Unlike digital forms of payment, cash does not crash.
“Cash payments only.”
These are not words you’d normally expect to see adorning the tills of the UK’s second largest supermarket chain, Sainsbury’s, which has spent the past decade or so encouraging its customers to use (often card-only) self-service tills and has even experimented with “SmartShop Pick & Go” checkout-free stores. But on Saturday (March 16), Sainsbury’s stores were blazoned with improvised signs informing customers that cash was (in some cases, together with chip-and-pin card payments) the only payment option available.
The reason?
A massive outage disabling contactless and mobile payments across all of the chain’s stores, as well as at its subsidiary Argos. Sainsbury’s blamed the outage on a software glitch that impacted its online ordering system and contactless in-store payments:
Due to an error with an overnight software update, we are experiencing issues with contactless payments and will not be able to deliver the vast majority of today’s Groceries Online orders. Our stores are open as usual, accepting chip and pin and cash payments.
— Sainsbury’s (@sainsburys) March 16, 2024
Bad Timing
As one IT security specialist told the Daily Mail, there’s a basic rule in technology, especially in the retail space — never deploy on a Friday:
The technology involved in these systems has only grown more fragile and complex over the years, and there is rarely an incentive to reduce the complexity or rebuild them properly from the ground up.
‘At this scale and complexity thorough testing is essential, as even the slightest mistake can have unpredictable consequences – as we’ve seen.
‘This is a fundamental risk of centralised control of systems by large companies — when these systems are not centralised any failures are local and so impacts are limited.
To compound matters, hours after Sainsbury’s system went down, Tesco, the UK’s largest supermarket chain, with some 4,000 stores, announced that it, too, was having to cancel online orders due to a “technical issue.” In a country where the overwhelming majority of people have abandoned cash in favour of the speed and convenience of contactless payments and where banks have been closing branches and ATMs at breakneck speed, making it harder for their customers to access cash, the result was chaos. From The Telegraph:
[Sainsbury’s] cancelled all home deliveries that were scheduled for Saturday and told customers to rebook for Sunday or later on next week.
In stores, customers reported being unable to pay using contactless cards and a number said tills were only able to take cash payments.
“Due to an error with an overnight software update, we are experiencing issues with contactless payments,” a Sainsbury’s spokesperson said.
The issues at Sainsbury’s come a day after McDonalds customers were left unable to place orders because of IT outages caused by a “third-party configuration change”.
In what is being reported as an unrelated incident, McDonald’s stores around the globe, including Australia, Germany, South Korea, Japan, Canada, China and the UK, on Friday suffered a technical glitch, “caused by a third-party provider during a configuration change,” that made it impossible for customers to pay for their orders, forcing the fast-food chain to shutter some of its outlets.
While all of Sainsbury’s stores remained open during the outage, many of them are so heavily geared toward self-service that when disaster hit the staff were unable to take up the slack. As the Daily Mail reported, “shoppers at a large branch on Cromwell Road, west London, [said] the store, which offers around 20 self-checkout tills, only had three operating counters, causing a ‘meltdown’ around the payment area and snaking queues.” Meanwhile, Sainsbury’s in-store ATMs quickly ran out of cash, leaving many customers unable to make any purchases at all.
System Fragility
This short-lived chaos at the UK’s two largest supermarkets serves, or at least should serve, as a reminder of one of the main dangers of going completely cashless: system fragility. Unlike all digital forms of payment, cash does not crash. As the author of Cloud Money, Brett Scott, notes, it won’t fail in a power cut or during a cyberattack (or as a result of a botched software update), meaning societies currently have a vital economic fallback in the case of natural disasters or attacks that compromise other payment options.
A case in point is Puerto Rico, which was ravaged by a category-five storm in 2017. Hurricane Maria brought all electronic payment systems down for weeks, turning the island into a de facto cash-only economy. So serious was the fallout that corporate clients began begging the New York Federal Reserve for large amounts of dollars in cash to meet payrolls. In the end, the Fed dispatched a jet loaded with an undisclosed amount of dollar bills to the stricken island.
Any society that runs exclusively on digital platforms operated by vast institutions “is going to have major resiliency problems,” says Scott. “[A cashless world is] a world where even the tiniest of payments will have to travel via powerful financial institutions, which leaves us exposed to their surveillance and control—and also their incompetence. A payments system without cash is one dependent on banks that are prone to financial crises, systems failure, and cyberattacks.”
Major system outages have already occurred in Australia, the UK, Singapore, Spain and Canada, to name just a few places, over the past six months, all of which have raised serious questions about the resilience of their digital payments infrastructure.
Contrast the fallout of last weekend’s outage in the UK with the impact of a similar incident in Germany in June, 2022, when a software glitch affecting all H5000 payment card terminals made it all but impossible for many German retailers to process card payments. That outage lasted for days rather than hours but the impact was less pronounced. As we reported at the time, in Germany, unlike many other European countries, including the UK, cash is still king, albeit a diminished one:
At a personal level the impact of the payment outage in Germany was fairly limited, as long as you had access to cash. And just about everybody did, given that ATMs continued to work throughout the outage. In other words, there was an alternative to digital money that was widely available to all users — i.e. physical cash.
There is also something rather peculiar about Germans (as well as Austrians): they love physical money (a topic I have written on before for WOLF STREET). Even the intense demonization of cash in the early days of the COVID-19 pandemic failed to shake the German people’s faith in physical lucre, although the use of cashless payment transactions, whether by card or mobile, has grown significantly in the last two and a half years.
The UK was also disproportionately affected by the massive 12-hour Visa card outage that hit Western Europe on a Friday afternoon in June 2018. As I noted in an article for WOLF STREET, it was not hard to see why:
In 2017, cards overtook cash for retail payments in UK for the first time ever, according to figures from the British Retail Consortium. According to Visa, payment processing through its systems accounts for a staggering £1 in every £3 of all retail spending in the UK. Which is why, when those systems stopped working yesterday, the chaos was greater in the UK than almost anywhere else as cashless customers missed trains, were unable to fill up their cars, pay for their groceries, or even clear their bar tab — this was Friday, after all!
“There is never a good time for the payments system to go down but a Friday afternoon, when there is a flood of people leaving work, must be among the worst,” one banking industry source said. The only way for people to pay for stuff was with co-branded Mastercard cards, or hard cold cash. Luckily, Visa cards were still working at ATMs, although the queues were considerably longer than normal.
Interestingly, the latest outage has prompted some surprising headlines in a few of the UK’s newspapers. The Daily Mail, for example, ran with a warning that the “Sainsbury’s and Tesco IT meltdown highlights ‘catastrophic’ dangers of cashless society and our reliance on ‘digital infrastructure’…” In a piece in The Telegraph, Emma Munbodh argued that the “Sainsbury’s meltdown proves we have to protect cash”:
It’s a salutary warning to the Government for the need to protect our access to cash. A system failure overnight meant Britain’s second largest grocer opened its doors on Saturday morning unable to accept card payments nationwide…
In a joint letter to Jeremy Hunt, the Chancellor, groups including the Federation of Small Businesses (FSB) and NoteMachine, the UK’s second-largest ATM provider, urged Mr Hunt to do “much more”.
“We are writing to you as a collection of businesses and consumer organisations urging you to protect cash as a critical payment method now, and in the future, to uphold payment choice for people across the country,” they said.
Steve Makaritis, the chief executive of NoteMachine, called for “tangible action on the funding for independent ATMs to ensure free-to-use machines remain available to consumers.”
But it is not enough for the UK government to safeguard access to cash; people’s right to use cash in retail settings is just as important. Across Europe, more and more national governments and central banks are taking action to protect the use of cash, at least in the medium term, including most recently in Sweden and Norway, two of the world’s most cashless economies. Sweden’s Riksbank warned that the digitalisation of payments has led to a sharp rise in financial fraud as well as exclusion of some social groups, and legislation is needed to make sure cash can also be used to pay.
“Payments must work for everyone,” Erik Thedéen, governor of the Riksbank and chairman of the executive board, said in an annual report on the retail payments system. “In the longer term, all payments may be digital — but until then, cash plays an important role. We need legislation to ensure that cash can be used to pay. Banks must also ensure that more customers have access to payment accounts.”
Meanwhile, in the UK it is becoming harder for citizens to use cash. Big private sector players, including banks, tech giants, payment processors (primarily Mastercard and Visa), fintech startups and large retailers, have clear individual incentives to destroy cash — and have been trying to do so for over a decade. As journalist, author and cash advocate Brett Scott notes, since the pandemic the private sector has turbocharged its anti-cash drive, “as Big Finance, Big Tech and Big Retail have weaponised the public’s temporary fear of physical contact to amplify the anti-cash automation agenda that they already had.”
While the UK government and financial regulator have proposed new rules to maintain what they call “reasonable” access to cash for personal and business customers across the UK, they have shown zero interest in ensuring UK citizens can actually use cash once they’ve managed to access it. In early 2023, the government responded to two public surveys calling on it to prevent retailers from rejecting cash payments with the following statement:
The government does not plan to mandate cash acceptance. While the government recognises the ability to transact in cash remains important to millions of people across the UK, particularly those in vulnerable groups, it remains the choice of individual businesses as to whether to accept or decline any form of payment, including cash or card. This may be based on factors such as customer preference and cost.
Shifting Customer Preferences
Customer preferences regarding payment methods appear to be be shifting somewhat, as we reported here. In September 2023, a report on payment trends by UK Finance, the country’s largest bank lobbying group, included a striking finding: cash payments had risen in 2022, for the first time in a decade. The number of cash payments had risen by 7%, the report noted, adding that surging inflation had prompted many people to turn back to cash or use it more often than before to help them manage their budgets.
This trend was further confirmed when the British Retail Consortium (BRC) released the findings of its annual payments survey, which also covers 2022. Like UK Finance, the BRC survey found that cash use had increased.
“This year’s Payments Survey shows an increase in cash usage for the first time in a decade, up from 15pc (in 2021) to just under 19pc of transactions (in 2022). Faced with rising living costs, cash was a useful tool for some people to manage their finances and track their day-to-day spending.”
Perhaps most impressively, cash use is rebounding despite the concerted efforts by the government, banks and retailers to limit its use.
As inflation has surged in the UK, more and more people have struggled to make ends meet, and many are turning to cash for relief. It is an example of how one broadly negative trend — the gradual pauperisation of large swathes of the population through austerity and inflation — can give rise to a broadly positive trend: the rediscovery of the enduring benefits of cash. With a little luck, the past weekend’s mayhem at McDonalds, Sainsbury’s and Tesco may help to accentuate this trend.