The payments world is moving faster than you might think

‘We can begin to envisage a future when paying for things is virtually frictionless, safer and smarter’


By Charlotte Crosswell, Chief executive, Innovate Finance

It is not difficult to imagine a world without coins and paper money. 

Cash has been in steady decline over the last 20 years. Our mobiles are morphing into our wallets, and our wallets are home to cards, not bank notes. New ways to pay are coming at pace. 

The stats are well-known but worth reiterating. At the start of the millennium, 50% of transactions used cash, it is now less than 25%. Cards now account for more than half of payments. 21% of payments are made using contactless technology, it was 3% in 2015. 

As in so many other areas, Coronavirus has sped up this shift: 90% of card payments were contactless in 2020. 

The speed of change is prompting some important questions about the role of cash in our economy and in society. Although contactless might be growing, cash is still preferred by a great many people. Taking away that option altogether would not be a responsible move. 

Financial services providers, innovative new providers, the cash industry and government are coming together to manage the decline of cash.

Legislation and regulation undoubtedly has a role to play here. Last year the government floated the idea of “cashback without a purchase”, whereby shops would in effect act as ATMs. This could help reduce the costs for businesses of handling cash (one of the main reasons for its decline) thereby maintaining the availability of physical money. 

Innovation is important too. It may seem counterintuitive that new technologies can help preserve the old, but we are seeing examples of that. There are already startups creating apps that enable consumers to withdraw cash for free from local shops. This is a simple but effective example of combining the new and old. 

We are also seeing how new banking platform technologies (the building blocks of modern banks) are helping revolutionise traditional financial services offerings. For example, credit unions are using new and inexpensive technologies to offer a raft of new services to their customers, including cash withdrawals via the Post Office. 

Meanwhile, there are entirely new frontiers being opened in the payments world. New methods of online payment are being created which don’t require cards, never mind cash.

Open Banking - a new and secure way to give providers access to your financial information - is at the heart of this change. Open Banking is driving the creation of online services (called Payment Initiation Services) which access a user’s bank account to transfer funds on their behalf, safely and efficiently. It’s an alternative to paying with a debit or credit card online. 

Payment Initiation Services could be a particular benefit to small businesses trading online, since they are likely to reduce the cost of processing payments compared to credit and debit cards. They will also receive their money instantly, rather than having to wait three days for the funds to appear in their business account. Open Banking is still in its infancy, but these services could drive yet another dramatic shift in payments.

The speed of change and the number of possibilities are incredibly exciting. We can begin to envisage a future where paying for things is virtually frictionless, safer and smarter. 

In all this, we must keep consumer choice front and centre. Many people want to stick with cash - and that is their choice. That does of course prompt difficult questions about the cost of maintaining a cash system. Part of the answer does lie with technology: we must encourage the innovation that manages rapid change as much as the innovation that creates it.