The cost of handling cash for retailers will jump 50% within the next five years as they face up to a “perfect storm” of factors, experts have warned.
The introduction of polymer banknotes and the new £1 coin are among the factors that will force up the cost of handling cash, according to payment experts CMS Payments Intelligence (CMSpi).
The Bank of England aims to start introducing polymer banknotes next year, with £5 plastic notes featuring Sir Winston Churchill being released first. A year later £10 polymer notes will be brought into circulation. It is being touted as the biggest change to UK currency since 1971.
“The developments over the next few years could be described as somewhat of a ‘perfect storm’,” says Mark Trevor, commercial director of Vaultex, the largest cash processor in the UK.
“Retailers will have to traverse the staggered introduction of the £5, £10 and £20 polymer notes, the new £1 coin and the Scottish notes.
“Factoring in the potential interest rate rise and the living wage as well and you have a lot of pressure coming up on costs.”
A new 12-sided £1 coin is due in 2017. However, it is polymer banknotes that are causing particular controversy.
A problem that does not exist
The Bank of England estimates around £60bn to £70bn is in circulation in paper note form. Brendan Doyle, chief executive of CMSpi, said: “This needs to make its way back to the banks, and a lot of that will be coming through retail outlets.
“One of things I’ll be campaigning for is for retailers to receive some sort of compensation from high street banks and some sort of reduction in the charges that will be levied on retailers for having to bank that £70bn of paper notes.
“The cost of cash for retailers will increase by 50% in the next three to five years.”
The rise of card payments has meant cash transactions are declining in many parts of the UK.
Doyle questioned the need for the switch to polymer. “One of the Bank of England’s key arguments for switching to polymer is its ability to reduce fraud,” he said. “Yet last year, £8m worth of counterfeit notes were in circulation out of a total of £60bn. That equates to 0.01% of the notes in existence.
“To me, this implies that the Bank of England is solving a problem that doesn’t exist – at retailers’ expense.”
He added: “Retailers may think the alternative would be to have more collections and get cash into the bank quicker, however, increasing the frequency of cash collection services only increases costs further.”