We are currently living in a whirlwind era of digital payments, online transactions, and e-wallets – yet for many, cash is still king.
What does cash mean for financial inclusion?
Globally, cash is still the most widely-used payment method, and remains the preferred choice for many, particularly those residing in isolated communities, the elderly, and the underbanked. Furthermore, cash offers crucial financial options that can protect
refugees, undocumented workers, people with disabilities, and victims of abuse.
Cash offers a level of security and accessibility that digital payments sometimes cannot, and remains an important aspect of inclusion. Even previously fully-online neobanks such as
Nubank Mexico have recognised the importance of cash, implementing withdrawal options in order to expand their network.
In the UK, the cost-of-living crisis has led to a
pickup in cash transactions, with
Nationwide reporting 32.8 million withdrawals from 1,260 ATMs across their 605 UK branches in 2024, a 10% increase from the year before. While the Covid-19 pandemic saw a drop in cash payments, the economic crisis and good old
Cozzie-livs has driven the public return to paper.
In July 2024, the Financial Conduct Authority (FCA)
released new rules to protect cash usage in the UK. Assessing which locations need more banking hubs, the FCA employed LINK to install more deposit services, ATMs, and enhanced post offices throughout the country. Communities can also request further cash
services when needed.
Since the rules came into effect,
LINK has opened 15 new banking hubs, contributing to a total of 76 banking hubs as part of Cash Access UK.
When discussing the possibility of axing out cash transactions as a whole, many small businesses and retailers have already implemented this policy. My colleague Scott explored how large retailers are
confronting the cash management issue here.
While reports have found that digital payments do have a
positive impact on the environment as opposed to cash transactions, cash still remains a crucial aspect of the financial system. Although digital payments are a low-carbon option, cash is also going through a sustainable transition, with innovations such
as the
sustainable banknotes produced by Giesecke & Devrient.
How common are cash payments globally?
While the UK is implementing further rules to reintegrate cash into society, many countries in Europe are moving in the opposite direction.
According to the
FIS 2023 Global Payments Report, cash is used for 15% of POS transactions in APAC, 22% in Europe, 31% in Latin America, 43% in Africa and the Middle East, and 12% in North America. Central banks in Brazil and India moving towards digital payments, indicating
a shift from the cash-first economy.
However, cash remains dominant in certain regions. According to a
BearingPoint survey, cash remains the most frequently used payment method in Germany, Austria, and Switzerland, accounting for 69%, 73%, and 57% of total transactions respectively. However, the Nordics tell a different story, with only 28% in Sweden and
35% in Denmark using cash. The survey found that throughout Europe, cash usage has declined.
Norway’s efforts to become a cashless economy have been
halted by the Central Bank Act which supported consumers’ rights to pay in cash as a way for those who are underbanked to not be further excluded financially.
In the US, a
Federal Reserve study released in June 2024 found that while cash usage was in decline since 2016, it has stabilised in recent years, as seen in the figure below. The research found that age was a significant factor, with those over the age of 55 using
cash for 22% of their payments in 2023, and those under the age of 55 using cash for only 12% of their payments.
Source: The Federal Reserve
According to a
2024 WorldPay report, cash usage fell 8% in 2023. However, it still accounted for 16% of global transaction value. The report predicted that globally, cash transaction value will decrease to 11% by 2027.
Source: Worldpay
Meanwhile, a
European Central Bank study found that although cash is used in 52% of POS transactions, cards are the most dominant payment method across the continent. The report revealed that while a the majority of respondents (62%) still find cash to be a valuable
payment option, they are satisfied with their access to cash.
Are we on track for a cashless society?
A cashless society is an ideal that has yet to come into fruition. It offers convenience, sustainability, and transparency, however it also leads to financial exclusion and a lack of privacy. A significant worry when it comes to completely cashless payments
are
power outages, natural disasters, and cyberthreats.
Although those championing digital payments are pushing to go fully cashless, we simply aren’t there yet. While a totally cashless society may be the state of the world in the future, the issues that the people of today are faced with still require banknotes
in circulation.
This is not to say that there is no use in furthering digitisation. However, there are still millions of underbanked and unbanked individuals in financial strife out there. The financial market must ensure that no one is left behind in the transition.