Will Cash Payments Disappear?

June 16, 2021
Makayla Santino

As a result of the pandemic, there has been a significant increase in contactless payments, leading to considerably less cash payments In light of its increased popularity, the UK is set to increase the contactless payment limit to £100. By raising this limit, it is expected that there will be another boost in contactless payment usage as customers may select this option for higher payment amounts than before.

Michael Ault, CEO of UTP Group, gives his own thoughts on this topic and if society is heading to be completely cashless. The original purpose in designing contactless technology was to expedite card transactions in busy locations and to act as a substitute for small cash payments under £10. Contactless payments originally came to the UK in 2007 with the first mass-market contactless card from Barclaycard. Since its introduction, contactless payment has seen increases in its usage every year. Reports from UTP Group demonstrate that the North West saw 81 percent of face-to-face transactions being made with contactless payments in 2021 compared to only 49 percent in 2018.  

In light of the pandemic, governments and retailers alike advised customers to opt for safer payment methods instead of cash. In this time, contactless payment methods became the most popular option for customers. Many merchants even declined to accept any cash payments at all, forcing even those who disliked contactless payments to switch over. Additionally, the payment industry itself worked together to promote contactless methods as the most secure way to pay amidst the pandemic.

In April of 2020, the UK raised their contactless limit to £45 as a way to encourage more contactless activity. These actions were successful and Visa reported that more than 400 million additional contactless payments were made in the UK since the limit increase. Contactless payments have effectively displaced cash for low value payments and may even displace chip and pin payments. The Chancellor of the Exchequer, Rishi Sunak, recently announced that the contactless limit will increase once again, this time to £100. Reactions of retailers and customers have been positive and 53 percent of people say they support the change.   

Overall, the number of contactless payments has increased across all industries. UTP Group has reported that contactless payments make up 80-90 percent of all face-to-face transactions in retail businesses with lower prices. It also stated that the greatest increase in contactless payment was seen in clothing and footwear shops with a 72 percent increase from 2018 to 2021. Once the limit had been increased to £45, chip and pin payments dropped to account for only 20 percent of transactions in 2020, a significant drop from the 34 percent that occurred in 2019. 

With another increase in the contactless limit, it is expected that the prevalence of cash and chip and pin payment usage will continue to decrease while contactless advances. Though it may be unlikely for cash or chip payments to completely disappear, it is apparent that contactless payment is quickly growing, spurred on by the pandemic. This shift away from cash must be handled carefully as there may be major risks that some people will be excluded. Not everyone is in a position with access to these contactless payment methods. It is up to fintechs and regulators to transform existing, and build new frameworks, that allow for a seamless transition and boost inclusion.

 

 

Reference:

Harrison, Polly Jean. “Wil lthe Covid Effect Create a Cashless and Contactless Society?” The Fintech Times, 9 June 2021, https://thefintechtimes.com/will-the-covid-effect-create-a-cashless-and-contactless-society/.