towards digital payments is being felt nationwide. Millions in the U.K. still rely on cash daily, and many are society’s most vulnerable. Immigrants, the homeless, ex-prisoners, the elderly and low-income workers operate in largely cash-based economies either getting paid or needing to pay with cash. This is amplified by a lack of access to bank accounts that offer digital payments.
When COVID-19 hit, there was a 44% increase in the use of contactless payments, and some businesses even displayed “card only” signs. This caused those relying solely on cash to be cut off from vital goods and services at a time when they needed it the most.
This hasn’t just been a problem for consumers. Cashlessness can also have a negative impact on small businesses. There is an added cost for merchants who accept card payments, which can limit their business’ profitability and ability to compete with larger retailers.
The issue is now so big that industry bodies have spoken out via the Federation of Small Businesses, whose national chairman, Mike Cherry, said, “Cash remains the payment method of choice for millions of small-business customers, and for many it is still an essential part of the payments mix.”
Finally, the loss of anonymity that cash affords individuals is also off-putting for a part of the population. Digital payment data is routinely collected and stored, and while this is good for tax evasion and AML, there are concerns over privacy and civil rights that are yet to be addressed.