About Nesta

Nesta is an innovation foundation. For us, innovation means turning bold ideas into reality and changing lives for the better. We use our expertise, skills and funding in areas where there are big challenges facing society.

Across the globe use of cash is in freefall; electronic payments are now king.

In a few short years, we’ve gone from paying for most things in cash, to cash being in third place behind both credit and debit cards. This won’t be news to most people in the UK – after all, around three quarters of retail transactions are now carried out by debit or credit card.

But this will have consequences beyond having a slightly lighter wallet. Use of payment cards keeps rising and use of cash is falling critically low. Cashlessness is reaching a tipping point, which will soon bring changes to our lives far beyond our split-second decisions on how to pay a bar tab.

In 2020, we will start to see the consequences of cashlessness: growing ATM deserts that make it hard to get hold of cash, and the emergence of whole swathes of the country and economy where you can’t spend it.

And perhaps, also, a new purpose for cash: a way of saving, rather than a means of spending.

Animated figure stands in front of a cash point holding a bank card; cash machine display shows an unhappy face

A long goodbye to cash

Electronic payments are nothing new: ATMs have been around since the 60s, point-of-sale devices for credit and debit cards since the 90s. And cashless payments are older still: old-style credit card imprint devices, chequebooks, postal orders, travellers’ cheques and giros.

The arrival of chip-and-pin, then contactless, and now mobile payments therefore haven’t been a complete revolution; but they have radically accelerated a move away from cash that had its origin generations ago.

But we’re now at a tipping point. Going from five per cent to 25 per cent card payments led to card machines becoming ubiquitous alongside cash. But a world where payments are 95 per cent card will kill off cash almost entirely.

A profound global shift

In some countries cash still reigns: in Italy over 80 per cent of payments are still in cash, and in Germany only a quarter of retail transactions are paid for with card. However in the UK, just three in 10 transactions are carried out with cash now, down from six in 10 just a decade ago.

In Sweden, the global pioneer of the cashless economy, many banks no longer handle notes and coins. Retail payments are overwhelmingly run through debit and credit cards, much as they are in the UK. But even payments between individuals, or with small traders, have now largely been surpassed by Swish, a sleek mobile payment app jointly run by the Swedish banks.

The phenomenon isn’t limited to the West; in India, state governments are actively promoting cashlessness, with patchy success, while in parts of Africa, mobile transactions through M-Pesa are now part of daily life.

This tipping point has come round quickly. The first year in which card transactions outnumbered cash in the UK was as recent as 2017. By 2019, there were twice the number of card payments as cash. UK Finance’s projections show that by 2023 card will dwarf cash transactions by roughly four to one, meaning that 2020 will see us half way through this sudden and profound shift.

How will this affect people’s lives?

A person holding a debit card

The big consequences of cash dying out aren’t just that you might need to go further to find a cash point: it fundamentally changes the way we spend money.

There is some evidence that people use cards differently to cash, spending more freely and even spending on different things. This reflects a sense of choice: the choice to pay for something, even if you don’t have the real money, and the freedom to undo that choice easily later.

Like a lot of change, for those with agency the change can be exciting and liberating; but for those without it, it opens up new routes to marginalisation and coercion. Over a million adults in the UK don’t have a bank account. If you are marginalised then cashlessness feels like less of a choice.

Australia has trialled paying some welfare benefits through electronic payment cards, heavily restricting access to cash for some of the poorest in society. These function like a standard Visa or MasterCard, and are processed through the same networks, but they block users from spending money on alcohol or gambling.

Does this mean we can expect governments, employers or landlords to use electronic payment systems – and the data they gather – as a tool to control, study or manipulate people’s behaviour?

The precedent is concerning. But there are already signs of a move to ward this off. The amount of cash in circulation in most countries is in fact going up. In the UK, it’s been growing consistently at about five per cent a year for well over a decade. In fact there are more coins and banknotes in existence than ever before, over £1,000 per inhabitant of the UK.

So what are we doing with all this cash? It seems in many cases, we’re just holding on to it. Mistrust of the financial sector and rock-bottom interest rates for years have eroded the attraction of saving in the bank.

And perhaps this points to how cashlessness will play out in the long term, because this isn’t the first time a new kind of payment has displaced an old one: fiat money long ago replaced precious metals. But gold never went away – instead of being primarily a method of exchanging value, it’s become a way of storing it.

Long after the last pub stops taking cash in favour of plastic, many of us will still keep a wad of notes in a drawer; insurance for a rainy day. Though, of course, our banknotes are plastic now too.

Olivier Usher leads Nesta Challenges' research team.