Unprecedented restrictions on where and when people can shop has caused a dramatic fall in cash use in the UK.But that does not mean that cash is a spent force, says Ron Delnevo, Chairman of Cash and Card Consultants.
On 2 March 2020, the Daily Telegraph guaranteed a very bad year for cash in the UK with its headline ‘Dirty banknotes may be spreading the coronavirus, WHO suggests’.
In case you have been on another planet and only just managed to get a flight back to our troubled Earth, WHO is the acronym for the World Health Organisation.
Founded in 1948, the World Health Organisation has massive credibility on health matters. So, when a warning is attributed to them, generally no one questions it – especially since recipients are usually numb with fear after hearing bad news from the Geneva-based oracle.
Within a few days, the WHO had issued a statement clarifying that it was NOT warning people against using paper money due to coronavirus. However, by that stage very few people were listening. The seeds of fear, once planted, grow quickly and spread strongly.
The apparent bombshell from Switzerland added impetus to what speedily became a perfect storm for cash, creating a headwind like no other mainstream payment method has faced in living memory. This is certainly the case in the UK.
Here, with virtually everyone being told to stay at home, internet shopping, with the accompaniment of home delivery, has increased by a zillion per cent. OK, probably a slight exaggeration – but there is no doubting that Amazon is in its Prime.
In any event, since no internet shopping in the UK is carried out using cash, this shift in the nation’s shopping habits seems bound to have a negative impact on cash usage for payments during the whole of 2020.
Now, it is true that even during the current coronavirus pandemic, we Brits are not yet entirely reliant on the internet for our retail access. As I write, we are allowed to escape our homes once a day for ‘essential’ food shopping. However, this is a sector dominated by a few very large retailers, which also happen to operate just about the only shops allowed to open in these virus-ridden days. Without exception, these retailers are actively encouraging their customers not to pay using cash, naturally citing coronavirus concerns. As a result, with the UK public being on the whole a nation of compliant shoppers, hardly anyone is paying by cash at the moment.
It doesn’t help, of course, that there has also been some negative publicity about using ATMs. This has focussed on the potential for ATMs to be ideal homes for the virus and also the fact that people standing in ATM queues are apparently rarely the minimum two metres apart recommended for social separation. Both of these stories had limited connection with reality, but nevertheless stoked up fears enough to further undermine demand for cash.
Where does all this leave cash in 2020?
Mostly, it seems, still in ATMs, with some experts predicting that cash withdrawals from the machines will fall by up to 80 per cent during the next few months.
It goes without saying that no industry can endure an 80 per cent fall in demand without significant repercussions. The UK’s ATM network is no exception to this rule. Since ATMs are currently the conduit for almost all of the banknotes used in the UK, this is a very serious issue for those who care about guaranteeing the future of the public’s access to cash.
Even before coronavirus first alighted on our small island, the distribution system for cash was already under severe strain. For example, some major card issuers had for several years been putting significant pressure on LINK, the UK’s largest cash machine network, to reduce payments to ATM operators.
Payment reductions are credited by a number of commentators as having had a substantial role in LINK being left with around 45,000 free-to-use ATMs by the end of 2019, down around 17 per cent from when the network was at its peak.
Given the expected dramatic fall in cash withdrawals in 2020, there is already speculation in some quarters as to how many free-to-use ATMs will be needed to service the likely demand for cash in 2021. Figures as low as 20,000 machines have been mentioned, a potential decline of more than 50 per cent from the already reduced 2019 levels.
One thing is certain. If the number of free-to-use ATMs does need to drop to around 20,000, a fundamental restructuring of the industry will be required. The remaining ATMs cannot be allowed to become victims of competitive pressures between the various bank and non-bank operators.
Amidst all this gloom, the very good news for the public is that the UK government has recently pledged to maintain convenient free-to-use access to cash for those who want or need to use it. Should they be required, legislative measures have been promised to guarantee this access.
Notwithstanding the government’s avowed commitment to cash access, it remains vital to implement any changes needed to improve the efficiency of cash distribution. No one should ever be satisfied with the status quo in any industry.
There is currently a review underway of the wholesale distribution of cash. Major changes to rationalise and streamline the national network of cash centres, along with the movement of cash between them, can be anticipated. In my view, changes in the wholesale environment need to be accompanied by innovation in how cash is delivered to the public at the community level.
I believe innovation will include an increased emphasis on ‘localisation’. Central to this will be measures aimed at significantly reducing the need for cash to return to cash centres for recirculation. Importantly, such measures will also tend to reduce the carbon footprint of cash distribution. This in itself is a crucial issue and one that my consultancy is currently researching for the LINK ATM Network.
From 2021 onwards, cost-effective recirculation of cash in communities is likely to include several diverse elements.
ATMs will continue to have a role to play, with deposit/recycling machines surely made more extensively available. Depositing cash is becoming a major issue, especially for businesses. ATMs with appropriate functionality can help solve such problems. However, ATMs can be expensive to install and operate, so they can no longer be relied upon to deliver 80 per cent-plus of the cash services that businesses and the public require.
The remaining bank branches and the still relatively widespread network of Post Offices will also be part of the ongoing provision of cash access. However, Post Offices are going to require an increased element of automation of cash dispensing and deposit/recycling to take the pressure off overstretched counter services.
As far as bank branches are concerned, while it seems inevitable that bricks-and-mortar estates will continue to decline, there may be innovations to come in relation to community financial services hubs. Newcastle Building Society is already trialling such a concept on a shop-within-a-shop basis. There are likely to be more such trials of local branch provision, potentially from new market entrants. Access to cash could certainly be one facet of their service offering.
While on the subject of shops, there are interesting innovations already well under way in other markets to allow the public access to cash through retail outlets. For example, Sonect, a Swiss-based cash fintech, enables the public to use an app on their smartphones to get cash from around 2,500 shops. This highly innovative virtual ATM service has made Sonect the biggest ATM network in Switzerland. Future innovations from this solution provider may well include the deposit of cash, with obvious benefits in terms of the increased localisation of cash circulation, bringing improved cost-effectiveness for all stakeholders.
The increasing number of payment options available to the public is almost certain to lead to the day-to-day use of cash being significantly lower five years from now. However, continuous innovation has ensured that, for 2,500 years, cash has enjoyed a place on the payment choice menu. The further innovations already in the pipeline should mean 2021 and the years that follow are no different in this respect.
(This article is a special preview of the publication – due out in May)