Wednesday, June 24, 2020

Izabella's Back: "How Covid-19 has reframed the war on cash"

We hadn't seen her byline for a while.
From FT Alphaville:
Before Covid-19 struck the UK’s shores proper, this reporter’s local high street in suburban West London still had one cash-only retailer. It was the grocer. (A really good and popular grocer.)
For customers like me – who had long ago embraced the digital revolution – the grocer’s stubborn resistance to partake in digital payments was beginning to get frustrating. With only two ATMs on the high street, one at the Co-op and the other a standalone highly-priced Link automat, the additional friction of having to source cash just for the grocer was often an extra level of faff that most of us were not prepared to go to. It seemed odd too that this grocer could afford to be so discriminatory? Surely it is not in the economic interests of any high street vendor to put off impulse purchases in such ways?
But something happened just before the pressures of Covid-19 began to intensify. The grocer in question gave in and began accepting digital payments. For most of us this was a shopping revelation. What’s more, the move felt legitimately customer-demand led.

Digital payment dependencies
As Christina Segal-Knowles, executive director of the financial market infrastructure directorate at the Bank of England, noted in a recent speech the shift towards digital payments of this sort has been long coming. From 2017 to 2019, the number of people using cash just once a month or less in the UK more than doubled to 7.4m. In mid-2016 cards overtook cash for the first time as the most frequently-used form of payment in the UK.

But digitisation isn’t all good. There are important societal side-effects associated with the last remaining hold-outs giving in in the way our grocer did.

The more the cash economy crumbles, the worse the economics of providing physical cash and the associated infrastructure (ATMs) become. That sets into motion forces that begin to eliminate ATMs, bank branches and other cashing-out mechanisms that we have long taken for granted. This in turn has a major impact on those who are still dependent on the cash economy: the elderly, the unbanked and the illegal. How do they get serviced when there are no more ATMs left?
What’s really striking in the current moment is the degree to which Covid-19 may have accelerated these trends.

As Segal-Knowles notes, data from LINK, the UK’s main ATM network, implies ATM network transactions fell markedly during the period. The beginning of that fall is just about the time our grocer went digital:...