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2020 trends: The evolving role of cash

Dec 17, 2019

The latest article in our 2020 payments predictions series examines five trends that will impact consumers' relationship with cash in the next 12 months

A bottoming out of the cashless trend

For the past several years, the prevailing narrative has been the growth of “cashless societies”, and in some countries this has been supported by a decline in the value of cash in circulation and the percentage of transactions that are conducted in cash.

In some countries, such as the US, we may see the use of cash continue to fall rapidly due the usage levels for cash still being high and the relatively recent introduction of competing fintech such as mobile wallets and the contactless card.

However, in countries where the decline of cash has been greatest over the past decade, we predict that this will slow markedly and even reverse in 2020.

One example of this is Sweden, the country that has been identified as furthest on the road to being completely cashless. The value of currency in circulation in Sweden has fallen sharply (by approximately 45%) since 2007 to only 1% of the country’s GDP, and the number of consumers that pay regularly with cash has dropped from almost 90% to around 60% since 2014.

However, not all consumers are content with this sudden collapse of cash payments in Sweden, and the data suggests that this trend is beginning to reverse. The volume of cash in circulation in Sweden increased for the first time last year, and we expect cash usage to remain stable or even grow further in the next year. In 2018 some analysts claimed Sweden would be completely cashless within four years, but adoption of cash in 2020 will refute this.

Supported by increased regulation against cashless

The resistance to move beyond the current threshold of cash decline to full cashless societies is not only being dictated by consumer demand; regulating merchants to enforce the continued acceptance of cash payments is also a trend we expect to keep expanding in 2020.

This move to ban non-acceptance of cash on discriminatory grounds has grown substantially in the US, with cities such as Philadelphia and San Francisco already implementing bans on merchants refusing to accept cash. Legislation has been tabled in many other US cities and even states to follow suit.

The reasons to stop merchants from discriminating against consumers that want to pay in cash – primarily that it prevents unbanked and underbanked consumers from being frozen out of the economy – are valid all over the world. So as new cashless payment methods become popular in more countries throughout the next 12 months, the need to protect those who are dependent on cash will spread as well.

Ultimately, financial services are trending towards giving consumers more, not less choice when it comes to making payments.

Further integration of cash into digital-only banking

The rise of digital-only banks is perhaps the most significant impact on the banking sector in a generation, or even longer. New competitors such as N26, Monese, Starling Bank, Monzo, and First Direct have revolutionised how consumers interact with banks and their products, providing genuine competition to high street banks that have monopolised the industry to date. 

However, the rate of growth of digital banks is not uniform from country-to-country, even in tight-knit regions such as Western Europe. This is most evident when comparing the UK with the DACH region – Germany, Austria, and Switzerland.

There are several contributing factors to the slow growth of digital banks in the DACH region, including security concerns, but one overriding prohibitor appears to be a continued reliance on cash. In order to fully accommodate consumers that prefer to make payments in cash, digital banks must also enable these customers to use cash to deposit into their account.

In countries where the appetite for traditional banking services remain strong digital banks need to replicate every aspect of an incumbent bank efficiently to gain traction. Giving account holders the ability to do this, or improving the use experience for doing so, will be a priority in 2020.

Cash payments for invoices and utility bills

In countries such as Germany, Austria, and Switzerland, where consumer preference for cash payments is particularly strong, improvements in customer experience will open doors to greater adoption of alternative use cases for cash. In particular, this will be true for use cases where these transactions have previously been possible in cash but have been treated as a last resort due to the poor customer experience. 

Two examples of this are payments of utility bills and payments of invoices. This can be implemented in a number of ways, including placing a QR code within a paper invoice that can be scanned by a smartphone and linked to an eCash solution such as Paysafecash. This is a significant upgrade over the current method of paying bills or invoices with cash which is cumbersome and time consuming.

Cash remains the bridge to financial inclusion

The drive towards global financial inclusion remains a strong incentive for financial services, from both an altruistic and commercial perspective. But the reality is that digitising payments globally through bank accounts is an unrealistic expectation in the short or even medium term.

For those that are currently unbanked or underbanked, and therefore reliant on cash for finance, eCash solutions will continue to be the bridge to digital commerce. As services and shopping preferences increasingly migrate online, one role for cash in 2020 is to ensure that the gap between the financially included and excluded shrinks, rather than grows.