The long-term decline in cash use in the UK appears to have reached its limit, at least for now.
This Thursday (Sept. 14), the UK’s largest financial trade association, UK Finance, which describes itself as “the collective voice for the finance and banking industry, released its annual report on payments trends for 2022. The report included a striking finding: cash payments had risen for the first time in a decade.
The total number of cash payments rose by 7% to 6.4 billion, from 6 billion in 2021, the report notes, adding that surging inflation (commonly referred to in the UK as the “cost of living crisis”) had prompted many people to turn back to cash or use it more often than before to help them manage their budgets.
It would be interesting to know how much of an impact grassroots initiatives in defense of cash, such as Cash Friday, have had as well as broader public concerns about the potential downsides of a cashless society (greater system fragility, threats to privacy, loss of anonymity, heightened financial surveillance, even greater concentration and power of large financial institutions…). Those concerns will presumably have, if anything, grown following the revelations exposed in the recent Nigel Farage debanking scandal.
The UK Finance report claims that “just 0.9 million Brits ‘mainly used’ cash in 2022, down from 1.1 million in 2021 and 2.2 million five years previously in 2017.” This number seems absurdly low, equating to around 1.5% of the population, and is completely at odds with data from other institutions as well as the findings of recent public surveys.
The Bank of England, for example, reported in December 2021 that “over 5 million adults rely on cash in their day-to-day lives and cash remains the preferred payment method for 21% of the population.” A study by the Royal Society of Arts last year found that one in five of respondents said they would struggle in a cashless society, mirroring similar numbers from the 2019 Access to Cash Review.
Cash’s Comeback?
Nonetheless, one should be wary of reading too much into this 7% increase in cash payments. Coming on the back of a 75% decline in cash use between 2010 and 2021, that sharply accelerated during the first two years of the pandemic, this could be merely a dead cat bounce. Just over a decade ago, cash accounted for 56% of all payments; it accounted for just 14% last year. By contrast, debit cards, for the first time ever, accounted for half of all payments.
That being said, the increase in cash use still represents a reversal in a ten-year trend. As we posited here in August 2022, in Is Cold, Hard Cash Making a Come Back?, the long-term decline in cash use in the UK appears to have reached its limit, at least for now:
There are few more cashless places in Europe than the United Kingdom — the continent’s fourth most cashless economy in 2021, according to research by personal finance website money.co.uk. The transition began in earnest some years ago as more and more Brits happily embraced the ease, speed and convenience of contactless card or mobile payments. In 2017, debit card payments overtook cash for the first time. The COVID-19 pandemic turbocharged the trend, leading many consumers and retailers to abandon cash altogether.
“Cash use has been declining over the last ten years, with a particular drop during the pandemic as many retailers encouraged contactless payments and businesses such as pubs and hairdressers closed,” Adrian Buckle, head of research at trade body UK Finance, told Euronews Next. Cash accounted for 56% of payments in 2010, falling to 45% in 2015, and to 17% in 2020, according to UK Finance. The big banks’ ruthless culling of ATMs and branches during that time has helped accelerate this trend, making life increasingly difficult for people who depend on face-to-face bank transactions and cash to pay for everyday purchases.
But the trend may have reached its apogee, at least for the time being. Indeed, cash may even be staging a fragile comeback.
Breaking a 13-Year Trend
In January this year, Nationwide, the UK’s largest building society and sixth largest lender, reported a 19% surge in the amount of cash withdrawn from its ATMs in 2022. In total, more than 30 million cash withdrawals were made, marking the first annual increase in ATM use at the building society in 13 years. The average amount withdrawn was also up by 25%, to £105, according to Nationwide. From Computer Weekly:
As people attempt to better budget, they are using ATMs for more than just cash. Nationwide found that 49% of all transactions were for other services, such as printing statements, paying bills, changing PINs and paying in cash and cheques.
Nationwide reported a 34% increase in the number of cash deposits into its ATMs, with the average deposit £277, which was 37% higher than five years ago.
Otto Benz, director of payments at Nationwide Building Society, said: “For the first time in years, we are seeing a natural rise in cash withdrawals as people return to using cash to help avoid getting into debt from the rising cost of living.
“ATMs play a vital role in society, enabling people to easily access cash. However, over the years, they have offered greater capability for people to manage their money, whether that’s checking their balance or paying a household bill.”
This increase in cash use is all the more impressive given the growing obstacles British citizens are facing just to access, use or even deposit cash.
Banks and building societies have closed 5,285 branches — roughly 40% of the total — over the past eight years, according to a new UK Parliamentary report on access to cash, bank branches and ATMs. So far this year, 427 bank branches have closed, with a further 220 closures scheduled for later this year. Meanwhile, the number of ATMs has fallen from a historic maximum of 70,000 in 2016 to 50,000 today.
Cashless Feedback Loop
As the financial analyst, author and pro-cash activist Brett Scott notes, this trend has created a feedback loop that constantly reinforces the impression that people are turning their back on cash when, in actual fact, banks are making it harder and harder for them to access it while bricks-and-mortar businesses are making it harder and harder to use it:
In closing down their branches, or withdrawing their cash machines, they make it harder for me to use those services. I am much more likely to “choose” a digital option if the banks deliberately make it harder for me to choose a non-digital option.
In behavioural economics this is referred to as “nudging”. If a powerful institution wants to make people choose a certain thing, the best strategy is to make it difficult to choose the alternative.
Banks, of course, have plenty of motives for wanting to kill off cash. For a start, cash is expensive to manage, store and transport. Banks would much prefer their customers to use their digital payments and digital banking infrastructure, which are cheaper to run, require far less labour, generate fees and interest and have the added bonus of generating reams of data about their customers’ earning, spending and saving habits. Also, people tend to spend a lot more with digital payment methods.
Now, some banks are making it hard for customers not only to access cash but to deposit it in their accounts. In August, Natwest, one of the UK’s four largest banks which at the time was still reeling from the Nigel Farage debanking scandal, announced that it was imposing new conditions giving itself “the right to set limits on inbound and outbound payments”. The new conditions could include imposing “daily and annual” cash withdrawal and deposit limits and “limiting the amount of cash” paid in or taken out, the bank said in a leaflet.
The UK government is still NatWest’s largest shareholder with a 39% stake — a lingering hangover from the State’s £45 billion bailout of the lender in 2008. As such, the Sunak government, which claims to be working on legislation to “protect” access to cash is, at the very least, tacitly complicit in NatWest’s latest hostile act against cash. The Sunak government is also doing absolutely nothing to stop retailers of all shapes and sizes from rejecting cash payments, arguing that it is not appropriate to “impose on individuals how they should do business.”
In the meantime, UK banks and regulators are making it harder for their customers to use the intermediary services offered by the Post Office, which, ironically, were established to fill some of the yawning gaps in basic financial services left behind by the banks’ mass culling of branches and ATMs. The Post Office has partnerships with over 30 banks, building societies, and credit unions, allowing 99% of UK bank customers to access their accounts at their local PO branch.
Since the pandemic these PO branches have become essential financial service providers in many small, rural communities where banks shut up shop long ago. In July 2022, £3.31 billion in cash was deposited and withdrawn across the Post Office’s 11,500 branches — a record high for any month dating back over three centuries of operations. In September another record haul was set, this time of £3.35 billion.
But then the banks began setting limits on cash deposits, not only for their own branches but also for post office branches as well, ostensibly as part of tightening money laundering controls. In April this year, the Financial Conduct Authority entered the fray by setting formal cash deposit limits for post offices, including a limit of £1,000 per 24-hour period for personal accounts and £10,000 per 12-month period.
But support for cash, if anything, appears to be growing. This week the GMB Union, the UK’s third largest trade union, called for legislation similar to that recently passed in US states and cities making it illegal for bricks-and-mortar businesses to refuse cash. It also wants the government to impose a statutory obligation on banks and ATM outlets to provide an adequate network of free-to-use cash deposit and withdrawal services.
Together with Aegis, a trade union representing workers in financial services, GMB is putting forward a motion at this week’s Trade Union Congress in Liverpool supporting the so-called “e-disadvantaged”, who apparently include low-paid workers, the elderly and small businesses. And just like that, an issue that has until now been largely the preserve of conservatives, libertarians and a small rump of left-of-center thinkers and commenters concerned about the dystopian potential of a cashless economy appears to be finally crossing the political divide.