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Going cashless and its negative impacts?

We live in a world now where we can happily leave our homes to go shopping without cash. You can pay by card, via contactless or PIN, or with a smartphone or watch and few bat an eyelid. Will that money sitting in your wallet become worthless in future years, or will we never truly adopt a cashless society? These are the pros and cons for a business taking the futuristic plunge. Apple Pay and Android Pay, along with clever apps like Tesco Pay, have made cash seem on a one way trip to obsolescence?

Why go cashless?

 We’re becoming less and less familiar as a society with using cash to pay for products, as most of us now opt for the ease of a debit or credit card as our chosen method of payment. Shopping, eating at a restaurant, and even catching the bus are all now things we can take care of with a contactless card payment. But, why do we really do this? Is it because we find it easier than paying with cash? Or is it just the way the world works now?

If a business was to go cashless in this day and age, for most people it wouldn’t be an issue. As mentioned before, we’re now more accustomed to this method of payment than using physical money. On top of this, going cashless also holds some potential positives for business owners.

According to Entrepreneur, cash free businesses are backed up by three main benefits. The first, being the boosted checkout efficiency for customers. Cashless payments often take less time to complete and an increasing amount of businesses now take mobile payments or allow you to order directly from your phone in a restaurant, etc.

The second benefit pointed out by Entrepreneur is the fact that c=going cashless makes your accounting easier to complete. Without cash payments, you’ll never find your till being short changed and you won’t have to spend time counting every individual penny. With mobile and electronic payments, every single transaction is automatically tracked and recorded, which means there’s less room for error on your part.

The third and final benefit is the reduction of risks that comes with running a cashless business. Keeping cash around increases the risk of theft, for obvious reasons. While running a cashless company, there’s no physical money to be stolen, which depletes the chances of dealing with criminals in that sense.

There’s no doubt statistically that the use of cash is declining. You only have to look at the recent Treasury decision to stop production of 1p and 2p coins. Surely the 5p, 10p and 20p coin are on borrowed time too?

Ergo, for example, at the fate of the humble cheque. Once the trusted currency for large payments, a cheque now seems like a museum piece. The benefits of going cashless may seem obvious. Younger people struggle with the concept and practicalities of actually completing a cheque. “Why do you write the amount in numbers and words and add Only and a horizontal line?” It’s a lost art.

Is there an incoming cashless society?

Last year the BBC reported a story that claimed the UK could be faced with a cashless society sooner than we may think. They wrote, “The system allowing people to use cash in the UK is at risk of “falling apart” and needs a new guarantee to ensure notes and coins can still be used”.

The BBC is reported that cash use is falling, while card and digital payments are on the rise across the country. They even pointed out that in 2017 debit card use driven by contactless payments overtook the amount of payments made in cash for the first time. That same report said that with the rate in which cash use is decreasing, by 2026 the use of cash would come to an end.

With contactless payments now extending to mobile phones with the use of Google and Apple Pay, it’s now even more convenient for customers to veer away from physical cash payments. This is another factor that will drive those statistics further forward as time goes on.

Cashless businesses are nothing new though, last year a large amount of pubs and restaurants in Manchesterwent cashless and got on board with the exciting, modern developments.

Sweden’s cashless experiment

 When it comes to dropping cash, no other country in the world is acting as quickly as Sweden. NPR have recently reported that, “In 2018, only 13 percent of Swedes reported using cash for a recent purchase, according to a nationwide survey, down from around 40 percent in 2010. In the capital, Stockholm, most people can’t even remember the last time they had coins jingling in their pockets. By contrast, around 70 percent of Americans still use cash on a weekly basis, according to a recent study by the Pew Research Center”.

The Telegraph also believe that the people of Sweden are taking positive steps and creating a cashless society in a way that helps people, rather than hindering them. They write, “Sweden, where demand for notes and coins is so limp that cash is literally disappearing: the amount in circulation has fallen from 80bn kronor (£6.6bn) to Skr58bn (£4.8bn) in the last four years, a reduction of 27.5pc. The same period has seen ATM withdrawals fall by more than half”.

Though this doesn’t necessarily mean the venture into a cashless world has been successful for Sweden as an economy. The aforementioned NPR article writes about those effected in a negative way by the cashless change, are those that are vulnerable in some way.

“But all this change has also spurred a debate in the Nordic nation over the consequences of how quickly Sweden is going cashless, especially for the most vulnerable groups in society. Many retirees, people with disabilities and newly arrived refugees struggle with digital transactions”.

Cashless convenience in the UK

According to Business Cloud, cities around the UK have seen a massive rise in cashless payment methods in recent years, with most people choosing not to pay for products and services in cash.

The following statistics are from 2019 and display the percentage of cashless payments in each area:

  • Bristol – 73.14 per cent
  • Hull – 72.84 per cent
  • London – 72.48 per cent
  • Durham – 71.64 per cent
  • Hemel Hempstead – 70.48 per cent
  • Slough – 70.17 per cent
  • York – 69.49 per cent
  • Birmingham – 68.52 per cent
  • Sunderland – 68.36 per cent
  • Leeds – 68.32 per cent

These statistics are further evidence to have easily we could adapt as a society in a cash-free world, but also only accounts for the top 10 areas in the country.

The potential cons

 Like with all dramatic changes, business owners will rightfully be wary of the idea of a cashless company. So, what are some of the potential cons a business could face if it went cashless?

Small Business looked into the issues and reported on it’s findings. They say that going cashless can reduce flexibility for your customer base. “A lot of people just happen to carry cash on them: a whopping 97% have some form of physical money (with an average of £41 per person) while 55% carry it in case they’re unable to pay with card”.

They also say that 5% of people still don’t trust the internet with their money, meaning that going completely cashless could potentially limit your volume of your custom.

Shop Keep claim that another con of not accepting cash payments are the transaction and processing fees. They write, “One fear of moving toward a cashless society is giving credit card companies more power — essentially a monopoly — over merchant transactions. Without fee caps in place, nothing is preventing credit card companies from raising their fees as more and more businesses rely on plastic”.

There are also concerns that a cashless business will inevitably have poorer customer service in some regards. Shop Keep say, “There is nothing more frustrating for a customer than trying to pay and not being able to. That’s why a quality POS that accepts every form of payment is so important”.

The con that should be obvious above all is that technology can ultimately fail. Internet connections can be lost, power can be lost to buildings, and natural disasters can occur. If the power goes out somewhere, cash can still be used as a valid method of payment in situations where cards and phones may fail.

Is the cashless society upon us?

The short answer is “No”. It seems that for now cash is still king and almost any shop or restaurant you go in today will happily accept physical notes and coins. This isn’t likely to change any time soon either, businesses aren’t just suddenly going to turn away cash-paying customers. It will take time for business owners and customers alike to come to terms with the idea of doing away with cash and ultimately, it will probably never happen.

The idea of businesses leaving behind cash transactions on a large scale still isn’t really in sight. While we definitely no longer rely on cash, our credit and debit cards are only substitutes for our physical money and we take comfort from the fact that we can withdraw what’s in our bank accounts at any time.

The UK Domain sum it up nicely by saying, “Now, debit cards account for 56.8% of all payments, followed by credit cards on 21.5%. UK Finance predicts that there will be 3.8bn cash payments in the UK by 2028, 9% of all payments. Cash payments will still exist but will be far down the list of preferred payment methods”.

Even though we are becoming more cashless as a country on the whole, there are still flaws to be worked out and non-believers of a cashless world. Until issues such as security problems and what we’ll all do if the power ever goes out are resolved, we’ll have to stick to paying with cash at least some of the time.

The potential cons

 Like with all dramatic changes, business owners will rightfully be wary of the idea of a cashless company. So, what are some of the potential cons a business could face if it went cashless?

Small Business looked into the issues and reported on it’s findings. They say that going cashless can reduce flexibility for your customer base. “A lot of people just happen to carry cash on them: a whopping 97% have some form of physical money (with an average of £41 per person) while 55% carry it in case they’re unable to pay with card”.

They also say that 5% of people still don’t trust the internet with their money, meaning that going completely cashless could potentially limit your volume of your custom.

Shop Keep claim that another con of not accepting cash payments are the transaction and processing fees. They write, “One fear of moving toward a cashless society is giving credit card companies more power — essentially a monopoly — over merchant transactions. Without fee caps in place, nothing is preventing credit card companies from raising their fees as more and more businesses rely on plastic”.

There are also concerns that a cashless business will inevitably have poorer customer service in some regards. Shop Keep say, “There is nothing more frustrating for a customer than trying to pay and not being able to. That’s why a quality POS that accepts every form of payment is so important”.

The con that should be obvious above all is that technology can ultimately fail. Internet connections can be lost, power can be lost to buildings, and natural disasters can occur. If the power goes out somewhere, cash can still be used as a valid method of payment in situations where cards and phones may fail.

  1. The disappearance of ATMs? ATMs are seeing less frequent use – a 9% drop in London in the last year for example. Cash transactions peaked in 2012 but have fallen every year since. Cash doesn’t leave a paper trail which may attract certain types of users. The flip side of declining cash is that perhaps budgeting may prove more difficult for those following a stricter financial regime. If £50 cash is a student budget for a week, will the disappearance of access to that cash lead to overspending, without strong willpower and discipline?
  2. The older generation may become more marginalised. In Sweden, cash transactions have fallen by 80% and is expected to be totally cashless by 2023. Cash is expensive to produce and distribute. Doing away with it should, in theory, reduce the cost of living but is it fair on older generations on restricted budgets and without access to banking facilities?
  3. Cashless increases chances of cybercrime? The UK recently saw national power outages – would reliance on technology for payments be myopic if there were future failures or bank hacks?
  4. Cash keeps inflation down. Many economies have shown success in using cash widely reduces inflationary pressure. We can give a concrete example from Japan where the ¥1,000 note (roughly equal to £7.40) has been used by workers to pay for their lunch, meaning it is difficult for cafes, takeaways and workplace canteens to increase prices above that expectation. If Japan went cashless, would lunch prices increase? We guess so.
  5. Loss of privacy. We all know the recent stories about Alexa, Siri, Google listening in to us our conversations via Echos, HomePods and Google Home devices, but will dependence on digital payment mean that our data is scrutinised too? Would you trust banks to protect this privacy?

What does this mean for small businesses?

Firstly, customers expect all businesses (small and large) to provide a range of payment option: card, contactless, mobile and via an App. It speeds up checkout and leads to higher customer satisfaction – that applies if you run a tattoo shop, a craft gin bar or a vaping store.

Secondly, by offering diverse payment options, profits should increase. A hypothetical example say of two coffee shops operating on the same road – one is cash only, one offers multiple payment choices. Which one would you pick as a passing consumer, assuming both had similar prices and similar quality food and drink?

Thirdly, accepting mobile, contactless payments actually gives your business more credibility.

Finally, you can expand your customer base. By accepting card payments, you’re not only expanding the appeal to passing footfall, but opening up the opportunities for digital sales. That small sandwich shop with queues out of the door most lunch times could implement an online ordering and payment service to reduce queues and increase sales.  You can improve customer loyalty by offering cashless incentives.

Business success stories

It is always easy to point out business failures, but there are some major success stories. Carphone Warehouse began with one store in 1989 and now is worth £1.7 billion on the stock market. Facebook began as a niche college platform to a global phenomenon. Cath Kidston is a homegrown success story.

One though that stands out for us at PDQ Funding is Trunki, the ride on suitcase for kids. Trunki famously failed on Dragon’s Den with Theo Paphitis breaking a strap and saying it would never make money:

“No-one in their right mind would think that business was worth £1m.”

12 years later, Trunki has won 100 awards. It has turned over record profits year on year and still has no physical stores. It relies instead on its niche products being sold via its own online store, John Lewis, Amazon and Argos. It’s expanded its suitcase product range exponentially too – with Rob Lowe the CEO citing success being due to:

“We believe travel is about new experiences, creating memories and making every journey just as enjoyable as the destination … understand that whilst parents buy products, children make friends with them, so everything we create has the functionality that grown-ups value, and the personality that kids adore. We have a team of talented imagineers that are dedicated to making travelling with tots a doddle. They use ingenious design (and a little bit of fairy dust) to create products for every journey, whether it’s a day trip to the zoo, or a round the world trip.”

If you’re looking to expand your business by offering multiple payment options, contact PDQ Funding today.

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