A last hurrah for banknotes as UK switches to mobile and card payment
by Patrick Collinson, The Guardian Winston Churchill gazes out from one side of the new £5 plastic note, the Queen from the other. But the chances of Prince William appearing on a banknote are looking slim. More than 300 years after the first Bank of England banknotes appeared, the new plastic ones could perhaps be the last. Stop a young adult on a British high street and you will find that one in eight has not a penny in cash on them. Even the ones who do are likely to have no more than £20. For them, the cashless society is not tomorrow’s world, but today’s: a contactless card flashed to enter the tube; a smartphone tapped at Pret for a lunchtime sandwich; another card waved at a Tesco Express on the way home; the cab journey back from the pub processed by Uber. Who needs banknotes? According to a survey by payments company Worldpay, six out of 10 young adults would prefer not to use cash at all. When Transport for London banned cash on the buses in mid-2014, it was greeted with a backlash from some quarters; “passenger fury” said one headline, “ban hits the vulnerable” was another. Yet, two years on, behaviour has adjusted. TfL says it has saved £24m in cash-handling costs, and queues have improved.
The cashless society has been long mooted, but only now is it arriving. A 1996 trial in Swindon to encourage the town’s 150,000-plus people to use “electronic purses” flopped through lack of interest. But contactless cards – there are now more than 36m in Britain’s wallets – and more recently Apple Pay and Android Pay, have dramatically accelerated the switch away from cash. Crucially, it has been the readiness of big retailers to accept “tap-and-go” technology for small-value items, with Tesco and TfL at the forefront, that has spurred the revolution. Monthly spending on contactless cards is now running at around £1.5bn, or three times the level of just a year ago. Technology experts see contactless payment as just a stepping stone to the cashless society, with smartphones becoming the main way to pay. Since the launch of Apple Pay in July last year, 8 million journeys on London Underground have been paid for by iPhone users tapping their handset at entry and exit points. Meanwhile, Google’s rival, Android Pay, was launched last month. Unlike contactless cards, where spending is capped at £30, Apple and Android users can spend more freely, although they may have to authenticate with a Pin or fingerprint. Traditional Pin-entry debit spending is fast being dumped by the public in favour of tap-and-go. A Pret a Manger source says: “Sixty five per cent of all card transactions at Pret are made using contactless technology,” adding that it has a £250 limit for Android Pay, although that would pay for rather a lot of dolphin-friendly tuna baguettes. “Smartphones are the final nail in the coffin for cash,” says Dave Birch, director of innovation at Consult Hyperion, which helped TfL launch contactless payments. “We all thought it was going to be cards, but it’s going to be phones that do for cash. With a mobile phone you can both pay and be paid – using Pingit and Paym. And, if you look at Uber, it’s not about tap and go, it all happens within your phone. Tapping is a bit of a sideshow. I’m not convinced that in a decade we’ll be tapping, anyway; we call it moving from ‘checkout’ to ‘check-in’. Your Waitrose app on your phone will know who you are as soon as you walk in the store, and you’ll use your fingerprint to buy as you go around.” Worldpay, which handles 42% of payment processing in the UK, says the next more immediate step to cashlessness will be convincing every small independent shop and trader in the country to adopt contactless terminals. They don’t come free; a newsagent has to pay around £20 a month to rent a terminal, or upwards of £300-£500 to buy one, and more for software updates. The card companies will also take their cut, often 1% of every transaction.
But Worldpay UK’s marketing director, James Frost, who is behind the company’s “high street to i-street” project, reckons take-up will be swift. “People forget there is a cost to businesses from using cash; you have to pay for security, insurance, making regular trips to the banks. Then there’s that thing euphemistically called ‘shrinkage’ – when money goes missing. You don’t have those sorts of headaches with contactless.” He predicts that conventional cash tills, with their drawers for notes and coins and mini-printers for receipts, will soon disappear from shops, replaced by tablet-based terminals linked to contactless readers, with e-receipts sent to phones. Around one in 10 small shops still refuse card payments for small purchases, usually below £5, but are expected to come in line as they are deserted by younger shoppers only prepared to use their phones.
Cashless enthusiasts argue the black economy will be hugely diminished, and tax evasion made far more difficult – though privacy campaigners worry about the harvesting of huge amounts of new data. Bond fund supremo Jim Leaviss – in charge of M&G’s £40bn in retail fixed-interest assets – reckons the move to a cashless society could even help end boom and bust in the economy. Outside London’s South Kensington station stands an unlikely early adopter of the cashless revolution – Big Issue seller Simon Mott. Three years ago, he got an iZettle account to take card payments. Now he accepts Apple Pay and Android Pay. Charities whose rattling boxes are falling silent as cashless pedestrians pass by are among those most urgently trying to find new ways to obtain donations. Will cash machines on British high streets become as redundant as red phone boxes, a relic of yesterday’s technology? Peter McNamara, chief executive of NoteMachine, which runs 9,000 ATMs across Britain and Germany, might be expected to refute that, but he makes a good point: On the 2 May bank holiday in the UK, more cash was withdrawn from ATMs in Britain than at any other time in history – £1.72bn on the day, and 7% more than the same bank holiday the year before. The death of cash has been exaggerated, he says. “Consumers still need and use cash – more so than ever before. The reason cash continues to prevail is because it gives us freedom. It will not be rejected by a third party, it is reliable and it enables us all to manage our personal finances with ease. “There is a real danger that the UK is being railroaded towards a cashless society, with the agenda driven hard by technology giants and card issuers who are keen to capitalise on the digital age – yet the evidence to support this suggests hype rather than reality.” A major milestone on the path to a cashless society was passed in 2015, the first year that consumers used cash for less than half of all payments, according to Payments UK, which represents the major banks, building societies and payment providers. But perhaps mindful of the outcry that greeted an early plan to ban cheques, Payments UK has no plans to follow Nordic countries down the path of banning cash. It predicts that cash usage will not be eclipsed by debit cards and contactless until 2021. Meanwhile, even those who have declared war on cash warn about the losers. Birch says: “There’s a class issue here. A lot of middle-class people already go from one day to the next without using cash. About the only time they use lots of cash is to pay a builder to avoid VAT. Poorer people are far more trapped in cash and the costs that go with it. They are the ones withdrawing £10 from a machine and paying £1.50 for it. We don’t, as yet, have an equivalent to M-Pesa in Kenya, a mobile account for everyone.” So it’s Kenya, not Scandinavia, that may have the key to a cashless future. Just remember to keep your phone charged; in future, your journey to work, lunch and popping into the shops will be at the mercy of your battery.
CASH: A BRIEF HISTORY
These days we think of cash as a means of putting food on the table, but there was a time when currency could have been used to eat it too. Around 3,000 years ago, Chinese societies used small metal replicas of tools, such as knives and spades, as currency. As time went on and people grew tired of skewering their hands every time they reached into their pocket to settle a bill, the metal currency became round and flat – the origin of today’s coinage. It wasn’t until around 600BC in Lydia, in modern-day Turkey, that the first coins were minted en masse and stamped to denote different denominations. The practice spread into Europe and today’s de facto global currency, the US dollar, has its roots in the “thaler”, a silver coin dating back to the mid-15th century. The name comes from the town of Joachimsthal in Bohemia, where silver mines were used to produce coins originally known as “Joachimsthaler”. We also have China to thank for the advent of paper money, first used in the Tang dynasty, which lasted from AD618 to AD907. The bills mostly took the form of letters of credit linked to specific transactions, but were a precursor to modern paper notes. It took Europe about another 500 years to catch on, but lenders and banks eventually started issuing notes that could be taken to a branch and exchanged for silver and gold.
A shift towards governments printing their own bills gathered pace with the colonisation of North America. The long transatlantic journeys meant that colonists often ran out of cash, so paper IOUs became usable as currency, issued to soldiers and then spreading through the economy. Many governments still don’t print their own money or mint their own coins, instead paying other countries and private companies – such as Basingstoke-based De La Rue – to do it for them. Britain’s Royal Mint produces coins on behalf of dozens of other countries’ governments. However, it does not disclose the identities of these governments for fear that their decision to outsource money-printing will cause embarrassment back home.