I believe that the time is right to set an ambitious goal of the UK becoming a cashless economy by 2030, meaning that 95% of all payments are made without the use of physical notes and coins.
Many of the benefits of this are clear: lower costs, a more competitive choice of banks and payment services, greater security for consumers and lower fraud and theft.
As many have found during the pandemic, there are huge benefits for businesses too. Every business can transact directly with its end customers and in so doing gain data – often for the first time – and establish powerful feedback loops, boosting productivity and growth.
For government there are gains from reducing the ‘grey’ economy which the Institute for Economic Affairs has estimated to account for around 10% of UK GDP. As we seek to rebalance the UK’s public finances post-Covid, bringing this informal, or sometimes illegal, activity within the scope of tax for the first time would be a much better option than increasing the rates of those already paying their fair share.
The UK was one of the first countries in the world to launch mobile phones but 40 years later is currently a laggard in the use of mobile payments. We are behind not just the US, China and India but also trail many developing countries and tech-savvy competitor nations such as Finland and Israel.
By setting an explicit target of 2030 now, the Government would help the UK’s payment providers to plan their investment, unleash a wave of innovators to solve any problems along the way and boost the UK’s FinTech sector, which is already world leading and a major contributor to British exports.
We are already making reasonable progress, and the pandemic has seen a material decline in the use of cash. The vulnerable people who were previously presumed to be a brake on the speed of adoption have rapidly embraced digital payments when reminded that the Covid virus might lurk unseen on banknotes for up to 28 days. Higher limits on contactless transactions have also greatly increased their use, with the latest UK Finance figures showing contactless now accounts for 58% of all debit card payments.
There are some real issues of access to be overcome, although I believe many of these are overstated and are readily soluble through innovation. A greater proportion of vulnerable groups in society already own a mobile phone than currently have a bank account for example. New app-based tools to promote better budgeting and micro-saving are likely to do far more to help less affluent groups manage their finances than the presence of a bank branch whose threshold they are unlikely to cross.
The part of this week’s government announcement suggesting that cashback facilities be offered at shops without consumers having to make a purchase are welcome. They could turn every village shop into a potential cashpoint. When local shops dispense cash, it is recycled back through local communities and there is less of a need to hold or transport notes and coins, so it’s greener too. Last year, consumers received £3.8 billion of cashback when paying for items at a till – making it the second most used method for withdrawing cash in the UK behind ATMs. Current EU law makes it difficult for businesses to offer cashback when people are not paying for goods and the Government are rightly considering scrapping these rules once the transition period ends on December 31.
Less helpful was the reminder that the Government plans to legislate to ‘protect access to cash and ensure that the UK’s cash infrastructure is sustainable in the long-term’. Legislation is rarely the friend of innovation and had the same been said about gas street lighting in the 19th century or the telegram in the 20th century our economy might be in very different shape today.
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