Over the last decade, as we have moved away from a cash-based society (the UK ranks number 3 in the table of cashless countries), our ability to make financial commitments has never been so immediate. There was a time, not too long ago, where predominant card users (AKA me) often found themselves in bother at local pubs, parking machines and charity collections. It always seemed so antiquated – who is still carrying cash?
Heading into 2020, we’re pretty much doing a 180. People without contactless cards, or cards in general are finding themselves more and more in trouble. Even little markets which once only took cash are now only taking card. The question is therefore; do we even need cash anymore?
The argument is quite divided. From a personal perspective, I only ever use cash if I’m given it. Taking out cash is something I do when I can’t use my card – I would agree that we don’t really need it, as long as the facility for card is there. I’m not alone. Sweden has been progressively pioneering a more digital-facing financial space, with people paying for goods with just their hands, literally (hint, they are microchipped). For other people however, there’s a greater use and reliance on cash.
Niche groups need cash (primarily the elderly), and even certain businesses are built on a model that requires using cash – local newsagents for example. There is always a risk that cash-in-hand payments could be mismanaged and there needs to be trust placed in people that the paper and coins trading between them is done so legitimately. Greater regulation by taking away cash could provide clarity in transactions, but could also be met with disappointment from the public at the perceived lack of trust or invasion of privacy.
A lack of cash could also generate more problems for personal finance. The ability to rack up debt much more quickly through contactless payments has never been so accessible. We have to think less and less about how we’re paying off our commitments as we keep the exchange so hidden. It could make the cash flow problems that have been faced primarily by big business, issues for the day to day spender. We only need to take a look at those business that have failed to manage their cash flow to understand the long-term impacts that immediate gratification could have on personal finance, and it’s not pretty.
Banks currently benefit from cash – a business paying cash in to the bank can come with high fees, so for some small businesses, it’s easier to continue the cash cycle and use it to pay others, rather than banking that money and then making a digital payment. Traditional banks face further threats in moving to cash-free banking, with challenger banks increasing in search by 32% in just three years. Challenger banks have a much more seamless link with cash-free banking and traditional banks are still trying to keep up.
In accounting terms, it gets even more interesting. If we move away from physical cash, does this still make ‘Cash and Cash Equivalents’ still as liquid? Does it still hold as much value as before? If we have no real cash, is it all just a cash equivalent? Do we even need different currencies, if it’s all held in a digital space?
Breaking it down to the bottom line; any move towards being completely cashless will come with some backlash. There’s so much ease and complexity offered by cash, but it ultimately is based on trust. There is a love-hate relationship with cash, and whilst some of that stems from distrust, it simply is about what is most accessible. We are likely to always need some form of actual trading currency (non-digital) until we have 100% reliable technology, and people have complete faith in banks and governments. Cash may no longer be king, but it’s not passed the crown over to the card yet.
All opinions are my own. Quoted and relevant links credited. All figures are based on my own calculations for the UK. Information correct at the time of publication. For entertainment only – this is not intended for advice.