Forget Cashless as Cash Is the Only Payment System That Works

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During the summer, there’s been a lot of news about cash. A new €500 banknote is coming whilst, on the converse, a lot of people have been discussing life using cash. Is cash still relevant? Do we need new banknotes? Well … here’s the lowdown.

I am guessing that most of the cash discussions were kicked off by the fact that, in June, the EU put forward proposals for a new Payment Services Directive, PSD3. Having been involved in these developments since their inception in the 2000s, I was intrigued to read the text of PSD3, particularly as the main point bankers made about PSD2 is that they were forced to open up to Third Party Payment Services Providers (TPPs) via Application Program Interfaces (APIs) … what about vice versa?

So, big question: has PSD3 forced TPPs to open up to banks through APIs? Well, not exactly but then why would a bank want access to a TPP’s data some might ask. Answer: data enrichment, so yes, that caveat is quite important. More importantly is how the payments market have changed since the first directives and regulations were introduced almost twenty years ago, which brings me back to cash. Paper payments.

Announcing PSD3, the EU points out that the payments market has changed significantly with electronic payments reaching €240 trillion in value in 2021 compared with €184.2 trillion in 2017. The ECB also noted that cash was used for just 59% of euro transactions in 2022, down from 72% three years previously. Just to add more context, 62% of all UK payments were made in cash in 2006, when the first directive was drafted. By 2016, cash reduced to 40% of payments and then, by 2021 just 15% of payments were made in cash, according to the banking trade body UK Finance. In the same report, UK Finance notes that 32% of adults were registered for mobile payments in 2021 and 92% paid this way in 2022. Meanwhile, contactless payments represent 63% of all credit card transactions and 76% of all debit card purchases. The result is a very different payments market as demonstrated by the fact that cash machines (ATMs) shrunk 22% between 2018 and 2022 (from 63,152 to 51,253), according to the UK ATM system Link [although, notably, UK banking customers withdrew £83bn from cash machines compared to £79bn in 2021].

So, what is the state of cash in 2023?

Not good is the answer. In fact, looking at a few friends who tried to live on cash for a day – this is a thing these days – they found many places do not accept the use of such payment. Most bookings digitally will not allow cash. Even then, if you go out on the main street and try to use cash, it is difficult. Try buying a ticket for a train or even a concert, and it is not easy.

My favourite example of the using cash challenge is a guy who walked into a bar and paid for his pint with cash. It took ten minutes for staff in the bar to find a key to open the old cash till that was no longer used.

Cash? What is it good for? Absolutely nothing (unless you’re a money launderer, drug dealer, criminal or pimp). But then, just as I write that, I think about the UK’s attempt to outlaw the use of cheques a decade ago. There was a huge pushback, specifically from people who run small groups like scouts or libraries and bookclubs, who rely on cheques and cash for payment. Equally, if cash is good for nothing, why is Europe running a competition to design a new €500 note? If you have not heard of this, Euro banknotes are facing a redesign for the first time since their launch in 2002, with a plan to make the currency “more relatable to Europeans of all ages and backgrounds”. The new note designs will be distributed in 2024, and will be based upon designs that are representative of all European member states. That means there will be no leaders, people or places on the notes that can be identified.

Announcing the redesign, which was subject to an open consultation process during summer 2023, ECB board member Fabio Panetta said: “we are committed to cash and to ensuring that paying with public money is always an option.”

So cash is not going #away. In fact, as a final thought, cash is the only medium that can be used for a payment of value that is trusted, anonymous and immediate. The EU has just reinforced that medium and, if you can name a better alternative, I would be glad to hear it.

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Related: Tokenized Digital Assets Will Be a $16 Trillion Market by 2030