“Predicting rain doesn’t count. Building arks does.” Warren Buffett
Cash has been around for over 3,000 years. It’s part of any culture’s identity. In fact, you can chart the rise and fall of many civilizations just by looking at the size of coins they minted.
Today, the barbarians at cash’s gates are technological ones. In 2016, you can pay using credit card, debit cards, contactless or your phone. You probably make most of your purchases online, without even leaving the house. And more payment options and innovations could result in further fragmentation in the future.
The natural result of all this change is the decline of cash usage. Payments UK, the UK payments industry’s representative body, is predicting that cash will drop from being used in half of all payments (45.1%) in 2015 to 9% in 2025.
But predicting cash use in not an exact science. Credit cards and debit cards were meant to have sounded cash’s death knell. But despite a slow decline, cash endures.
What makes cash so resilient and why have past predictions been off the mark? One reason is that current models only look at economic factors that influence payment preferences, without considering the social factors: how people behave.
This is area that’s attracting more research, including a PhD study by Vaultex’s Head of Product Development, Anne Lewis, which looks how a person’s shopping personality can affect how they pay. The research identified two broad groups: utilitarian shoppers, who want to get in, get out and pay by debit card; and hedonistic shoppers, who prefer cash and credit cards.
There are plenty of other factors that could be at play as well, including generational attitudes towards spending, where the money is being spent, and what it’s being spent on. Different payment methods also have different virtues. Cash, for example, can be more discreet: it’s perhaps no surprise that some people prefer to use cash for certain big tickets purchases so it doesn’t appear on a credit card bill.
Ultimately, consumer behaviour varies wildly. So, on one end of spectrum, you have 2.2 million Brits that are unbanked, while on the other you have 2.7m people who rarely use cash.
This puts retailers and financial institutions in a tricky position: they can’t pick a winner. This can be expensive. As cash use declines, the cost of handling it increases. Meanwhile, the introduction of any new payment technology involves a significant investment in supporting infrastructure. Hedging your bets can be costly, especially since not every new payment method or scheme is guaranteed to gain traction.
The payment ecosystem therefore needs to be considered as a whole, one in which cash remains a tried and trusted part. But it needs to be carefully managed: considering the best infrastructure and distribution channels to make sure cash remains economically efficient to handle, while planning for unforeseen events that may result in a spike in use (as happened during the last recession).
There’s no silver bullet solution to this, but there are plenty options. For example, we worked with large supermarket chain to integrate a smart till system that reduced back office costs and made it easier for them to return cash. The new process significantly reduced shrinkage costs and saved a six figure sum annually. We’ve also worked with leading high street bank to implement a Managed Services model for their remote ATM machines. By streamlining the end-the-end process, we’ve cut a day off the cash cycle and significantly reduced operating costs.
Other solutions including increased automation, local cash recycling, improved security systems and a holistic review of end-to-end cash management.
We can never be certain of what the future will bring. But that doesn’t mean we can’t plan for it.