Are the days of cash being king ending?
It would be easy to think so, particularly when you live in a modern, digital savvy country like the UK. We are all becoming accustomed to making contactless payments with our debit cards and mobile phones or even using online smart phone apps.
Will Cash Remain King?
However, there is increasing evidence that although more of us are using digital methods of payment, cash stubbornly, is still refusing to surrender its place in our wallets, despite the efforts of banks and other financial institutions to “nudge” us towards digital payments.
A recent survey by Paysafe, for example, who are an online payment service, found in the UK, 88% of consumers were still using cash more than any other methods of payment each month; whilst the statistics across Europe are similar with over 80% of all transactions still involving cash.
However, the same survey also revealed that we are now carrying around less cash, suggesting its domination may well be waning. There are also other European examples of where we may be heading. In Sweden for example, less than 19% of all transactions now involve cash, which has brought additional benefits for the country, in that it has reduced crime levels and bolstered the collection of VAT by over 30% in the last five years.
However, with the recent failures of the Visa payment network and the problems that TSB have been experiencing with their online banking services, its easy to see why people are still cautious about becoming over dependent on digital payments and becoming a cashless society.
There is also the issue that whilst 1.5 million Britons remain without bank accounts, moving to a digital money-based society remains completely unfeasible for many and would result in greater financial exclusion.
Also, with the growth of the gig economy, all the evidence suggests that use of cash as a means of paying people is on the increase again, which mirrors worldwide trends, where cash now accounts for 9.6% of global GDP, in contrast to the 8.1% it was in 2011.
Will a Cashless Society lead to Over-Indebtedness?
There are also fears that instead of technology helping us manage our money better, with the growth of financial technology, which can show us how we are spending our money and on what, there is a danger that instead we may lose control of our finances. One problem is the normal “stops” that many of us grew up with, of being able to see the money in our pockets and having to hand it over, disappear when digital methods of payment are used. It easier to tap a card or phone on a card machine, than it is to take out money.
This may lead to increasing levels of indebtedness.
This idea was first floated in the early 1980’s by American Professor, Richard Feinberg, who argued people are more likely to spend more when using credit cards than money.
Since then, a further study in 2014 by the Copenhagen Business School also found this, and argued the reason was people separated mentally the idea of consumption with payment when they used cards to make those payments.
A more recent survey from ClearScore, the credit checking service, also found this and supported the view that the increasing use of digital payment methods may lead to rising levels of debt. Fifty-nine percent of the 2,000 people they surveyed admitted not having to hand over hard cash had led them to spending more than they intended. Seventy-two per cent also admitted contactless methods of payment such as Apple Pay, and contactless credit cards had led to them making more impulsive spending decisions.
Financial technology can provide people with greater opportunities
However, not everyone is pessimistic. The Money Advice Service and the Money and Mental Health Policy Institute are optimistic as to how new financial technology can help people, particularly in relation to having a greater understanding of their finances and obtaining a greater level of control over their money.
With hundreds of new apps springing up to help people, they believe the growth of this new technology and competition between providers will provide consumers with opportunities they never had before.
The danger is, however, digital payments and fintech apps may be viewed by some as a panacea to their previous money problems, but this is unlikely to be the case. On their own they cannot replace good money management skills.
At Creditfix we embrace the new digital revolution and all the opportunities it offers us and our clients, particularly in relation to how we deliver services to them. However, in our view, sometimes old housekeeping wisdoms are worth remembering and that is when your outgoings exceed your incomings, over a long period of time, that will not be sustainable. Eventually, regardless of how you made your payments, when your spending becomes excessive you will need to take steps to remedy that problem.
If you need advice on problem debts, Creditfix not only offers professional advice, but access to all debt solutions, including – IVAs, Protected Trust Deeds and Debt Arrangement Schemes. To speak with an adviser phone 0808 2085 198 or use our online chat service.