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The Future of Money: Coronavirus and the Cash(less) Society November 2020 Contents Contents About this report Summary 2 This sets out to explore the implications of a world that is not Implications 3 cashless, but less reliant on cash, asking: The Shift to a Cash(less) Society 4 • How is the pandemic likely to affect the use of cash? The Cash(less) Consumer 8 • How will consumers, businesses and governments be affected The Cash(less) Economy 13 by a decline in the use of cash? Governing a Cash(less) Society 16 • What is the role for cash in a cash(less) world? Living in a Cash(less) World 19 1 Summary The Shift to a Cash(Less) Society Over the last decade, cash has rapidly dwindled as a transactional tool, falling behind debit cards as a form of payment with projection from UK Finance in 2019 estimating that by 2028 just 9% of payments will be made in cash, down from 60% in 2008 and 28% in 2018. The date of the projection is vital, with the coronavirus pandemic set to rapidly accelerate this progression with the public squeamish about the potential of cash as a vector for viral transmission and with the government encouraging and facilitating a significant uptick in the use of contactless payments. The Cash(Less) Consumer For the vast majority of consumers, the shift to a cash(less) society so far has been experienced as a gradual evolution from a reliance on physical cash to electronic money. Over time our bank accounts, our cards, and our mobile devices have become more and more sophisticated, eliminating the need for cash for most people. This mainstream is likely to encounter cash(less) as a positive, with consumers gaining greater ability to understand and manage their money through technology. For a dwindling minority, however, the cash(less) shift will be experienced as a process of gradual increasing financial exclusion and the ability to use cash may need to be protected in order to ensure that this minority can participate in the economy. A Cash(less) Economy Business plays a reflexive role in the cash(less) economy. On the one hand, it must respond to consumer demand and consumer behaviour; as consumers live increasingly cash(less) lives, and as electronic payment technology becomes further democratised, businesses of all shapes and sizes must be able to accept modern methods of payment. As the context shifts, and as cash becomes less relevant, it is likely to make less and less financial sense to businesses as a transaction method. In a cash(less) economy, more and more businesses are likely to shift to card-only, reaping the benefits offered by modern payment technologies at the expense of excluding a small and shrinking minority of consumers who continue to operate exclusively with cash. Cash(less) Governance The costs and benefits of a cash(less) society are perhaps least ambiguous when it comes to governance, with cash playing a significant role in the ‘hidden economy’, and in the sphere of organised crime, with the anonymous and untraceable nature of cash making it a vital tool in breaking payment trails. However, while the continued cash(less) shift will bring enormous benefit for governments, it will also bring disruption. For many, cash is a vital tool not only for financial inclusion, but for budgeting, for paying carers, or for protecting mental health, and its decreased relevance could increase the need for government intervention. Further, while the continued decline of the hidden economy as a proportion of the tax gap is a highly positive outcome of cash(less) payment processes for government, a sudden elimination of cash in hand payment practices is likely to significant affect the incomes of a large number of consumers whose disposable income – and perhaps, ability to meet existing overheads – relies on a continued tax holiday. 2 Implications Consumer Business Governance • Covid-19 is set to lead to a rapid, acute, upskilling • The shift to a cash(less) economy is set to facilitate a • The shift to a cash(less) society will have a highly of the population when it comes to the significant simplification and streamlining of payment positive impact on governments’ ability to intersection of money and technology, with a processes, with companies increasingly capable of collect tax, with the cashless shift observed thus significant increase in the adoption and removing cash and the time and money involved in far contributing a significant reduction in the preference of contactless payment. withdrawing, counting, managing storing and transporting size of the ‘hidden economy’ as a proportion of it. the tax gap. • New payment practices will be adopted seamlessly by most consumers, for whom the • For some industries, the shift away from cash could be • Increased cash(less) processes are also likely to cash(less) society means greater ability to highly disruptive. Rents, utilities and TV licences have long have a positive impact on the ability of understand, manage, plan and assertively use shifted away from cash while debit cards have overtaken government to prevent forms of crime such as their personal finances. the use of cash for transactions but for tradespeople, the drugs trade or human trafficking, that rely traditional taxi drivers as well as charities, cash has long on the untraceable nature of cash. • The proportion of the population financially been the predominant way for consumers to pay for excluded by the cash(less) shift will decline – in services. • New forms of cybercrime, and new currencies – part due to Covid-driven adoption, and in part such as Bitcoin – have emerged, marrying the due to the age profile of those reliant on cash – • The move to a cash(less) economy is set to increasingly convenience of digital with the anonymity of but the exclusion of these individuals is likely to shift businesses’ areas of vulnerability online. Digital cash, and governments’ capabilities and become more severe as cash becomes less currency storage is safer than storing physical cash, understanding must evolve to counter new relevant. however, it is not without its flaws, and businesses must threats. evolve their cybersecurity practices to remain safe in a • A shift away from cash in hand payment – cash(less) world. • Governments may be required to regulate the currently used by over 2 million Brits – could lead to elimination of cash from the economy in order a sudden drop in disposable incomes for those • Cash could become a vital battleground of financial to protect the financially excluded, while who have previously under-declared their income exclusion, and while many businesses have already gone managing a gradual shift away from cash in for tax purposes. card-only, businesses remain observant of legislation that hand payment in order to mitigate the impact could mandate the acceptance of cash, developments of 2 million people experiencing sudden • Concerns about security of digital currency could which may require the halting of plans, or the re- reductions in income all at once. see the use of cash in practice shift, with cash introduction of cash. increasingly used as a store of value, rather than a transactional tool. 3 The Shift to a Cash(less) Society Money has been in flux for as long as it has existed. Barter has been around for over 10,000 years, allowing people to trade a surplus of one resource for another, but it was not until the invention of money – symbols and physical manifestations like shells, and later, coins – that allowed individuals to accumulate wealth by exchanging goods and services for currency, rather than resources. Over time, the physicality of money itself has changed drastically. The basics may be the same – coins have been around for over 2500 years and they remain in place across the world today – but these physical manifestations have evolved with time, becoming cheaper to create, harder to copy, and more durable, as we have seen with the shift from paper to plastic notes. As money’s physicality has evolved it has also waned, with the digitalisation of currency beginning in 1871 when Western Union conducted the first transfer of money via telegram, with debit cards overtaking cash as form of payment in the UK for the first time in 2017. Fast-forward to 2020 and the nature of the pandemic and the potential for physical currency to act as viral vector has served as a significant shot in the arm for the cashless society. The limit on contactless payments has been increased to £45 in order to reduce the exchange of cash or the use of pin pads, with many retailers and hospitality venues pivoting to card, contactless or app-only payment methods as part of their efforts to become Covid-safe. The result has been a rapid advance toward a cashless society. Developments that may otherwise have taken years, even decades, are taking place in a matter of months. If the journey toward cashlessness has been like the thawing of a glacier, the pandemic has been the equivalent of an unprecedentedly hot summer. Cash is unlikely to completely disappear in the near future, but as money is increasingly a digital-first medium there are likely to be significant implications across society. In this report, we will explore the impacts of a society that is not cashless but cash(less), analysing the implications for consumers, for businesses and for the governments that oversee their activities. 4 The Pre-Pandemic Decline of Cash Even prior to the pandemic, cash had lost its seat at the top of the table as far as UK payment volumes were concerned, with consistent, accelerating growth in the use of debit cards and a commensurate decline in cash payments leading to an inevitable inflection point; in 2017, card payments overtook cash payments for the first time.

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