It’s a well-known fact that the Queen carries no cash, and it looks as though we as a society are catching up with her, as we move closer to a cashless way of living, says Sarah Healey Pearce, Corporate Finance Director. Indeed, the Royal Mint recently announced that no new 1p or 2p coins have been issued this year, the first time this has happened since 1972. This decision may be a reflection on the decline in the use of the copper coins, although the Treasury were quick to point out that no new £2 coins were issued last year and that they will not be making any adjustments to the type of coins in circulation.
However, the rise of contactless payments, phone apps and internet banking have also played a part in the decline in the use of cash, coupled with the disappearance of the ATM in many locations. In the Access to Cash Review carried out in December 2018 it was found that the use of cash has declined to 34% of transactions, compared to 63% a decade earlier.
It is difficult to say whether consumers are choosing to use cash less, or whether they are being forced to do so by banks and other organisations pushing us towards this by reducing the opportunities to use cash (for example, a card only pub has opened recently in Suffolk) but it is safe to say that we are gradually moving towards a cashless society and future generations may well grow up using cards and other electronic payment methods as standard. Businesses that don’t embrace this shift in consumer habits will certainly find it increasingly difficult to trade.
The emergence of the fintech (or financial technology) industry in recent years has seen a number of firms - many within this region - take advantage of this change to develop banking and financial services for both businesses and consumers. In the last few weeks, Swedish fintech business Klarna completed a $460m funding round and was valued at $5.5bn, making it the most valuable VC-backed fintech business in Europe to date.
Whilst there are disadvantages to no longer using cash, particularly for some people that live in rural areas or who not comfortable with technology, and there are socio economic reasons for not phasing it out completely, the rapid expansion of the fintech sector will undoubtedly open up markets for businesses of all sizes and reduce administrative costs. Services that historically were controlled by the major banks and other financial institutions are now being offered by other organisations.
An obvious example is crowd funding. A few years ago, any business starting out and needing to raise finance would have approached their bank, which may have been a difficult experience if they had no trading history. Now, crowd funding sites have made it easier to access much-needed capital from individuals across the globe with less admin, often within a shorter time frame and all at a competitive cost.
Today, fintech has expanded and matured so that there are safe and robust platforms for businesses of all sizes to use when making/collecting payments, giving credit to customers and running their internal accounting systems. Access to global markets has also widened with services that make the conversion and transmission of money internationally easier.
At a personal level, consumers are also embracing fintech developments with more of us using our mobile phones to run our personal finances than ever before. The facility to make payments using our phones is spreading, with touchscreen services now being offered by small independent shops, not just the large high street chains. As with business operations, fintech now means that consumers can access other financial services more cheaply and easily with credit scoring and wealth management being examples.
As consumers become more used to managing their financial affairs and day to day life in a cashless way, businesses that fail to keep up with technological advances may well find themselves at a huge disadvantage and no longer able to service their customer/client base or take advantage of opportunities within their market. It is clear that financial technology is only going to develop further and faster to meet people’s growing expectations, and it is essential that businesses embrace it with equal enthusiasm if they want to stay ahead.