It’s often assumed that developed countries with a long history of payments innovation will be the first ones to move away from cash as a primary payments option and embrace new alternatives such as contactless.
Indeed, the UK, has become a world leader in the use of contactless, while the Nordics region is often cited as a strong example of how digital payments are changing the way people make transactions towards cashless. Does all this mean the future for cash in Europe is bleak? Not necessarily.
Cashless economies not yet an option
Several financial industry commentators have suggested that many countries are on the cusp of becoming virtually cashless societies. Sweden, for example, is often held up as a country that has made the most progress towards this. But even here, doubts remain as to whether people are ready for a cashless society.
Ron Delnevo, director of the ATM Industry Association, recently told PYMNTS.com: “I have met with central banks in Sweden, Denmark and Norway – [none] want to go cashless. They see advantages with cash as a financially inclusive medium, as an educational medium and as a store of value.”
Indeed, cash use throughout western Europe continues to remain high, despite greater availability and interest in digital alternatives. The UK, for example, saw its use of cash rise by ten percent last year – its fastest increase for a decade – while Mr. Delnevo highlighted Austria, Germany, Italy, Slovakia, Spain and Portugal as countries where cash circulation remains very strong. Overall, 75 percent of point-of-sale transactions in the EU today still use cash.
While contactless has taken a share of the market for lower-value payments, it still has limitations such as caps on usage. Even if these are removed, the potential security implications could restrict their take-up. For instance, some merchants have expressed interest in raising the limit for contactless in the UK to £100, but Mr. Delnevo suggested this would be a mistake, and one that highlights the value of cash for such transactions.
“Contactless wasn’t invented for £100 transactions. Increasing it to £100 makes it very worthwhile to steal someone’s card for seven or 10 transactions. All of [a] sudden, that’s not minor theft anymore.”
A better sense of security
Another factor that may be in play is that cash provides a reassuring sense of certainty in an uncertain world. This may be particularly true in countries such as the UK, where the ongoing Brexit negotiations make the economic outlook less clear.
David Fagleman, policy and research manager at Cash Services UK, recently told the Guardian: “We are certainly aware that in previous times of economic uncertainty, people have gone back to cash. So it could well be something that happens again over the coming years.”
It’s important not to underestimate the psychology of cash, especially in turbulent times. As well as the reassurance that having money in your pocket provides, it also offers greater clarity. There is no budgeting tool more effective than being able to physically count the amount of cash you have, and feeling it leave your hand when you make a purchase. This is something that digital payment forms like contactless simply can’t match.
Victoria Cleland, chief cashier at the Bank of England, said: “It tends to be that people who are less well-off will use cash as a budgeting technique. If you were in a situation where you saw more people were struggling, you would expect to see a higher demand for cash.”
Therefore, it seems that for some time to come, cash and in turn the ATM will still have a key role to play in western Europe.