Digital Inclusion might be the best approach to future of cash
Few countries have taken to digital payments as enthusiastically as the UK. With Covid-19 accelerating pre-existing trends in consumer behaviour, digital payments have overtaken cash as the most popular means of paying for goods and services. As contactless limits rise, paying with digital wallets gets easier and tracking our finances on phone apps becomes more convenient, it won’t be long until only a few people are using cash. But there are concerns that this small minority might be left behind in the transition to an increasingly digital economy.
The network for cash infrastructure is large and expensive – estimated at around £5bn per year. As the use of notes and coins dwindles, there would be strong incentives to scale down cash access and acceptance if not for the UK government’s commitment to protecting access.
This commitment will likely mean requiring firms to provide cash access, which will raise costs per user as volumes fall. These higher costs may either fall on the small number of cash users, or other customers will be left paying to maintain the network for the few that still use it. Neither option is ideal, and banks, payment providers and retailers who bear these costs would face increasing competition from digital firms that offer limited or no cash services like Revolut and Asos.
As volumes fall, worries over cash are likely to become more acute.
Sidestepping this particular debate, a better approach for all parties concerned might be to help everyone to embrace the move to digital payments, and focus support where it is most needed. Putting a fully inclusive digital economy at the top of the policy agenda would ensure nobody is left behind, making “access to cash” a lesser concern.
Most people will naturally switch when digital alternatives become easier to use than cash. New, better tools are emerging all the time. But there is a small group of people who are unable to embrace digital payments for different reasons. They may lack a smartphone, rely on others to buy things for them, or do not have an address and so are unbanked. The best way to protect them is to design solutions that let them participate in the digital economy.
To do this, we need to thoroughly understand the barriers to going digital and come up with creative ways to tackle them. If the barrier is not having a smartphone, why not provide one and simultaneously open access to lots of other services beyond payments? For those who rely on others to do their shopping, there needs to be an easy, intuitive way to move money between individuals and see their balance – a well-designed app could do that. As for the homeless, a system in Glasgow managed by local shelters enables them to pay for groceries using QR codes.
An inclusive digital economy for everyone is likely to be an area where it is easier for all parties to share a common objective.
Guest blog by Kristine Dislere, Consultant at frontier economics. Kristine is an experienced economist who helps clients solve problems relating to commercial strategy, regulation and policy. She combines her understanding of markets, competitive dynamics and consumer behaviour to help businesses make better commercial decisions and engage with regulators.
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