Cash Is King ?

cash-is-kingTraditional experience would teach us that cash is king, but a recent survey reports that most UK adults are carrying less than £22 in their wallets, barely enough to accommodate an evening out.

With multiple ways to pay, including mobile wallets, payment applications, and tap and go credit cards, the crown status of cash is starting to slip. According to Payments UK, an industry body, 2015 was the first year that consumers used physical cash for less than half of their payments.

Contactless payment is viewed by many as a stepping stone to a cashless society, with smartphones becoming the preferred method of payment. As an example, many big retailers accept “tap-and-go” technology for small-value items, with  TfL (Transport for London) at the forefront of the revolution. Since the launch of Apple Pay in 2015, 8 million journeys on London Underground have been paid for by iPhone users tapping their handset at entry and exit barriers. With this trend continuing, many leading economists are now calling for cash to be phased out.

While cash can trace is heritage back to 600 B.C., when King Alyattes from Lydia (modern day Turkey) minted the first official currency, cash has stood the test of time to providing universal acceptance, instant clearing and anonymity.

For many, cash has a comforting effect particularly when catastrophe approaches. Prior to a hurricane encountering landfall, the US Federal Reserve reports an average of 25% increase in currency orders from Financial Institutions that are in the path of the storm.

As the same time, cash does have a murky side – it is the defacto payment for self indulgent or naughty treats, from illicit activities for a cheating spouse through to tax evasion and illegal activities for hardened criminals.

Challenge of a Cashless Society
The rush to a cashless society risks creating a new social economic class of financial exclusion that will directly impact the poor and vulnerable as well as charities.

In Sweden, the migration to a cashless economy had a negative impact on charitable donations as cashless citizens bypassed the collection tin. In order to support a new era of charitable donations, Sweden’s places of worship have set up a digital collection basket to take offerings via text, credit and debit cards as well as mobile apps.

At the same time, the use of cash can be viewed as a class issues. Many middle-class professionals can comfortably operate from one day to the next without using cash. The only time they would use a sizeable amount of cash is to pay a builder to avoid VAT.

People of limited income are potentially far more trapped with using cash and the costs that go with it, such as withdrawing £10 from a cash point and incurring a transaction cost of £1.50.

For mobile banking, the cost of cellular and data services can be just as prohibitive for low-income consumers both in terms of data costs and wireless coverage. In the UK, there is no single killer mobile payments app that can emulate the social success of M-Pesa in Kenya in providing a mobile bank account for everyone.

Premature Death of Cash
In a new economy where payments will require your phone to be charged, cash will never go away completely. It has survived for centuries and continues to be successful with the freedom it provides from universal acceptance, instant clearing and anonymity. High denomination bank notes will always be required when the tooth fairy calls !

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