We should embrace the rise of cashless businesses
It took mankind over two thousand years to progress from coins to bank notes. Yet since the first credit card was introduced in 1946 it has risen swiftly as a medium of exchange.
Today, just two in ten payments in Britain are made by cash, and it is predicted to drop to fewer than one in ten over the next decade. Meanwhile, e-commerce and mobile-commerce have seen phenomenal growth and, on current trends, over 40 per cent of retail spending will be online within the next eight years.
This explains why many small businesses — who, as has been widely documented, face fierce competition from online retailers such as Amazon — have embraced digital payments with gusto. In the UK, managing cash costs each business on average £3,000 per year. It needs handling, insuring, and transporting physically — and it will always be a target for thieves.
An increasing number of SMEs are forgoing cash entirely. But rather than view this trend as a way for independent stores to gain competitive edge, some politicians have responded with criticism and alarm.
Major US cities have gone so far as to abolish cashless businesses. Philadelphia introduced a ban last year, lawmakers in New Jersey have passed a similar bill, New York City’s council has voted to abolish cashless businesses, and attempts to do the same are underway in Washington DC and Chicago. The concern is that the UK will bow to pressure to follow suit.
Last year, the Access to Cash Review — which was supported by Link, the largest operator of ATMs in the UK — warned that we were “sleepwalking into a cashless society,” leaving “millions of people” behind. Though the report’s concerns over financial inclusion are understandable, its argument was inconsistent: a financial future in which we are unable to help pensioners use a debit card, yet where commuters can buy train tickets with implants, is a stretch.
And the government’s commitment to protecting access to cash wholly underestimates the role fintech innovations can play in improving the lives of the poorest in society.
Cashing Out, authored by Entrepreneurs Network adviser Fred de Fossard and released this week, argues that a ban on cashless stores in the UK — as proposed by Baroness Nicky Morgan — would be anti-business, anti-consumer and anti-innovation. Crucially, it would do little to materially help the poor:
“There are better ways of helping the unbanked than by subsidising cash machines and mandating what payment methods shops must accept”.
There has been a significant decline in the number of unbanked since the government began reporting on financial inclusion in 2003, from around 4.5 million to 1.23 million. Nonetheless, its target of giving all adults access to a bank account by 2020, though admirable, will be missed by some margin.
Politicians know all too well that many of the unbanked exist on the precarious margins of society. Government polling of the unbanked has revealed that many distrust mainstream financial institutions. Among the newly banked, satisfaction with banks is poor and these people regularly incur penalties. Political will alone won’t edge us much closer to the government’s ambitious target.
Instead, as with many of society’s problems, we can hope and expect entrepreneurship to offer solutions. A report from Policy Exchange, published last week, explains how startups can wield technology to gain competitive advantage in the provision of financial services — while solving issues around financial exclusion.
Because banks fail to generate revenue from low income customers and can lose money by serving them, nimble startups can offer innovative financial products that enable customers to make their money go further. Importantly, the authors write:
“The cost-efficiencies that arise from the integration of new technology into the provision of financial services make it possible to serve customers who would not previously have been considered to be commercially viable”.
This is already underway. Monzo allows new customers to open a bank account without an address, letting them use a friend’s house or shelter instead. The Citizens’ Advice Bureau is campaigning to enable people to set up bank accounts with PO Boxes in place of a fixed address.
And thanks to the government’s ongoing interest in Open Banking — the use of open APIs to enable third-party developers to build applications and services around the financial institution — firms like Pockit are helping the unbanked and those on low incomes to access electronic finance.
Whether cash will disappear altogether remains to be seen, but the direction of travel is clear. The growth of smartphones, contactless payments, mobile banking, and digital-only financial providers are disrupting and driving change. We must nurture, not fear it.
