How does a cashless society affect consumer spending?


In an era where cash payments are becoming sparse and cashless payments are furiously taking the lead, consumers are fast adapting and changing the method in which they choose to make payments. As financial technology closely perfects digital payments, online banking services and in-app investment ability, routine interaction with physical cash diminishes, writes Keith Tully, an expert in business restructuring and turnaround.

Cashless methods of payment establish the benchmark of fintech and mark the standard of technology experienced and embraced by consumers today. As notes and coins compete with phone and card payments, banking providers have adapted their marketing strategy to incorporate flexible and digitally savvy ways of making payments. Investment in new technology is now essential to keep up with customer demand and technological advancements.

Although the introduction of new technology raises concerns in relation to security and privacy, cashless spending offers a wealth of opportunities, including the creation of new jobs, advanced mobile features and seamless payment systems.

From Google, Android and Apply Pay, to top-up and pre-paid cards, this is a sign of an economy going cashless. Society as such encourages efficiency and promotes a faster pace of working, changing the way customers spend and businesses react. As expected with any form of new technology and societal change, benefits and drawbacks exist so it’s vital to understand the influence this has on consumers.

Debt build-up: Making payment through a contactless debit or credit card cuts down the decision making process and erases the spare time you would’ve otherwise had to thoroughly consider your purchase if you were to use cash. In comparison to physical notes and a handful of coins, a plastic card only gives an illusion of spending which makes the process feel painless and guilt free. This makes it easier to snowball into debt as contactless systems are becoming commonplace, granting even more spending freedom.

Following a surge of customers using contactless payment, the £20 limit was increased to £30 to fulfil customer demand. Although there is a transactional limit, there is no limit on the amount of times contactless payment can be used throughout one day, making it easier to fall into the negatives. UK Finance found that by June 2018, contactless payments overtook chip and pin payments, with nearly £119 million contactless cards issued in the UK. This amounts to two cards per person.

Feeding spending habits: If you are more of an impulse buyer, rather than a disciplined spender, contactless and phone payments could pose the risk of fuelling your spending habits. As the payment process has been developed to minimise time consumption, it takes more self-control to spare a moment to contemplate your purchase before making payment. Taking minimal cash in hand was once an effective way to tackle unplanned spending, however funds can now be easily accessed through your phone or as emergency cash through a cash machine.

Money management with Fintech apps: Fintech applications and intelligent in-app features which have been created to help consumers manage their money and actively measure income and expenditure, following the introduction of cashless spending. Apps such as Intuit Quickbooks and in-app tools such as the NatWest Budget Calculator were fast developed to cater for the new style of banking and tackle overspending.

This opened the doors for many challenger banks, such as Monzo, who were able to launch as a digital, mobile-only bank as a result. Monzo allows consumers to adopt their cashless spending behaviour worldwide by imposing zero fees for shopping abroad. This makes consumers less conscious of spending abroad as if you were to run out of foreign currency, Monzo is able to fill the cash gap.

Security: There are security measures in place to deter fraudulent activity, however, if your card is linked to your phone or you have a contactless card, there is a possibility for fraudulent payments to take place. In reality, there is a low risk as the card can be deactivated with immediate notice and the monetary limit is small. There is also a limit on the amount of times contactless payment can be made before the pin will be requested to verify that the buyer is legitimate.

In order to use Apple and Android pay, depending on the model of the phone, you may require a retina or fingerprint scan before the phone can be unlocked and payment system used. This affects the spending behaviour of consumers as they may be more open to spend freely or on the other hand, this could make them suspicious and result to restricting spending.

Downtime: In the event of service outage for online banking services, notoriously experienced by Lloyds, Barclays and other high street banks, consumers have been known to have been locked out of accounts, unable to access digital banking services. In the event of downtime, consumers have been left dependent on cash, unable to make bank transfers and payments online.

Although implementing a cashless initiative brings along a series of concerns, it attracts investment, promotes innovation and encourages the market to step into the modern age. As digitally dependant challenger banks enter the market and financial technology improves, the variety available for consumers increases which evolves spending behaviour.

Keith Tully is a partner at RBR Advisory and has over 25 years of professional experience in restructuring, turnaround and business rescue.