In 2017, debit cards overtook cash as the most frequently used payment method in the UK. And the Bank of England has forecast that over the coming years alternative digital payment methods will become more common. Is the UK becoming a cashless society? And what might happen if cash dies out?
This is the second in our series on the future of financial services.
According to UK Finance, fewer than one in ten payments will be made in cash in ten years’ time. If only a few customers are using cash, shops are more likely to go cashless. That potentially means that shopping there won’t be an option for those who don’t use other payment methods.
This means that a lot of people may not be able to buy the things they need. That will include nearly two million adults in the UK do not have a bank account now, according to the Financial Inclusion Commission. These people, and many more, are in danger of being left behind.
Natalie Ceeney CBE, Chair of Innovate Finance recently tackled this issue at the World Conference of Banking Institutes (WCBI).
“What a number of countries are starting to moot are universal cash infrastructures and universal service obligations – both looking at cash access and cash acceptance,” she said. “That’s the way I think the UK should go.”
She said it was important to create a cash infrastructure to protect cash “until we solve some really big issues about digital-only infrastructure”.
Some of the questions that need answers, according to Ceeney are, what do you do when:
- you’ve been hacked?
- the power goes down?
- digital for whatever reason doesn’t work?
- your money supplies have been spontaneously privatised because no one’s using the fiat currency anymore?
“There are some pretty big questions for central banks to ask before they should allow us to sleepwalk into being cashless,” she said.
Financial inclusion equals digital inclusion
Another problem when it comes to cash and financial capability is there’s no regulator in charge. “It’s not really clear if anybody’s in charge,” said Ceeney.
Part of the problem seems to be that digital inclusion is less about banking and financial services than it is an infrastructure issue. Currently, for example, 20% of the UK doesn’t have a decent mobile signal.
“How do you do mobile payments if you haven’t got a mobile signal? How do you do strong authentication if you can’t receive a text message?”
Banks are powerless to solve this problem. “We therefore need the government to own it,” said Ceeney.
But what might happen if government doesn’t?
The rise of the local bank
Local banks are community-based initiatives where people come together to facilitate their own ability to pay, borrow, lend and invest.
Sabrina del Prete is Founder of CEO of Kore Labs and an Associate Director of our Centre for Digital Banking and Finance. She told WCBI delegates that she is “really intrigued” by the local bank concept. “It has a lot to do with the way we interact among people.”
She mentioned the Brixton pound – a crypto currency created in Brixton by the people of Brixton, for the people of Brixton.
“You can pay, you can borrow, you can lend, and you can invest. So that’s an example of an invisible bank that has got roots into a local project.”
Del Prete believes that local communities will drive more of these projects in the future “because people come together and have common values and things they want to do”.
In the future “there will be more tools available to people who want to make an impact in their own community”.
The result of this, says Del Prete, is that “banking goes back to being what banking is there for – which is to empower people’s lifestyles – not to sell products”.
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