The use of cash for day-to-day purchases has been in steady decline for the past decade.
First chip and PIN.
Then contactless debit and credit cards.
More recently, digital wallets and mobile payments on smart devices like phones and even watches have become popular with consumers looking to pay for things quickly.
With every new payment method, cash has fallen further behind.
A decade of decline for cash payments
It’s been a slow evolution in the last decade from physical money to contactless and digital payments.
In 2010 cash made up about 58% of all payments in the UK (£20.4bn of transactions) according to UK Finance.
Fast forward to 2020, and cash made up less than a quarter of payments (23% of all payments with a value of about £9.3bn).
Over the same period, contactless card payments became the dominant way consumers preferred to pay.
In 2018 card payments officially overtook cash as the most popular payment method.
Now, about 82 billion debit cards in circulation have contactless functionality.
A pandemic induced revolution
Then last year the steady evolution of payments towards digital turned into a revolution as Covid-19 led governments, health bodies and individual businesses to urge customers to ditch cash completely in favour of contactless.
Some businesses even refused to accept cash payments.
And even as businesses closed and the economy slowed, contactless payments continued to increase.
The total value of contactless payments increased by 7% in total during 2020 compared to the year before.
And according to a report by payment research specialists Kaleido Intelligence, contactless payments using Apple Pay, Samsung Pay and Google Pay will reach $1trillion by next year.
The rise of digital wallets
One of the biggest reasons for the rise in contactless payments and digital wallets is simply convenience.
A customer can simply tap their smartphone or device against the card reader, and they’re done. They get a notification the payment has been made and can get on with the rest of their day.
Compare that to cash.
The customer has to check if they have the right money, and if not they have to stand and wait for the cashier to sort their change.
It’s a long time waiting when you could just tap a phone against a card machine.
Now you might think that because digital wallets require a smart device to work, that this isn’t an inclusive way to accept payments and could exclude some people.
But when you consider that 83% of the population owns a smartphone across all ages, digital wallets are actually one of the most inclusive ways to pay for goods.
The digital payment revolution is good for businesses
The rise of digital wallets isn’t just good for consumers, it’s also a massive benefit for merchants and businesses.
First, it’s opening their business up to a new customer base who have grown up with digital payments and have never seen cash as the best way to pay for items.
Most customers now expect businesses to accept contactless payments, whether digital wallets or contactless cards.
If a business doesn’t accept these types of mobile payments they’re going to lose a large segment of their customers who will go to a business that offers more convenient ways to pay for items.
Given that spending on digital wallets is expected to hit more than $10trillion worldwide by 2025, businesses are only putting their own future at risk by not accepting them.
Taking payments through contactless and digital wallets works out cheaper for businesses through lower transaction fees, as well as more time and money saved on administration at the end of the day.
Plus, most new card machines with contactless capability are already programmed to accept payments through digital wallets, so there’s very little set up that needs to be done to get started.
Preparing for a cashless future
There will always be customers who want to pay using cash.
In fact the Government has already launched an urgent review about how to preserve the future of cash payments for those who rely on it.
But without doubt the future of payments in UK businesses is digital.
Digital wallets on smart devices are just the latest development in the long history of improving and increasingly technology driven payment methods.
We’ve already seen how contactless payment technology is being built into smart watches and even digital rings that can carry digital wallet information.
Whatever the future of payments looks like, businesses need to get prepared and the first step is to catch up with the trend towards contactless and digital payments.