The payments world is moving faster than you might think

It is not dif­fi­cult to imag­ine a world with­out coins and paper mon­ey. 

Cash has been in steady decline over the last 20 years. Our mobiles are mor­ph­ing into our wal­lets, and our wal­lets are home to cards, not bank notes. New ways to pay are com­ing at pace. 

The stats are well-known but worth reit­er­at­ing. At the start of the mil­len­ni­um, 50% of trans­ac­tions used cash, it is now less than 25%. Cards now account for more than half of pay­ments. 21% of pay­ments are made using con­tact­less tech­nol­o­gy, it was 3% in 2015. 

As in so many oth­er areas, Coro­n­avirus has sped up this shift: 90% of card pay­ments were con­tact­less in 2020. 

The speed of change is prompt­ing some impor­tant ques­tions about the role of cash in our econ­o­my and in soci­ety. Although con­tact­less might be grow­ing, cash is still pre­ferred by a great many peo­ple. Tak­ing away that option alto­geth­er would not be a respon­si­ble move. 

Finan­cial ser­vices providers, inno­v­a­tive new providers, the cash indus­try and gov­ern­ment are com­ing togeth­er to man­age the decline of cash.

Leg­is­la­tion and reg­u­la­tion undoubt­ed­ly has a role to play here. Last year the gov­ern­ment float­ed the idea of “cash­back with­out a pur­chase”, where­by shops would in effect act as ATMs. This could help reduce the costs for busi­ness­es of han­dling cash (one of the main rea­sons for its decline) there­by main­tain­ing the avail­abil­i­ty of phys­i­cal mon­ey. 

Inno­va­tion is impor­tant too. It may seem coun­ter­in­tu­itive that new tech­nolo­gies can help pre­serve the old, but we are see­ing exam­ples of that. There are already star­tups cre­at­ing apps that enable con­sumers to with­draw cash for free from local shops. This is a sim­ple but effec­tive exam­ple of com­bin­ing the new and old. 

We are also see­ing how new bank­ing plat­form tech­nolo­gies (the build­ing blocks of mod­ern banks) are help­ing rev­o­lu­tionise tra­di­tion­al finan­cial ser­vices offer­ings. For exam­ple, cred­it unions are using new and inex­pen­sive tech­nolo­gies to offer a raft of new ser­vices to their cus­tomers, includ­ing cash with­drawals via the Post Office. 

Mean­while, there are entire­ly new fron­tiers being opened in the pay­ments world. New meth­ods of online pay­ment are being cre­at­ed which don’t require cards, nev­er mind cash.

Open Bank­ing — a new and secure way to give providers access to your finan­cial infor­ma­tion — is at the heart of this change. Open Bank­ing is dri­ving the cre­ation of online ser­vices (called Pay­ment Ini­ti­a­tion Ser­vices) which access a user’s bank account to trans­fer funds on their behalf, safe­ly and effi­cient­ly. It’s an alter­na­tive to pay­ing with a deb­it or cred­it card online. 

Pay­ment Ini­ti­a­tion Ser­vices could be a par­tic­u­lar ben­e­fit to small busi­ness­es trad­ing online, since they are like­ly to reduce the cost of pro­cess­ing pay­ments com­pared to cred­it and deb­it cards. They will also receive their mon­ey instant­ly, rather than hav­ing to wait three days for the funds to appear in their busi­ness account. Open Bank­ing is still in its infan­cy, but these ser­vices could dri­ve yet anoth­er dra­mat­ic shift in pay­ments.

The speed of change and the num­ber of pos­si­bil­i­ties are incred­i­bly excit­ing. We can begin to envis­age a future where pay­ing for things is vir­tu­al­ly fric­tion­less, safer and smarter. 

In all this, we must keep con­sumer choice front and cen­tre. Many peo­ple want to stick with cash — and that is their choice. That does of course prompt dif­fi­cult ques­tions about the cost of main­tain­ing a cash sys­tem. Part of the answer does lie with tech­nol­o­gy: we must encour­age the inno­va­tion that man­ages rapid change as much as the inno­va­tion that cre­ates it.