Cash loses its crown


3 May 2011


Last year, debit cards overtook cash as the preferred method of payment for the UK’s consumers. With contactless payment for small purchases also taking off, this trend is set to continue. Jim Banks talks to Dan Wass, current accounts director at Barclays, about why cash may no longer be king.


Payment habits in the UK are changing fast. Figures issued by the UK's Payments Council last year reported that, for the first time, debit cards had taken over from cash as the preferred payment method for Britain's consumers. Even for small transactions, reaching for plastic is now more popular than fumbling in pockets for cash.

In August, the running total of debit card spending hit £272 billion, and the cumulative total of cash spent stood at £269 billion. Compared with 2009, UK consumers made 1.6 million additional purchases on debit cards every day between July and September.
"The figures are not a surprise. Consumers are increasingly looking for convenience in their payment patterns," says Dan Wass, current accounts director at Barclays. "They use cards to save time queuing at ATMs, as they already know they will have to queue in the shop. For small purchases there is no longer any need to carry coins in your pocket. Debit card use has risen fourfold since 2000, and although the use of cash has also risen, the rate of growth has been much slower.

"In 2000, for instance, around 91% of purchases in bars were made in cash. Now, 50% of those purchases are made using debit cards. This is because of a change in behaviour among consumers and retailers. In the future, the rate of debit card use will grow at the same pace or even accelerate," he adds.

A contactless revolution

One reason why the rate of debit card use is likely to continue to accelerate is the wider introduction of contactless payment technology, which allows consumers to use a card for small purchases without the need to enter a PIN number. It is not only more convenient for consumers, but also more cost-effective for retailers.

"Contactless technology reduces the cost of handling cash for retailers. The technology is not far from tipping point. We have seen the use of contactless cards issued by Barclays and Barclaycard double over 2010. More retailers are using the technology, including Co-op this year, and consumer awareness is growing. I expect huge growth in the use of the technology over the next two years," says Wass.

Barclaycard won two major awards at the Cards and Payments Awards 2011 for its innovative loyalty programme, Barclaycard Freedom, and for Barclaycard LifestylePlan, which offers customers the chance to build personalised income protection insurance. The company has been pioneering innovation in contactless payment technology along with Barclays Bank, and over 11 million Barclays customers in the UK now have cards that can be used for contactless payment for low value purchases in many retail outlets.

Since the programme was launched, many retailers have been flying the flag for contactless payment, including EAT, Café Nero, Yo Sushi!, Coffee Republic, Threshers and Barnardo's.

"We started a contactless payment programme in 2007, issuing debit cards with the technology and making customers aware of it. We have been working with retailers to show them the benefits too, and now they regularly come to us, especially if they handle many transactions of less than £15. The future of contactless is not a technology issue, it is an awareness issue," observes Wass.

Nevertheless, some technological advances will bring contactless payment further into the public consciousness, particularly when it is available through mobile phones. As this starts to happen, one very important question arises: will we eventually see a time when the world no longer needs cash?

For Wass, the answer is that the world is not likely to become entirely cashless in the foreseeable future, but the role of cash will continue to decline steadily.

"We will need cash for a long time to come, though for very specific uses. Technology will be a driver for changing payment habits, but it will be driven by what consumers want, not by what banks want," he says."The mix of payments will change radically, but cash will not disappear any time soon."