#AskAFuturist: When will we see the end of cash?

"What year doth dosh disappear forever?" This was the precise question asked by Sandy Lindsay MBE on Twitter in response to my call for questions to #AskAFuturist. So, when will we see the end of cash? Or will we always keep a little wonga in our pockets?The decline of cash as a form of payment has been precipitous. At the end of the 2000s, cash still represented around 60% of all payments made. By the end of the 2010s it was down to around 40%. The Access to Cash Review run by former financial ombudsman Natalie Ceeney suggested that at the current rate of decline, cash use would end as soon as 2026.This is unlikely. As the report notes, the people making the shift from cash to card today are those who can. Those with the financial stability, confidence in technology, and access to banking to do so. This represents maybe 80% of the population, so cash use will continue its steep decline. But moving to cards is either impractical or impossible for the last 20% or so. For a variety of reasons - poverty, disability, financial insecurity - this group can't or won't access digital banking.Eventually most of these people will make the switch, supported through a combination of education, better infrastructure (e.g. the last remaining all cash shops taking cards or ending their excess charges and minimum payment limits), and new services designed specifically to support them. But the rate of decline of cash will naturally slow down as we reach the point where more work is required to help people to transition.

End of cash: Difficult transition

The transition away from cash won't be smooth or clean. As we use less and less cash, so there is less reason for shops and banks to support it. Bank branches and cash points are closing. More and more shops and cafes are card only, having recognised the real costs of handling cash. Those people who don't have access to alternatives are increasingly marginalised. Eventually the banks are likely to be allowed to co-operate to maintain some form of basic service while cash usage drops to just a few percent of transactions.But I don't believe it will go away altogether. Back in 2011 when trialling a watch with integrated contactless payment technology, I questioned whether I would still be carrying coins in my pocket in five years. I was right. It has been a few years since I have regularly carried cash, except for maybe a single note for emergencies.Cash will remain, albeit in limited usage and in very small volumes, for the foreseeable future. It has too much power as a token, or an icon, for it to be eliminated altogether. My prediction is that we get down to 20% of transactions by the middle of this decade, and down to maybe 5% by the middle of the next. But there or thereabouts cash remains for at least a couple of decades after that. 

More than money

Today I’m hosting an event for the ICAEW on the UN Sustainable Development Goals. In preparation, we surveyed the thoughts of attendees as well as their more senior counterparts. What emerged will not surprise anyone who has tracked headlines about millennials, unless you thought — not unreasonably perhaps — that those headlines were just so much nonsense.

To summarise the findings, the respondents want something different out of employment. They are focused on social good as well as financial gain — not just for themselves but for their organisations. They want their work to mean something.

There’s an argument that every generation has these views at this point in their development. Try replacing ‘millennials’ in any headline with ‘young people’ and you’ll see that most of these headlines could have been produced at any time since the invention of the printing press. But though small, the sample of people we surveyed is not made up of youthful idealists. These are people who are few years into work. Old enough to clarify their ideals through the lens of experience.

It does appear that amongst some audiences at least, there is a strong desire for employment that does more than pay the rent. Work that engages as well as rewards.

They may get their wish. Though they may find the pay positively disappointing.

Paying for what’s valuable

One of the big challenges of the near future is not so much a lack of work but a lack of work that offers big financial rewards. The ideal solution is that we start to pay the vital but undervalued jobs appropriately. Unfortunately, that isn’t going to happen overnight.

It will be interesting to see how this generation tackles that challenge. Will it be thro

ugh campaigning to revalue underpaid jobs in the existing system, or will it be to reinvent the system?

In a separate session I was hosting yesterday with Enfield Council on the increasingly digital relationship between city and citizen, there was general acknowledgement that the very nature of public services is likely to change, with an increasing focus on independent, community-led services. There’s a clear opportunity for social entrepreneurship to start to pick up the slack left by austerity. I’m not suggesting this is necessarily desirable, but it will be necessary.

Perhaps through this social entrepreneurship the next generation can reinvent the contract that has left valuable jobs underpaid. And in doing so create careers that are both reasonably paid, and properly rewarding.

Death by a thousand cuts: How innovation can bring the banks into line

“A necessary evil”. The term could have been coined about the banks rather than government (and before that, marriage). Post downturn, the ire formerly reserved for traffic wardens and lawyers has been largely directed at bankers. Yet despite their behaviour in the capital markets, we all rely on the banks’ retail arms to enable us to make and accept payments, securely store our money and move it around.Will this always be the case?There are often calls for competition in the banking sector to break up the dominance of Barclays, HSBC, RBS and LloydsTSB. But increasingly I see competition coming from outside the sector, rather than from other, smaller banks and building societies.

Left-Field Threats

It started in the first wave of the internet. Companies sprang up to process card payments from e-commerce websites. Some of them, like CyberSource (now part of my client, VISA), were started by an e-commerce company in frustration at the lack of options available from the traditional finance industry. These companies grew with the e-commerce sector, providing services that the banks did not: initially payment processing but also fraud management and integration support. But ultimately they still relied on the banks’ infrastructure to move money around.A few years later the next wave of start-ups arrived, offering an alternative to card payments. PayPal (another client) is the great survivor of this wave, acquired by eBay in 2002. People assume — not unfairly — that most PayPal transactions are about eBay purchases, but that’s not the case. Less than half the company’s transactions (by volume) take place outside the auction site. PayPal credit became a way to transfer money between people and make purchases without routing through the banking system. But at one end or the other people generally still need to add credit or transfer it back to their accounts.

Face value

The most recent wave of start-ups have been focused on taking card payments face to face. This is a lucrative industry for the banks with merchant services and card terminal products commanding high fees and percentages on every transaction. Now companies like iZettle, Judo, Square and PayPal are coming into this space and dramatically cutting the barriers to entry to card acceptance for small businesses using low cost devices paired with smartphones. Their models offer rapid sign-up, near-zero up front costs, and often low monthly fees in return for marginally higher percentages on each transaction. This is something that small businesses seem willing to swallow to make sales that for the lack of a card machine may otherwise not have happened.Now, iZettle has announced that it is cutting transaction fees as low as 1.5% for businesses taking more than £13,000 per month through its platform. This makes the new, smartphone and internet-based payment platform potentially significantly cheaper than the traditional bank alternatives. And certainly quicker and easier to get started with.

New World Currency

This may start to shave lucrative slices off the big banks. And I think there will be other, similar niches where third parties can innovate aggressively to steal markets away from the banks. But ultimately our cash still needs to flow into and through them in order to be useful. For now.Because one other big innovation has happened in the last few years: bitcoin.In case your only experience of bitcoin has been rabid headlines about drug dealers shifting their illicit cash, here’s a quick explanation: bitcoin is an entirely virtual currency that sits outside the banking system, albeit it can be exchanged for other currencies. It operates entirely via the internet. That means no bank charges, no routing through global payment gateways. Money flows from you to whoever you want to send it to and vice versa. Lots of businesses already accept bitcoins as payment.It has its issues: breadth of support, stability of valuation, high volume of illicit traffic. But despite those problems it — or perhaps its next-generation descendants — represent the potential for the biggest revolution in banking for a hundred years.

Crypto potential

Imagine hooking up all of the peripheral services above — the ability to take and process payments, store value, and transfer it — to a new virtual currency that bypasses the traditional retail banks. That level of disintermediation could have a dramatic impact on the freedom to move capital, on the cost of doing business, and the control of wealth as a whole.It’s a way off. Building trust in a stateless currency will take time. But in the intervening period I think we will continue to see innovative businesses slicing profitable niches off the big banks. Some might end up back in the hands of the establishment — as CyberSource did following its acquisition by Visa. But others, like PayPal/eBay will achieve a level of scale and independence that allows them to remain competitive.This is where the competition will come from that forces the banks to change and innovate at a greater pace.