Payment methods, and preferences towards the various options, are changing rapidly. The recent Coronavirus pandemic has had a far reaching impact on how people choose to spend their money – it has arguably accelerated the move away from traditional cash to digital payment methods, fuelling debate around whether this is a watershed moment for the existence of cash.
Whilst moves towards a cashless society are nothing new – with countries such as Sweden moving towards a cashless society already – Covid-19 has caused a momentary pause for consumers and businesses to think about payments and discuss whether cash is the fastest and safest option for users.
Naturally, this focus on the safety merits of cash has thrown a number of questions in the air around the future of money. There has been a long-term trend towards a cashless society with the latest figures from the Bank of England showing that 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.
Debates have also moved on into conversations around the growth of alternative currency forms such as bitcoin, digital currencies and most recently Facebook’s ‘Libra’ currency. Consequently, there remains ambiguity around what the future of money will look like.
Six Group have explored and outlined three potential scenarios around what the future of money is likely to be. Questions around how money might evolve, what is considered money, what form it takes, and how it is used have all been taken into account, as these are the factors that could all dramatically change in the future. The three scenarios outlined are: cash persisting, digital currency replacing cash, or even a bitcoin world.
Cash persists within a digital world
In this scenario, cash continues to exist as a method of exchange, yet it becomes displaced by digital payments. Here, cash holdings fall 40-60% driven by a 40-70% decline in cash being used as a means of payment.
At a human level, this change is spurred on by the convenience of digital payments as methods of transactions become even more present within online human activities. For example, payments on smartphones becoming easier with voice transactions and augmented reality enabling seamless transaction. Indeed, voice payments over platforms like virtual digital assistants are likely to be available soon for consumers.
This is one of the most-likely scenarios for the future of money as cash continues to be viewed as a very safe ‘store of value’, but continues to fall in usage as a means of payment. This diminished role for cash is caused by more user friendly financial tech which plays an increasingly significant role in human activity. This trend is spurred on by developments in open banking and in user interfaces but could lead to a dramatic reduction in the number of ATMs available.
Digital Currency becomes the New Cash
In this scenario, cash becomes extinct as digital currency replaces traditional cash. Here, a drastic 80% fall in the number of cash users takes place as a majority of people stop using cash due to the convenience and safety of digital currency.
In turn, this puts considerable pressure on cash infrastructure as there becomes a pressure on physical infrastructure to print physical money at low enough costs and prices. Banks are therefore likely to be very active in reducing the operational costs of the cash infrastructure.
This move could potentially lead to Government discouraging people to use cash by requiring businesses to set higher prices for goods/services purchased with cash, while at the same time depreciating cash relative to the digital currency.
This scenario has a medium likelihood with the decline in cash causing digital currency to become a more popular option and safe option with advances in cybersecurity measures. However, a digital currency has a number of infrastructure obstacles to tackle in order to become a viable replacement for cash.
A bitcoin world
Whilst an unlikely scenario, the reduction in cash-users could lead to an influx in usage of bitcoin and crypto assets, resulting in crypto becoming a dominant method of payment. A recent survey in the UK found that almost half (47%) of respondents trusted Bitcoin over major banks, an increase of 29 per cent in the past three years.
Indeed, we have already seen a number of stores in London begin offering crypto as a form of payment but there are still questions over whether bitcoin could become a universal payment method. Yet, bitcoin becoming a universal payment method is a low probability eventuality. SIX research found a number of hurdles for bitcoin to jump before becoming a universal payment method including consumer concerns around regulation and its lack of stability at the moment. Here, there is a clear trust barrier before bitcoin becomes a universal payment method.
Whilst the form money will take in the future is unclear, Covid-19 has led to an appraisal of cash as a payment form. With a decline in consumers and businesses using cash during this global crisis, there are a number of potential eventualities that could lead to a revolution in how we spend our money.