As new payment methods take off, a retail landscape without coins and notes could be on the horizon.

Oasis lets customers use PayPal in store

The rise of cash alternatives and the increasing installation by retailers of contactless payment terminals might give the impression that the days of carrying notes and coins around are numbered.

It’s certainly true there is a trend of moving away from cash transactions. The Payments Council, responsible for ensuring payment services work in the UK, reports cash accounted for 71% of all payments in the UK 10 years ago.

By 2012, the figure had fallen to 54%.

However, it would be wrong to think that the corollary of this would be a fall in the amount of cash in the economy.

Cash holdings per capita - the amount of cash in the UK at present - has risen from about £500 per person in 2002 to almost £900 now. And it’s not just because of the Bank of England’s quantitative easing plan - the US and many economies in the eurozone have also experienced similar increases.

That means the bodies responsible for controlling the levels of cash in the economy - in the case of the UK, the Bank of England - have little need to cut back on the level of notes and coins available, a sure sign that cash is not about to disappear.

So what is the likelihood of the UK becoming a cashless society, and what will replace cash if it does? No one is willing to predict that cash will be around for good, but at the same time it appears reports of the demise of notes and coins are exaggerated.

Cheques are likely to disappear before the end of the decade, but as well as the tried and trusted debit and credit cards, there are a growing number of options. Consumers are increasingly making payments using near field communication (NFC) technology, for instance, which enables shoppers to make small transactions by holding their card against a reader. Mobile wallets, such as the Google Wallet mobile app, are also on the horizon. There are also virtual currencies emerging, such as Bitcoin, although they are yet to make inroads into the UK high street.

Another big development in payment is due in spring 2014, when the Payments Council’s mobile payments project is scheduled to launch.

This will involve a database linking customers’ bank accounts to their mobile phone numbers, making it possible to send secure payments to high street retailers via text.

The banks involved in the project include Barclays, HSBC, Metro Bank and Santander. They will invite customers to register for the scheme via their online banking service and provide a mobile number that they want linked to their account. Shoppers will then be able to make payments to other individuals as well as businesses by sending a text.

Benefits and concerns

Retailers are stuck in the middle of the cash debate. On the one hand, handling cash is expensive and time consuming, there are security risks in having cash on site and transporting it to banks, and there is always the chance of accepting counterfeit currency. It makes sense for the high street to move away from accepting cash.

But the customer is king, and the signs are that there will be a hardcore of consumers who are reluctant to give up their readies. So understandably, retailers are keen to emphasise that, although they are making efforts to introduce innovative methods of payment, cash is not on the way out at their stores.

Lloydspharmacy, for example, says it needs reassurance about the security aspects of any new payment technology before rolling it out.

Nigel Swift, director of sales and marketing at Lloydspharmacy’s parent group Celesio UK, says: “Across our business we are keen to harness developments in technology to benefit our customers.

“The updates we are making to our retail systems will allow for contactless payment in the future. However, before any launch we will need to be satisfied that security is robust. At that point we will make the service available to our customers.”

Ian Marsh, UK managing director of Payleven, which develops cashless payment technology, predicts “cash is on the way out - but it won’t be soon”, and also highlights security issues.

Marsh says: “Recent technical hiccups haven’t helped in gaining much-needed customer confidence.

“Well-publicised events, such as Marks & Spencer’s NFC technology double-charging customers and the development of an app at a university in Newcastle that can copy the data needed to plunder accounts, show that there are security issues with the technology that will be of concern to the consumer.”

Nonetheless, based on the number of retailers introducing contactless payments - Waitrose, Boots and M&S are all converts - it seems the benefits for shoppers outweigh the concerns.

What other motivations are there for retailers to adopt new payment methods? For fashion retailer Oasis, alternative payment methods are a way of aligning its online and store channels. It still accepts traditional payment options, but it also lets customers use PayPal in store, sells mobile gift vouchers, and customers can pay using in-store iPads.

Briony Garbett, head of ecommerce and customer experience at the retailer, says: “By bringing together an overarching omnichannel experience, our customers can experience an exciting and enriched shopping environment that is equally aligned to Oasis’ brand values across online, social, mobile and in store.

“Enabling payment flexibility is just one such way we have responded to our customers’ ever-evolving needs.”

Convenience over cash

Many customers at supermarkets such as Waitrose, Tesco and Sainsbury’s will be used to doing their weekly shopping without a member of staff being involved in a financial transaction, because of self-serve checkouts and Waitrose’s Quick Check.

C-store operator Costcutter has also just revealed it will introduce contactless payment technology in more than 500 stores. It has 1,700 convenience stores and off licences across the UK and Republic of Ireland, which serve a wide selection of customers undertaking transactions that can sometimes be very small.

Kevin Widdrington, IT director of Costcutter Supermarkets Group, says the technology works well for retailers as well as customers.

“Contactless payment speeds up transactions, making paying for your shopping quicker and more convenient. The cost per transaction can also be significantly lower than traditional chip and PIN payments, offering potential cost savings for our members,” he says.

Persuading consumers

Kantar Media’s TGI Insights and Integration team has undertaken extensive research into the future of the cashless society and in the process has defined three distinct groups of consumers.

They are: cashless converts, consumers who have embraced a largely cashless existence; cashless cautious, who have taken some steps towards moving away from cash; and the cashless concerned, who cling to cash as the default payment method.

The people using contactless technology to pay are those at the higher end of the socioeconomic scale.

They are likely to be shopping online, using credit cards for expensive purchases and are usually aged between 35 and 44.

Kantar’s research shows that the fastest growing group is not the cashless converts, as might be expected, but the cashless cautious. This is because the most sceptical consumers are being persuaded to try out non-cash payments, meaning the number of cashless concerned is falling. They have fallen from 44% of consumers in 2011 to just over a third at present, as they convert to cashless cautious.

Anne Benoist, director of TGI Insights and Integration, and James Powell, senior marketing manager at Kantar Media, say their research highlights the issues that card companies and retailers will have to tackle if they are to convert everyone to cashless.

One issue is gender. The research found a strong male bias to the cashless converts - only 31% of this group are women. The major barrier, however, is security.

“A lot of the marketing for cashless payments focuses on the fact that it’s easy and straightforward, but it has not tackled the underlying issue of technology going wrong. Those fears need to be allayed,” says Benoist.

It’s not just the security issues, although they are important. There is also an emotional attachment to cash, and almost a perception that it is morally superior to virtual money.

Customers among the cashless concerned category, for instance, were likely to identify themselves as being “very good” with money, and say that they liked to save up for things they wanted to buy.

Benoist says that the “nudging” towards cashlessness needs to be a bit smarter. “The push needs to come from the industry because there’s not a need from the consumer.”

The tipping point

Retailers seem reluctant to come out and say they are keen to get rid of cash - no doubt to avoid alarming some of their customers. But the general consensus is that a cashless society is on the horizon, although it’s hard to say when exactly it will be a reality.

The Bank of England is certainly looking at it as a possibility, but remains cautious about making any rash predictions. Chris Salmon, the bank’s chief cashier, said in a recent speech: “The possibility of an accelerated move away from cash for transactions cannot be dismissed, and it is difficult to judge whether the factors driving the pick-up in cash saving will persist.

“In this context, while I take it as given that cash will remain an important part of our lives for the foreseeable future, striking the balance to ensure we can meet the public’s demand for cash over the next 10 to 20 years while avoiding unnecessary expenditure is not straightforward.”

Kantar’s Benoist and Powell also feel it could become a reality, but they agree the familiarity and tangibility of cash will be an issue. It could be decades before the tipping point is reached.

What consumers think of contactless payment

  • Using Toluna QuickSurveys, Retail Week asked 2,000 British adults if they knew about near field communication (NFC) payments, such as contactless cards and mobile. Forty-three per cent of consumers said they were aware of such technology but only 7% said that they had made a
    purchase using some form of NFC technology.
  • The research confirmed that security is a major issue for consumers. Eighty-two per cent of respondents said they were at least somewhat concerned about the security implications of contactless payment methods. Overall, there seemed to be some faith that these might be overcome because 36% of people said they believe Britain will become a cashless society within the next 20 years.
  • The survey was conducted online in the UK on July 26 and 27, 2013 among adults aged 18 and over.