The end of cash cannot come at the expense of the unbanked
Today marks the launch of the new £20 note. With so much of the financial services sector switching to digital, could this be the last new £20 we get?
In the future, financial services will be entirely digital — and we are already well on the way towards that reality. A quarter of us in the UK already use a digital-only bank, and only a third of under-35s still carry cash. But at the same time, the debate over the unintended consequences of a cashless society needs careful consideration.
As I see it, concerns centre around two main issues: economic resilience and social inclusion.
To just touch on the enormous challenge of economic resilience, we can look to Sweden. A hugely successful Swedish payment fintech scene has caused cash transactions to fall rapidly — they now stand at less than 10 per cent of all payments, the lowest rate in the world.
The Swedish government is now having to consider whether the economy could continue to function if, for some reason, electronic payments became temporarily unavailable. Would there be enough cash in circulation to keep the economy functioning, and for how long?
As the UK migrates away from physical money, we also have to be confident that we have the tech infrastructure and cyber security to support an entirely digital economy. We’re not there yet.
Then onto the more human issue of social inclusion. Does a cashless society risk leaving people behind?
The simple answer is yes, at least as things currently stand. The UK currently has 1.5m unbanked citizens who by definition are completely dependent on cash.
Other parts of the world are also confronting this challenge. In New York, restaurants were recently banned from refusing to accept cash, on the basis that it is often the most vulnerable people in society who continue to rely on physical money.
Yet, prolonging the life of hard currency by forcing businesses to accept it isn’t an option in the UK. A quirk of our system is that our notes are promissory notes, rather than legal tender, so there is no legal basis to make accepting them compulsory.
Of course, there has been a huge amount of interest in ensuring that consumers can access cash freely and easily, most notably from the Access to Cash Review panel, which just this week urged the government to take action.
But that is one part of the puzzle. We also need to make sure that the 1.5m people outside the financial system are able to come inside.
The challenges of getting the unbanked banked are many. A lack of credit history can pose challenges for know-your-customer regulations, and servicing accounts is expensive. It is broadly accepted that offering basic current accounts is a largely unprofitable enterprise for banks, so there is little commercial incentive for attracting unbanked customers.
There are lots of good initiatives led by big banks and some promising solutions being explored by fintech startups, both to tackle financial inclusion and access to cash. But I question whether these advances are matching the speed of the cashless technology revolution.
The fintech sector has become the jewel in the City’s crown but we cannot carry the failings of the old world into the new. If progress on inclusion isn’t keeping pace with advances in digital finance, you have to ask whether big firms should be mandated to provide a basic set of services to ensure social financial inclusion?
The availability of cash cannot become a barrier to social mobility. So while we can enjoy our new £20 note, we shouldn’t expect it to be the last we see.
Main image credit: Getty