The UK’s transition to becoming a cashless society has been thrown a spanner, after figures released by the British Retail Consortium (BRC) show that cash use in shops has risen for the second year in a row.
Previously, card and contactless payments were winning The Great Cashless Debate. As well as being more secure for businesses, card payments were also thought of as more convenient for shoppers than carrying around loose change.
The reversal signals that consumers are embracing cash out of concern that it may become extinct. While not illegal, many shops now refuse to accept cash payments due to the amount of admin that management can entail.
Cash use on the rise
It may not be a cash-free Christmas after all. After decades of falls, the new BRC data shows that cash payments made up one fifth of all transactions in 2023. Notes and coins were used in 19.9% of transactions last year, up from 18.8% in 2022.
That’s a significant rise since a record low of 15% recorded in 2021 (though concerns over hygiene due to COVID-19 at the time might have worsened the decline in cash usage).
The BRC says debit cards remain far and away the most popular payment method. 62% of transactions last year were made by debit card. Roughly 13% were made by credit card.
Analysts attribute the change in behaviour to the cost of living crisis. As shoppers struggle with rising prices, it is easier for many to keep track of their spending by paying in cash.
In part, this is why retail sales have been falling since 2023. Indeed, the BRC also found that the amount spent per purchase dropped from £22.43 in 2022, to £22.03 last year, as more consumers took steps to avoid overspending.
Card fees up by one quarter
SMEs had also been following the cashless trend. As of 2021, 5% of small businesses in the UK report they are no longer accepting cash, while 3% have discouraged cash payments. Even UK supermarkets are going cashless at some tills, such as self-checkouts.
That shift could also be about to undergo a reversal, however. The BRC finds that, as the number of card transactions grows, card processing fees have also risen.
The total amount paid by retailers to banks and card schemes rose by over 25% in 2023, at an extra cost of £380 million. This brought the total card fees paid to £1.64 billion.
What do businesses need to know?
If card payments expenses continue to rise, this could eat into profit margins at a time when revenue is falling. Those who don’t want to go back to managing loose notes and coins will need to shop around for the best card merchant with the lowest transaction fees.
There are other reasons why embracing cash should remain on retailers’ radars. Charities have warned that a cashless society could isolate certain consumer groups. That includes older people who are less comfortable with making digital payments. An Age UK report found that one in five older people in the UK rely on cash for everyday spending.
Of course, new technologies, such as digital wallets or virtual payment gateways are still the most popular method of payment. They also bring bigger benefits for SMEs, such as a reduced risk of theft, as well as time and money saved on physical admin tasks.
Ultimately, though, the best approach for satisfying customer needs is to personalise the checkout process by offering a range of contactless, card, and cash payments.
As cash-paying customers continue to fight back against the cashless transition, the future of payments will likely be a hybrid model that caters to both digital natives and traditionalists, ensuring a seamless and inclusive shopping experience for all.
