The Big Question: Is the relentless march towards a cashless society a good thing?
Why are we asking this now?
The Payments Council predicted yesterday that banknotes and coins will be used for fewer than half of all transactions within five years. The Way We Pay 2010 report revealed that the use of cash has slumped in the past 10 years. Instead we're using plastic, with chip and pin and contactless cards set to dominate payments in the future.
According to the report, debit card usage has climb fourfold since 1999 – four times as fast as spending. Mike Bowman, head of policy and markets at the Payments Council, said: "Although cash won't disappear in our lifetime, the continuing payments revolution will make it an ever smaller part of our spending."
But everyone still uses cash don't they?
Only for small amounts, it seems. The Payments Council said that while 21 billion consumer payments were in cash last year, four-fifths of them were for amounts less than £10. Meanwhile for regular commitments, such as bills, cash has plummeted from 19 per cent of all payments in 1999, to just nine per cent last year. The number of people being paid in cash-in-hand has also shrunk, from one in eight in 1999 to just one in 20 in 2009. Even the tradition of waving a fiver or tenner in a boozer for service is disappearing as just 40 per cent of pub spending now involves cash, compared to 90 per cent a decade ago.
What about cheques?
They are set to disappear altogether. The Payments Council has suggested they be phased out by 2018. In evidence they point out that the use of the cheque book has been in steep decline since 1990 as people choose quicker payment methods. Last year, just 0.8 per cent of retail transactions were made with cheques. The Payment Council's 1999 prediction that just over one billion cheques would be used by individuals in 2009 proved to be almost twice as much as the actual number written, which was just 577 million.
The disappearance of the cheque is a contentious issue, particularly with older people. Michelle Mitchell, Age UK charity director, warned: "The withdrawal of cheques would cause serious difficulties to some older people who don't feel comfortable with the chip and PIN system and don't like carrying around big amounts of cash," she said. "We urge the next Government to ensure the use of cheques is guaranteed until alternative payment methods are in place which older people feel comfortable with."
However, pensions and benefit payments have already largely made the switch from cash. Ten years ago, 87 per cent of state benefits were paid in cash, whereas today 79 per cent of payments go directly into bank accounts.
How are people paying for things without cash or cheques?
Plastic cards and online banking is the modern way to pay. Since the introduction of chip and pin, the debit card has become the most popular way of paying, quadrupling in a decade to £264bn-worth of payments last year. Mike Bowman said: "Since chip and PIN speeded up transactions, it's become socially acceptable to buy small items by card now, for example in a sandwich shop or a pub. Now there are no fiddly bits of paper and time-consuming signatures and there's no tutting from the queue behind."
There'll be an estimated £6bn in debit card payments in 2010 and by 2018, one in four of all transactions is forecast to be made on a debit card, up from just one in 20 in 1999.
Even that could prove a conservative estimate as contactless cards make it even easier to pay, encouraging more to use plastic for everything from newspapers or sweets, to bigger-ticket items such as TVs or computers. Millions in London already successfully use contactless Oyster cards which just need to be waved over a 'reader'.
Contactless payment for small purchases has the potential to drive debit card usage even higher. There's a huge opportunity for us to replace billions of these with a quick swipe past a card reader, said Bowman.
Aren't the big banks simply encouraging the switch to plastic to boost their profits?
According to analysts at McKinsey, a move to a cashless society could save European banks between £45bn-£90bn a year. That's because the process of handling cash can be expensive as it needs to be transported from shops, garages, hotel and restaurants and so on to banks. That's labour-intensive and expensive in terms of security. Cheques, too, are expensive for the banks to handle, with one estimate putting the cost of dealing with every cheque at 50p, as they, too, need to be physically moved from retailers to banks and between banks.
A switch to card payments cuts out all the physical movement and vastly reduces the security costs. There's no doubt that companies involved in sorting out payments are set to boost their profits. These are not the high street banks but companies such as Visa and Mastercard which process payments. They profit at both ends, charging the banks for their services and charging retailers per transaction.
Credit cards are charged at between 1-2.5 per cent of the cost of the transaction while debit cards cost shops and other a flat fee of between 10p and 40p per payment.
So retailers will be hit by the switch?
Small shops in particular have to pay more for plastic cards as they don't have the bargaining power of the big high street retailers.
With a chip and pin machine costing a small shop owner £100 rental a year and £30 a month, many would still prefer to use cash. The high charges are why you'll often see signs declaring that there'll be a 50p charge or so for a debit card use below certain amounts. The cost of processing the plastic could otherwise mean the retailer making a loss on small items, such as sweets and papers.
Does that mean that cash won't totally disappear?
Yes. Many firms will continue to prefer being paid in cash and many people will prefer using it. In other words, people power will win out. Ron Delnevo, managing director of ATM network Bank Machine, said: "Cash is here to stay because – despite dubious tactics used by the Card schemes to force us into electronic payment methods – the British public simply won't be told what to do."
In other words, as long as there is a demand, there will still be cash. The same is true of cheques. Despite the Payment Council's 2018 deadline for cheques, if enough people continue to use them, the finance industry and shops and firms will continue to support them. The bottom line is that they want your money, in whatever form you choose.
Is plastic the best way to pay?
* It's the most convenient method of paying
* It's the quickest way to pay and is getting faster with contactless cards ending the need to use a pin
* It's the most secure way to carry money. If cash is stolen you'll lose it: with cards you won't normally be eligible for losses
* Cash is quicker for day-to-day purchases. Handing over £1 for a paper is faster than getting out the plastic
* Many businesses won't accept plastic cards. Street markets, collections, and whip-rounds demand cash
* There'll always be times when plastic won't do – money from the tooth fairy, or pocket money, for instance
Donald MacInnes: Who would want to be a Barbie girl in a non-Barbie world?
Mark Dampier: How to get an income now that savings are past the 'use by' date
Thousands of UK investors could lose out following collapse of Secured Energy Bonds
Bargain Hunter: Fly off for a winter break in France or Portugal for well under £100
Millions in line for compensation after being sold unnecessary credit card cover
- 1 Stephen Fry explains what he would say if he was 'confronted by God'
- 2 City traders pay £200 for a quick hangover cure
- 3 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 4 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 5 Ball pool for adults opens in London
Stephen Fry explains what he would say if he was 'confronted by God'
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
Hard line on immigration could cost Tories the election
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion