Blog by David Sinclair

It’s been almost 15 years since Tesco, Asda, Boots and much of the rest of our high street stopped accepting cheque payments at the till. There hasn’t been any looking back despite a media outcry at the time that older people would struggle with the change.

The end of cheques made sense. They were easily open to fraud and there was little consumer protection if they were misused.

The end of notes and coins is the inevitable next step.

Cash payments represented four in five of all payments made in 1990. By 2019 just one in five of our payments were made in cash (1).

ILC research has highlighted that, whilst older people are already responsible for around half of consumer spending, there is also significant underspending (the retirement consumption puzzle). If the end of notes and cash makes it more difficult for us to spend as we age, our economy won’t realise the economic longevity dividend.

So what do we need to do?

The end of “notes and coins” is inevitable

Over the next decade we will see the slow but sure decline of the use of notes and coins. Sweden plans to be the first cashless society by 2023. This will be the first among many.

The move from notes and coins is inevitable. Digital payments are more secure and better than cash for many retailers. They potentially reduce risk of theft, abuse and fraudulent transactions. They can provide us with more information about our spending habits.

Over the next few months, many people will return to their offices in cities like London and discover more and more of our high street is now “cashless”.

The pandemic has accelerated the move from “cash”

The change has been coming for a while but the pace has been accelerated due to the pandemic.

Many of us have become a little more germophobic over the past year as we realised how many times banknotes change hands (more times than before with the move to polymer). And whilst plastic notes might provide less of a breeding ground for bacteria than paper ones, their durability has raised concerns about MRSA and Listeria. If you want a reason to move from notes and coins just google all that research which analyses all of the unpleasantness found on them. Heroin, codeine, morphine, or methamphetamine anyone?

Our new habits are unlikely to change even though trace amounts of bacteria or virus’ are unlikely to do us much (any?) harm and we now know that COVID-19 is spread more in air than on surfaces.

And it’s not really a change in our attitude to germs that is driving change.

Government is making it easier to spend using cards or mobile. COVID-19 has led to a change in the amount we can spend using contactless cards. The maximum spending limit has increased over the past year from £30 to £45 and now to £100. When contactless payments were introduced and every time the spending limit has been increased, news and social media have been awash with claims of an increased risk of fraud. In reality though we remain much safer and more protected with a card than with £100 of cash.

The pandemic has accelerated the amount of online spending by people of all ages. Arguably, the biggest outstanding reason why older people have been less likely to use online shopping is not digital exclusion or literacy but the lack of (access to and trust of) online payments.

COVID-19 has also reduced access to face-to-face banking. People who went into town every week to manage their money in a bank and take out their cash for the week have just found it easier to move towards online payments.

Future generations will be less likely to use cash

It’s not just the pandemic that’s accelerating change. More of us just see notes and coins as a hassle.

Younger generations are turning away from using notes and coins and towards electronic payments. My fourteen-year-old son, for example, was this week incredulous that he had to wait 5 working days for a new card to arrive just so he could add the payment card to google pay on his phone. He will rarely, if ever, use the card itself (as he always carries his phone but never a wallet).

It’s not just Millennials and Gen Z whose habits are changing. It’s happening to us Gen Xers to. Since October 2019, I have only taken cash from an ATM two or three times. I rarely use cash when on international trips. I get a better exchange rate using my credit card than changing money to cash.

The trends in cashless are global – and increasingly mobile

Even countries slow at moving “cashless” have been changing over the past decade. Before a recent trip to Japan, I was told that I needed to take cash. The reality was that most places accepted card payments. And the Japanese Government has set a goal of upping the proportion of cashless payments to 40% from 20% over the next few years.

Mobile payments have been growing at pace. Kenya led the way in 2007 and they are now pretty widespread. Hong Kong and China see widespread use of WeChat Pay and Alipay.

But while the “cashless” trend is global, there are some countries which buck the trend. Anyone visiting Germany from the UK would be struck by how many places, even restaurants where big family meals can rack up a big bill, don’t accept card payments. On a short trip to Germany last September I ended up in a Premier Inn bar, not because it was the best place to be but simply because it was the only local place I could find which accepted a card.

But the world has changed and most people have adapted.

Do we need to worry about the spending of older consumers in a “cashless” world?

One news article about the Sweden experience of “cashless” pointed out that whilst there had been suggestions that older people were particularly disadvantaged, the author couldn’t find any examples of harm.

On a trip to Macau a couple of years ago I asked an advocate whether WeChat Pay was beginning to exclude older people and was told that because WeChat is so popular, the payment functionality has been relatively easy and convenient for most older people to use. You can even pay for your utility bills on the app, so everything is in one place.

Given this, are Age UK wrong to have written to the FCA to express their concern about how to ensure older and vulnerable customers have access to cash?

The short answer is no. The vast majority of us will cope fine with the move to “cashless” payments, others won’t.

While the payments industry and the retail sector have made great strides with the inclusive design of payment systems, it sometimes feels us customers are just a bit of a hassle. Some retailers charge consumers extra for daring to want to use a card payment and others refuse to accept “Chip and Signature” cards.

Making small payments affordable

Making and receiving small payments using cards can feel too expensive. A podiatrist might only charge a few pounds for toenail cutting. A member of a running club might only pay four pounds to join. While PayPal or card payments are possible, the transaction charges can feel relatively high.

While many Big Issue vendors, charity fundraisers and even buskers, accept contactless card payments, there are very significant concerns in the charity sector that the end of notes and coins might impact on donations.

With older people being significant contributors to charity, fundraisers want to make it as easy as possible to give.

Increasing trust in digital payments

Many of us have a huge fear of embarrassment that we will get to a checkout and our card will be declined. In the same way I used to take 5 or more pens into exams (and a pencil – just in case they all ran out), I rarely carry just one card. Systems do go down. Occasionally I forget my PIN on a rarely used card. Sometimes a retailer won’t accept American Express. Sometimes a retailer will only accept Visa. Despite electronic payments being with us for many decades we still don’t completely trust them. And for good reasons.

Addressing financial exclusion

For some of us, access to a bank account is an issue. Over one million people in the UK are still “unbanked”. Pre-payment cards are an ideal product for many of us but can be expensive, aren’t widely accepted and don’t give us the Section 75 protection which we get from many other card payments.

Tackling the privacy problem

Privacy remains a concern for some. There is some evidence our financial services providers can predict both divorce and dementia based on our changing spending habits.

The Hong Kong Octopus travel card can be topped up with money, which can be used in shops as well as on train journeys. Yet its popularity has waned over recent years due to privacy concerns. During the recent protests, there have been reports of large queues for people to buy single train tickets to protests (despite them being more costly) so their attendance at demonstrations could not be tracked.

Delivering security without PINs

Whilst PINs provide us with a great deal of protection, they aren’t always great for people with even mild cognitive decline or who struggle to put a number onto a pad in a store. Can the industry find a way to deliver simple and quick two-step authentication for face-to-face payments or are there alternatives to protect the security of people who struggle to use PIN’s?

The retail, banking and payment industries’ failure to promote Chip and Signature remains shameful. Details are often hidden away on “accessibility” or “disability” pages of card issuing provider websites.

The move to cashless isn’t just an issue for older consumers

The move to cashless isn’t one which just concerns older consumers. Most banks, for example, wont issue a card to a child under the age of 12 or 13. In order to get access to a card before this age you now need to pay a subscription for GoHenry or Osper. If the local shops stop accepting cash, how can a ten-year-old buy on the high street?

So what happens next?

In the same way we have forgotten that shops used to accept cheques, I suspect in a decade most of us will be surprised when we find shops where the primary form of payment is cash.

The recent opening of Amazon Fresh stores across London, where you don’t even go through a till, are a sign of things to come.

There is no reason why cards or other electronic payments should be more difficult to use than notes and coins. In fact, in most cases they should be easier and better. But alternatives need to be accessible and usable.

References

(1) Bank of England: Cash in the time of Covid (thanks to @karlwilding for spotting)