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

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

The Banksy image in Folkestone before it was vandalised
Life and Style

Sales of the tablet are set to fall again, say analysts

football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister

Met Police confirm there was a 'minor disturbance' and that no-one was arrested

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010

George Lucas criticises the major Hollywood film studios

Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'

Does Chris Grayling realise what a vague concept he is dealing with?

Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style

I Am Bread could actually be a challenging and nuanced title

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Customer Service Executive / Inbound Customer Service Agent

    £18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

    ASP.NET Web Developer / .NET Developer

    £60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

    Operational Risk Manager - Asset Management

    £60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

    Project Coordinator - 12 month contract

    £27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

    Day In a Page

    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

    Salisbury ranked seventh in world’s best tourist cities

    The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth
    Will there be an all-female mission to Mars?

    Will there be an all-female mission to Mars?

    Women may be better suited to space travel than men are
    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album