An unexpected headline: Cash payments rising

In the UK. What’s happening?

Unexpected Headlines

Saw a couple of headlines recently:

• BBC: Cash Payments rise for the first time in 10 years
• Financial Times: UK cash use grows for first time in a decade
• Guardian: Cash payments rise in UK as people seek ways to manage budgets

and a few others behind a paywall (trying not to link to articles I haven’t pre-screened 😆)

I’ve written about cash before in “Cash is alive…(and kicking?)” but an increase in cash payments is unexpected. So let’s dig in.

Photo by Colin Watts on Unsplash

The numbers

Summary: Total # of cash payments in the UK rose by ~7% from 2021 to 2022.

The facts (from UK Finance) [1], pg4

• The total number of cash payments made in the UK during 2022 increased to 6.4 billion payments from 6.0 billion payments in 2021
• However, due to the greater increase in the total volume of payments in the UK, the proportion of payments made using cash still fell slightly, from 15% of payments to 14% of payments. Nevertheless, cash remained the second most frequently- used payment method in the UK during 2022. (pg3)
• Among 16- to 24-year-olds, more than 15 per cent of payments last year were made with cash.

The Why

Summary: Cash is easier to use to manage budgets, especially in tougher economic times, hence consumers are choosing to use cash.

The hypothesis from UK finance was that consumers “appeared to turn back towards cash as a payment method that would help them to manage limited budgets”, and “We saw this, for example, in 2008 during the financial crisis. And we saw this again in 2022 as the rising cost of living led some consumers to attempt to manage their spending” (pg6)

Non reasons:

• Access: Access to cards was not the issue, as the report also noted that those who used cash had debit cards. [2]
• Debit cards (the #1) becoming less popular: Other payment methods like debit did not become “less popular” — debit card usage still grew and debit cards are still the #1 payment method in the UK (by transaction count). [2]

Looking ahead

A surprising change from 2021 to 2022 doesn’t mean that the macro trend of cash usage falling is no longer applicable. Overall, cash as a % of overall payments is 1/4 of what it was ~10 years ago. The report had a nice table below that I believe demonstrates the secular trend of cash payments falling.

UK Finance (Pg 6)

A few my own predictions:

• The % cash payments as total payments is probably not going to decline to 0.
• The rate of decline will decrease. It’s not going to halve every year like go from 14% to 7% then 3.5% etc, but rather it’ll inch down each year.
• In 10 years, the steady state number might still be between 5–10%.
• Budgeting tools via financial apps will get better, which will reduce (not remove) the need for cash, assuming that is a primary reason for consumers to use cash over cards.

Excited to see things unfold.

[1] Or at least, a summary of the UK Finance report. The report itself costs $3400. UK Finance

[2] Pg6: “It should be noted that, whilst these people prefer to use cash when paying for things, they are not necessarily unwilling or unable to use other methods of payment. The majority of them have a debit card, for example. Nevertheless, there remains great diversity in the way in which different people in the UK prefer to manage their finances and conduct their day-to-day spending. This figure has been declining over time, and continued to fall in 2022, declining from 1.1 million people in 2021.”

[2] Pg3

Both debit card and credit card payments rose in 2022. Further, the share of payments made using cards, which had increased to 57% of all payments during 2021, increased further to 59% of all payments in 2022.