Ten years ago, 58 per cent of all payments across the UK were made with cash. Fast forward to the present day, and cash usage across the UK has rapidly declined while being overtaken by digital payments. This is in part due to the acceleration of technology over the years. But it's also a result of Covid.
ATM withdrawals fell by 60 per cent in March 2020 as the first lockdown was put in place. Many shops also refused cash as a valid payment method because of concerns over spreading coronavirus. It has left the future of cash payments looking bleak.
The question, then, turns to alternatives and what the future of transactions look like. A shift to digital is unquestionable, but it also means businesses need to ensure their online product meets requirements. As for physical stores, contactless payments will become king.
In this article, we’re looking at the pandemics' effect on cash payments and what it means for the future of commerce.
A cashless society
The UK increasingly depends on cashless payments to make transactions. Half of all payments are made by card, and it's predicted that cash will only account for nine per cent of transactions by 2028.
Further to this, 9,000 ATM machines were disconnected from the Link network during the lockdown. With contactless payment limits also increasing, we’re quickly moving away from being a cash society into a cashless one.
Those of us who have been able to go digital have done so, be it through contactless and mobile payments in-store or by going online for the majority of our shopping needs. And much of the movement has been supercharged by the pandemic.
A lifestyle shift
Covid has changed the course forever, and while some elements of pre-Covid society will go back to normal, we’re likely to see sweeping changes. Working from home, for example, is something that will remain, as businesses form a hybrid of office life and home working.
By April 2020, 46 per cent of people worked from home, of which 86 per cent did as a result of Covid. It has led to more of the UK workforce being indoors, and therefore the need for cash has reduced. What has increased, however, is the access to online shopping.
The pandemic accelerated a shift to a more digital world brought about by changes in shopping habits. Ecommerce grew by 46 per cent in 2020 compared to the previous year, as people found themselves at home with more time on their hands. Consequently, they have become increasingly dependent on digital shopping, with behaviours moving towards buying everything online including food and everyday items. Since the pandemic, a quarter of all customers now buy their food online.
Meeting online demand
With people increasingly reliant on digital shopping, businesses need to ensure their product is ready to meet customer demand. And while online businesses don’t need to worry about cash payments, there were other forms of transacting that felt the impact of Covid.
People are moving away from credit cards and are more mindful of their finances. In the US, 41 per cent of consumers delayed making a large purchase decision, while 31 per cent are changing to less expensive products. Millennials, in particular, are ditching credit cards as they adopt a more debt-conscious mindset.
However, there’s still a need to pay for goods and services. With so much uncertainty surrounding several aspects of life, consumers need alternative payments options, as relying solely on debit transactions isn’t always an option.
The rise of alternative payment methods
Another boom born out of Covid is the rise of alternative payment methods, including buy now, pay later. In fact, it’s seen a 10-year jump in new payment methods, with 54 per cent of Brits using buy now, pay later during the pandemic.
This is in part down to the rise of digital ecommerce and a desire for younger customers to move away from credit lines while still wanting flexible payment options. These alternative methods are challenging the infrastructure of traditional payments and providing customers with such options, as well as transparency over their finances.
Merchants are just as keen as consumers, too. They see alternative payment methods as a way to increase customers and drive numbers at checkout. These payment methods also come in multiple forms, including buy now, pay later, multi-lender and multi-product options.
Using alternative payment methods in store
But what about back in the physical world? With cash payments dwindling, contactless becomes the primary focus. Yet, it’s not the only option. For that reason, a growing number of retailers now offer alternative payment methods in-store, too.
Companies that sell higher-priced items, such as jewellery and furniture, are turning to alternative payments as a way to give their customers flexible options. Paying for an expensive item over several instalments is easier than doing it in one hit.
Merchants can stay competitive by enabling customers to pay on their terms, while being in charge of their budget and therefore shopping with more confidence. There’s no need to sacrifice budget, as flexible options allow them to plan more accordingly.
Alternative payment options provide in-store customers with a way to pay on terms that suit them. It also means that businesses don't lose out and can implement growing online trends in their physical shops.
The future of payments
Even with cash transactions decreasing, they won't completely vanish into thin air. There will always be people who need to use cash. But its influence is massively waning. And in the wake of cash comes more intuitive and fluid ways to pay both online and in-store, such as contactless, mobile and alternative payment options like buy now, pay later. These are the payment methods driving the future of retail and increasing business for companies worldwide.