The Cashless Economy: Are we heading towards a world where cash is irrelevant?

By Hamish Muress, Currency Analyst at international payments firm, OFX.

Earlier this month, industry leaders gathered at an event co-hosted by OFX and the Australia-United Kingdom Chamber of Commerce, to debate the potential for a cashless economy, what it would mean for consumer behaviours, and how businesses can best prepare.

The discussion ranged from how businesses can build and maintain consumer trust to how global adoption might be accelerated, with many of the speakers questioning how close we truly are to an economy that’s altogether cashless.

Here are some of the insights that emerged on the night.

London is a bubble

One point that appeared loud and clear was that London is unusual in its adoption of cashless payments and is somewhat spoilt with its ability to go cashless. For example, from October 2016, it became a binding requirement from Transport for London that the city’s 22,500 black cabs accept contactless card payments. This followed a consultation by TfL in which 86% of respondents backed the move. Compare this with other cities in the UK – Manchester for example, where each taxi is an independently registered business, and so are under no such obligation to accommodate card payments – and a different picture surfaces. As parts of our economy go cashless, others will remain stubbornly attached to notes and coins.

The uptake will not only be geographic, but also demographic, with the adoption of cashless technology uneven across generations. Take mobile payments as an example: though smartphones are now owned by 71% of UK adults aged over 55 (Deloitte), only 19% of this group use their phones to make payments.

We can expect the pace of change to a cashless economy to be uneven, and not a straight line.

Cash will be with us for some time

We are on a trajectory towards a truly cashless economy, where cash eventually becomes irrelevant. But that won’t be any time soon. There are many challenges and barriers ahead, and though the technology for cashless is ready now, it will require heavy investment from retailers before its potential is rolled out in shops and checkouts across the country.

For example, there is still a huge disparity between the number of times consumers browse ecommerce websites and apps, to the number of purchases they actually make. Recent research by Deloitte suggests that a big part of this comes down to the friction felt by consumers when asked to fill in forms, add personal data and complete hundreds of taps from a touchscreen phone before finalising a transaction.

In addition, many smaller companies are simply unaware of how integration with technologies like Apple Pay could benefit their business. For brick-and-mortar retailers, it’s expensive to fit out new checkouts and train staff in how to use them, for example, and at the rate technology is developing, new implementation can quickly become outdated.

For these reasons, we’re unlikely to see a completely cashless economy for at least three generations.

The adoption of cashless must not alienate customers

Technology companies have been investing heavily in the development of cashless payments, but for them to be rolled out across the board, the businesses that accept them must also be sure that there is no downside risk in doing so.
Every second saved at the till saves millions of pounds for a major supermarket. But before rushing to adopt new payments technologies, brick-and-mortar retailers must feel confident that in eliminating cash from their stores, they are not also alienating a huge slice of their customers – particularly older consumers who are less likely to have switched to contactless payments, let alone mobile.

In the cutthroat world of grocery, where margins are tight and competition is fierce, that’s hardly a risk they can afford to take.

Trust is crucial

Though cashless payments are on the rise, penetration is still relatively low – particularly for mobile payments, where there is a huge opportunity for growth. For adoption to accelerate, payments technology companies must focus on building up trust amongst consumers.

Trust can be established through clear communication and education, and it can also be baked into the design of payment technologies. For example, a common issue with cashless payments is that they don’t always provide a solid ‘feedback loop’ for the consumer (as they would normally receive when handing over cash and getting change in return), and payments may be taken twice in error, with customers repeating the payment process when unsure if a transaction has completed.

One bad experience can put a consumer off the technology for life. The invisible and seamless nature of cashless payments, whilst being their key advantage, can also be a challenge preventing more widespread adoption – something that needs to be developed and refined in order to gain consumer trust.

The value must be clear for consumers

Aside from knowing that their money is safe, customers also want to know they’re getting something in return. If it’s obvious to consumers how cashless payments can benefit them, then its uptake will be much higher. But until there is a clear value for the consumer, cash will be here to stay.

Supermarkets mastered this early with the roll-out of the loyalty card, which convinced consumers to give up their shopping data in exchange for a personalised service and other perks. The path to cashless payments may also require such incentives, to help convince consumers to make the switch.

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