[Dave Birch] Here’s an interesting comment on cashlessness from Barclays Bank. They say that they are in favour of it because…

…we know better than most is that its most expensive and troublesome form is cash.

Cash is dangerous in large amounts and tedious in small. Of all the aspects of our trading life it is the most primitive. Worst of all, cash is inefficient. It can’t be right to need eight million new bank notes every day.

Cash is not, though, inevitable. Some time in the future, sophisticated communities will grow out of the need to carry pocketful of metal and paper tokens. Every bank looks forward to that day… Now we in Barclays are taking another maior step in the same direction…

This enterprise is enormous. and the rewards will not come soon. But in years to come we shall be able to claim that we pioneered…

You might think that this is a comment made concerning the Barclaycard PayTag sticker or their contactless debit card, but it’s actually taken from an advertisement in “The Times” from 15th July 1966. That’s almost half a century ago, and according to the most recent figures from the Payments Council, cash is still used in more than half of all retail transactions (and its use actually went up last year).

In the last couple of weeks alone, there has been a slew of articles and reports saying either that cash is as strong as ever, or that it’s on its last legs.

[From The Payments Debate Pantomime — Counting On Currency]

It’s not only Barclays and me who think that cashlessness is on the way. The American Bankers Association (ABA) began investigating the possibility of a cashless and chequeless society back in 1967, at which time it was thought that the US might be chequeless by 1980, with the use of cash falling substantially soon thereafter. So much for that.

I read somewhere that in 1970, the book “Tomorrow’s World” (based on the TV show) had some forecasts for the future that now appear ludicrously optimistic (eg, a polar ice city with a population of 500,000 by 1988). It also predicted that in 2008 the “Bank of England withdraws cash and notes in favour of credit-card economy” and apparently the TV show had featured a lengthy segment on this cashless future, discussing the ambitious real-time banking system under development by Barclays at the time. This was, incidentally, the Burroughs system that turned out to be the disaster described in Ian Martin’s “Too far ahead of its time: Britain, Burroughs and real-time banking in the 1960s” presented at the Society for the History of Technology in October 2010 (many thanks to Rory Cellan-Jones for pointing me to this fascinating paper).

So where are we now? There are pockets of cashlessness and they are spreading. Scandinavia leads the way and it’s easy to find anecdotes about cash vanishing from retail environments to illustrate the trend, one of my favourites being the church collection plate.

The decline of cash is noticeable even in houses of worship, like the Carl Gustaf Church in Karlshamn, southern Sweden, where Vicar Johan Tyrberg recently installed a card reader to make it easier for worshippers to make offerings.

[From Sweden: Country could be first to go cashless as even churches are accepting cards for offerings | Mail Online]

Having been out and about giving a couple of talks on ceaselessness recently, I was wondering whether there is a simple measure of cashlessnes beyond the proportion of retail payments in cash, bearing in mind that much cash is is no longer used to support industry and commerce. The majority of the cash “in circulation” in Europe is used only for criminal purposes and isn’t “in circulation” at all, it’s stuffed under mattresses in the Balkans, in suitcases in Luxembourg deposit boxes and in Iberian property developers lock-ups. So look at M0 doesn’t really give any sense of the sped or scale of change.

Then I remembered that Payment Systems Europe developed a useful metric for this: the Debit Cash Displacement (DCD) score, a measure of the extent to which debit cards have replaced cash (measured by ATM withdrawals) in retail transactions. If you look at this score for Europe, you find that (as you would expect) the Scandinavians in the lead with the UK, along with a group of other countries, somewhere close to the middle. Three countries stand out, to me at least, in this chart.

DCD PSE

Norway. Norway, as we knew anyway, is the most cashless country in Europe (excluding Iceland, of course). Around three-quarters of all retail transactions are in cash and around three-quarters of all of the cash in circulation is what the Bank of Norway politely refer to as “unexplained”.

Germany. The amount of cash changing hands in Germany remains surprising to foreigners. My sister recently returned from a holiday in Germany and it was one of the aspects of the country that she found so remarkable that she commented on it on her return.

Greece. No wonder the Greek government’s ability to tax is so limited when almost all transactions are still in cash. I’m still of the mind that the social factor, the tax burden on the law-abiding increasing to cover the tax evasion in the grey economy, might nudge us to the tipping point.

Meanwhile, back in the UK, Barclays are still working hard to make their dream from 46 years ago come true. They’ve got contactless debit cards, PayTag stickers for phones, PayBand wristbands for festivals and QuickTap NFC handsets. They’ve got PingIt for mobile-initiated account-to-account transfer via FPS. Yet the use of cash went up last year.

What’s missing? Why hasn’t the 1966 vision come to fruition? Why wasn’t the US cheque free by 1980? Why didn’t the Bank of England abandon cash in 2008? I’d say there are probably three factors:

  1. POS density, a problem being solved for us by the mobile phone. With the wisdom of hindsight it’s easy to see that the limiting factor on the spread of cashlessness is the prevalence of readers, not cards. Now that Square, PayPal, Intuit, M-Powa, JUSP and many others are fixing this problem. Since, to all intents and purposes, everyone has a mobile phone so now everyone has a POS and no-one needs cash.
  2. Unbanked and underbanked customers, a problem being solved for us by the non-banks, and the steady separation of payments from banking.
  3. Cost misalignment, which cross-subsidises cash and cheques from more cost-effective electronic services. If the retailers are going to start surcharging, then surely banks will stop subsidising.

Technology, business and social factors are combining to drive electronic payments forward, so I’d say let’s keep the faith! When we get to the 50th anniversary of the Barclays advert, on this day in 2016, it’s a pretty safe bet that cash will account for less than half of retail transactions. We’re on the way. 

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

4 comments

  1. Glad you enjoyed my paper, Dave. There’s an revised version, which corresponds to the IEEE Annals of the History of Computing’s published article, here: http://bit.ly/OzwU0R

    [Dave Birch] Many thanks Ian.

  2. “of all the aspects of our trading life it is the most primitive”

    Certainly compared to rigging LIBOR!

  3. Great note, and like the cash measure you use, Dave. May I add another reason I think cash persists? Simply that many consumers still find it easier to manage and keep track of their spending with it. The irony is that digital money should beat cash hands down for keeping track, given it can record when, where and what. But it throws away that benefit if the balance isn’t updated at the moment of spend. If cash is to go, its replacement has to close the gap between spend, confirmation and balance. Otherwise, customers will continue to trust their pockets more than their banks for a sense of how much they’ve got left to spend.

  4. One of my cards sends me purchase ckechs. They look like real ckechs and you can make them out to yourself to deposit or cash and you pay only the purchase APR no cash advance fees or APR.See if your credit card does this.

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