AOC0448

Written evidence submitted by Mastercard

 

Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Main questions 

 

  1. What is the current state of, recent trends in, and forecasts for cash acceptance in the UK?

 

When considering the current state of, recent trends in, and forecasts for cash acceptance in the UK, it is important to take into account that in comparison to other markets around the world, consumers and businesses in the UK have a wide range of payment options to choose from, and are increasingly comfortable with making payments both via cash and using digital forms of payments, be it via card in retail environments (physical or e-commerce) or via account-to-account payments (i.e. Faster Payments, Bacs, and increasingly Open Banking) to friends, family, retailers, other businesses, and government.

 

It is also important to consider that different forms of payment have different characteristics and functionalities and therefore tend to suit different use cases. At the same time, consumers increasingly have a choice of payment methods for the same consumer journey. For example, you can now pay some merchants with card, cash, Buy Now Pay Later (BNPL), wallets, or make a bank transfer directly into their bank account. This positive trend of choice for consumers and businesses, which includes a mix of cash and digital payments, is set to continue if existing and potential payments innovations continue to be supported.

 

In the UK, we have seen a significant increase in the use of digital payments reflecting changing consumer demands and preference towards card payments, because of the expanded opportunities and benefits that they offer to both consumers and merchants. However, this doesn’t necessarily suggest we are moving towards a cashless society. Cash is still the second most frequently used method of payment in the UK[1], although consumers and businesses are using cash less both in terms of receiving payments and how they pay for goods and services. The total number of cash payments made in the UK during 2023 fell to 6.0 billion down from 6.4 billion payments in 2022[2]. 12% of all payments in 2023 were made by cash, down from 60% in 2008[3]. This trend is also mirrored by a decline in cash acceptance, with merchants free to choose the forms of payment that they accept.

 

Importantly, although cash payments have been steadily declining over the past two decades, market data shows there have been occasional brief periods where the volume of cash payments has increased slightly. As UK Finance set out in their 2024 UK Payments Report, these tend to be during periods of economic uncertainty or recession, and reflect the fact that some consumers find cash to be a useful payment method when they are trying to manage a limited budget. We saw this, for example, following the financial crisis of 2008/2009. And we saw this again in 2022 as the rising cost of living led some consumers to attempt to manage their spending. However, over the next decade, as consumers, businesses and public services continue to adopt alternative, digital payment methods, the number of cash payments in the UK is expected to continue to decrease over the long-term, continuing the trend seen over the last couple of decades[4].

 

It is important to note that whilst traditionally cash has been used as a tool by people who are managing limited budgets, increasingly we are seeing younger people budgeting using mobile banking and other technology based‑ services[5]. This change in behaviour is something that the industry, via UK Finance, are monitoring, but which also has implications for the future use of cash, both from an access and acceptance perspective, in the UK. If these tools did not exist, we might have expected to see an even greater increase in cash use in the UK during 2022 than was actually observed. Rather than the UK moving steadily towards a cash free‑ society over the next decade, what is more likely is the UK transitioning to an economy where cash is less important than it once was but remains valued and preferred by some consumers.

 

 

At Mastercard we support a choice of payments for consumers, businesses and the public sector, including cash and digital payments. Through our innovation and services, such as cashback without purchase, the LINK ATM infrastructure, and our work to enable counter services including free cash withdrawal, deposit and balance enquiry for account holders, at over 30,000 Post Office branches, we’re enabling consumers to use, and businesses to accept cash, for as long as it is required.

 

It is also important to consider cash acceptance trends, and the underlying drivers of these trends, for businesses in the UK, but particularly for small businesses, because, as set out in more detail below, even if certain consumers would like to continue using cash to pay for goods and services, if there isn’t a sustainable commercial case for businesses, particularly micro and small businesses (MSEs), to accept cash, we may see the decline in cash usage and acceptance accelerate.

 

Research commissioned by the FCA looked at key factors that determine whether small and medium sized business owners choose to accept cash[6]. This research found that despite the Covid-19 pandemic accelerating the use of digital payments, businesses are still happy to continue accepting cash, as providing customers with choice of payment methods is of key importance[7]. The research also found that the cost of different payment methods was of relatively low importance as a factor in driving the decision making within small businesses.

 

The trends in cash usage and acceptance must also be viewed in light of the trends which show an increase in consumer preference for, and use of, card and other digital payments. In 2023, debit cards were the most used payment method by volume with 24.5 billion transactions, with card payments overall accounting for 61% of all payments in the UK. Importantly, the majority of the population (over 97%) now hold a debit card, and most people use them to make payments[8]. This shows that consumers have an increasing choice of, as well as preference for, digital payments alongside cash. From a survey of consumers, we found that the single biggest use of credit cards is online shopping, because of the security and protection that this gives consumers. Over 90% of consumers cited cards as offering comprehensive consumer protection,[9] which isn’t offered on other forms of payment. This protection in turn provides consumers with the confidence to make purchases from overseas merchants. It also gives confidence to overseas consumers to make purchases from UK merchants. The point is illustrated in the following two tables.

 

 

 

  1. Are there groups in society that disproportionately rely on businesses and public services accepting their cash? What challenges do they face? 

 

Research shows that there are groups of consumers who prefer to use cash to make payments for multiple reasons and therefore rely on cash being accepted by businesses and public services[10]. We have to remember, there are also consumers who use both cash and digital payments but for different consumer journeys, and therefore they are not as reliant on businesses and public services to continuing to accept cash.

 

Contrary to long held views, the Access to Cash Review found lower incomes are the biggest indicator of cash dependency, not age. In 2019, over 15% of people with an income under £10,000 a year relied completely on cash to pay for goods and services, compared to less than 2.5% of all higher income groups[11]. Group such as the elderly, those on low incomes, people looking to budget including in times of financial difficulty[12], those with limited digital skills or limited access to digital financial services, those without access to a bank account for various reasons including recently arrived immigrants, refugees, those fleeing domestic abuse, and other vulnerable individuals such as the homeless, those with disabilities, and those living in rural communities with limited digital connectivity, are all more likely to rely on businesses and public services accepting cash because of the challenges they face. Against this backdrop, it is also notable that the Financial Services and Markets Acts 2023 handed responsibility for maintaining cash access to the FCA.

 

Research also suggests a wide range of needs for those using cash and relying on businesses and public services to accept cash, such as paying for low value transactions, helping with money management, some businesses stating a preference for accepting payment by cash, perceived convenience when paying family or friends, and personal preference over digital payments[13]. It is important to note that the reasons above apply to all income and age groups. Some of the reasons for why certain consumers prefer to use cash are likely to change over time as more local businesses or public services begin accepting digital payments. Furthermore, as more rural communities begin to get access to broadband and therefore digital services, we should also see a natural improvement in digital inclusion across the UK. And as digital payments innovation, such as in the prepaid cards space, continue to offer access to digital payments for more consumers, including vulnerable consumers, such as those without access to a bank account, those with physical or mental health issues, those who need to rely on others buying things for them or those who need support with budgeting, we will also see the preference and reasons for on relying on cash acceptance change.

 

For example, we recently helped Sibstar launch a new debit card and app on the Mastercard network that enables people living with dementia to access and spend their money digitally while keeping it safe; thereby reducing the need for these consumers to access, store and use cash. The Mastercard Touch Card enables people with visual impairments, including those that are blind or partially sighted, to use cards to make payments for everyday goods and services. The Touch Card feature creates an accessible system of payment cards with unique, tactile notches — rounded for debit, squared for credit and triangular for prepaid — so anyone can identify their cards with just a touch. The design was vetted and endorsed by The Royal National Institute of Blind People (RNIB) and is already available with multiple banks in the UK.

 

More broadly, technological developments and payments innovations are already helping to address many of the needs and challenges of those who depend on, or prefer, cash to make and receive payments. These innovations are enabling digital financial inclusion, whether that’s through pre-paid cards getting vital funds to the most vulnerable unable to access mainstream banking services, or devices and tools to help small businesses to start trading online, to helping those reliant on cash to develop the digital skills and confidence to access the right digital financial services and tools for them.

 

Prepaid cards are an inclusive payment tool that do not require a bank account yet offer much of the same functionality as a bank issued card, such as online and point of sale payments. Similarly to cash, they do not allow consumers to overspend, helping to address the needs of unbanked consumers who need support managing their money or want to avoid accumulating debt. As such, they act as a bridge for financially excluded individuals, such as those with poor credit history, hard-to-reach, and unbanked individuals, including those who may rely on businesses and public services accepting cash, helping them to realise the benefits of digital payments and build their digital financial skills, without having to open a bank account. They essentially afford some consumers the opportunity to have a payments journey beyond, and in some instances in addition to, using cash, helping to significantly improve their sense of financial inclusion and security, and helping to build their financial skills and resilience in the long term.

 

In the UK, we work with a range of prepaid card providers, such as Pockit, who provide an alternative for those unable to access mainstream financial services, through a prepaid card, online and app based financial services, and Monese, which was set up to provide migrant workers across Europe, including those coming to the UK who do not have a proof of address, local credit history, utility bills and other documents, access to financial services so they can receive a salary, rent accommodation, set up utility bills and manage their day-to-day spending. There is a growing range of purpose-driven fintechs in the UK that address specific areas of exclusion for a range of underserved groups for whom mainstream payment services may not be accessible or appropriate, and therefore they have to rely on cash to make and / or receive payments.

 

Prepaid cards also offer a secure way for the UK Government to disburse welfare and other payments, which for many individuals is a vital payment journey. They can also be used to measure economic activity, thereby offer helpful data and insights on economic activity that can be used to improve public services, guide public and private sector investments, and support for local communities. In the UK, Mastercard prepaid cards are used to provide disbursements to vulnerable adults and children within the social care system administered by local government, parents on benefits to enable them to buy healthier foods for their children, and migrants whose applications for asylum are being processed by the Home Office. Prepaid cards were also used during the pandemic to provide an economic boost to many high streets following lockdown.

 

Digital payments may therefore help to address many of the challenges faced by those groups who depend on businesses and public services accepting cash payments and should be considered as part of the long term, sustainable solution to cash acceptance and access. As cash usage and acceptance continues to decline it is important that, alongside efforts to ensure its availability and acceptance, that the national capability to use and understand digital alternatives, and digital financial exclusion more broadly, is addressed in tandem. There is also an urgent need for industry and policymakers to work together to help build consumers’ trust and confidence around understanding and using digital payments, which is often all that is keeping certain, digitally able consumers locked into a disproportionate reliance on cash.

 

3. Should the Government require parts of the economy to always accept cash? Are there sectors of the economy where cash acceptance is particularly important and should be protected?

 

When considering whether certain parts of the economy should always accept cash, it is important to ensure cash acceptance remains economically viable for businesses and the public sector, which includes having an appropriate cash deposit making infrastructure. If the costs of accepting cash outweigh the benefits for businesses, in particular small and micro businesses, who also want to realise the benefits of digitising their business, then we may see a decline in cash acceptance as well as cash usage. Having adequate cash access for consumers also needs to be considered.

 

In the long term, sustainable provision of cash acceptance and access, which includes cash withdrawal and deposit making services across the UK should be based upon a suite of services. These could include the current network of ATMs, the Post Office branch and new Banking Hub network, innovations such as cashback at the point of sale, and improved digital financial inclusion, access, and skills amongst vulnerable consumers. Deposit taking is an important element to maintaining cash acceptance. If merchants/businesses cannot deposit cash or face a significant journey and cost to deposit cash at the nearest bank branch or Post Office, then ultimately, they are less likely to continue accepting cash in the longer term.

The UK can maintain an appropriate network of cash deposit making facilities by ensuring that the ATM network, the Post Office, Banking Hubs, and cash recycling services are options that are available on an appropriate geographical basis. The solution may in part lie with existing ATMs being upgraded to provide deposit facilities as well, in addition to more widespread availability of existing cash collection services from some banks, rather than businesses (and individuals) having to rely on a declining national bank branch network to fulfil this requirement.

 

Mastercard supports efforts to ensure that cash is accessible for consumers and accepted, alongside other forms of payments, for as long as is required. We support and indeed play a central role in facilitating cashback in the UK, as part of a wider system of ensuring there are cash withdrawal facilities for individuals and businesses that require them. Indeed, merchants that offer cashback, also need to accept cash. By facilitating cashback, Mastercard is enabling the acceptance of cash to be attractive to merchants too.  In order to help the availability and recycling of cash in local communities, Mastercard made significant economic improvements to the cashback with purchase service in 2020. The objective was to encourage retailers to offer cashback at the point of sale by offering a fee of 12 pence every time they dispense cash to a shopper paying with a Mastercard debit card.

 

Through Vocalink’s switching, settlement and resilience infrastructure we are also enabling over 30,000 individual Post Office counters — the largest branch network in Europe — to provide a range of basic banking transactions including free banking services such as cash withdrawal, deposit and balance enquiry for account holders, all of which ensure consumers are able to access cash and businesses are able to continue accepting it.

 

As set out above, in tandem with efforts to consider which parts of the economy should always accept cash, efforts to ensure a viable economic model for cash acceptance for businesses and public services, as well as efforts to substantially improve digital financial inclusion, and knowledge of other payment options amongst consumers, should be prioritised.

 

4. What are the practical challenges that businesses might face from having to always accept cash? How do these challenges differ between large and small businesses? 

 

When considering the challenges businesses face when always having to accept cash, it is important to note that all payment methods, whether cash, account to account payments, Buy Now Pay Later (BNPL), or cards have a cost attached to them. A study by the Boston Consulting Group (BCG) found that for an average domestic card transaction of £50 in the UK, the total cost to the merchant of accepting a card payment is just 2.4% of this transaction value, or £1.20. The cost to accept payment by cash for the same transaction is higher at £1.75, and it is £2.05 to accept payment by BNPL[14]. As such, the cost of processing cash is a key consideration, and in some cases challenge, for businesses but particularly pronounced for small and micro businesses.

 

A study in the Harvard Business Review[15] found that cash must be stored, guarded, and accounted for, can be difficult to transport and is inherently insecure. In the U.S. retail businesses lose about $40 billion annually because of the theft of cash alone. The European Central Bank also found that the cost of accepting cash for merchants is 2.6% of a transaction and 60% of this cost is avoidable by using digital payments. i.e. for a £15 digital transaction, £0.21 in cost is avoided because the transaction was not conducted in cash[16]. Square noted that the average cost of cash in a cash-only transaction can range from 4-15 per cent and some of the top contributing factors include the opening and rebuilding of cash drawers, as well as back-office and banking charges. It also found that on average, according to SME estimates, digital payments acceptance costs 57 per cent less than other payment types including cash and cheques[17]. As cash usage further declines, the relative cost of accepting cash would be expected to increase in future, if some costs are fixed in nature. 

 

Another challenge from always having to accept cash includes the longer transaction time for businesses when compared to the speed of digital transactions. Square note that on average, processing digital transactions take about 2 seconds, speeding up the time it takes for customers to not only make purchases but to move through the line, and is one of the greatest advantages of cashless transactions[18].

 

Depositing cash is another important challenge many businesses face when always having to accept cash. As set out in the answer to question 3 above, if merchants/businesses cannot deposit cash or face a significant journey and cost to deposit cash at the nearest bank branch or Post Office, then they are less likely to accept it in the longer term. The key to ensuring cash acceptance is ensuring that retailers and other businesses are able to deposit cash easily and at an appropriate cost. The solution may in part lie with existing ATMs being upgraded to provide deposit facilities as well, in addition to more widespread availability of existing cash collection services from some banks, rather than businesses (and individuals) having to rely on a declining national bank branch network to fulfil this requirement, and cash recycling services are options that are available on an appropriate geographical basis. The Post Office already plays a significant role in the provision of cash deposit-taking facilities through its existing branch network, which has a particularly important role to play in more rural areas where bank branches are scarce.

 

Businesses may also find it a challenge to accept cash as they begin to digitise more and more parts of their business beyond just payments acceptance, such as their accounting, invoicing, expense management, and other administrative tasks. Again, this challenge would be more pronounced for micro and small businesses.

 

5. What would the costs be, to private firms and the public sector, from any imposed requirements to always accept cash?

 

As set out above, all payment methods, whether cash, account to account payments, Buy Now Pay Later (BNPL), or cards have a cost attached to them. The costs to store, guard and account for cash alongside the costs, including time and transport to deposit cash, must all be considered for private firms as well as the public sector as part of a requirement on them to always accept cash. As noted above, the UK has experienced a decline in cash usage and cash acceptance over the past decade. There are now some merchants which do not accept cash. These merchants, operating in a competitive environment have presumably made the decision because the cost of accepting cash outweighs the benefits, including the additional sales enabled by digital payments. 

 

Furthermore, as more and more businesses as well as public service providers begin to digitise, both in terms of accepting digital payments as well as using digital tools to do their business accounts, pay invoices, reconcile expenses and other administrative tasks, the costs of accepting cash for these businesses may continue to increase in a way that begins to offset the benefits of cash acceptance.

 

6. How might any such requirement for cash acceptance affect financial services firms? How would any requirement especially affect business involved in the provision of cash? 

 

As set out in the answers to questions 3 and 4, deposit taking is an important element to maintaining cash acceptance. The UK can maintain an appropriate network of cash deposit taking facilities by ensuring that the ATM network, the Post Office, new Banking Hubs, and cash recycling services are options that are available on an appropriate geographical basis. As such, this may also require additional investment by the Post Office and other financial service firms.

 

The solution may in part also lie with existing ATMs being upgraded to provide deposit facilities as well, in addition to more widespread availability of existing cash collection services from some banks. Any upgrades to the existing ATM network or an increase in cash collection and / or recycling services will require significant investment by financial and payments services firms.

 

7. Are there any other areas or particular sectors where a decline in cash acceptance would cause problems?

 

We do not envisage any areas or sectors where a decline in cash acceptance would cause problems, as all sectors currently have the option to accept payment by cash alongside digital payments.

 

 

About Mastercard

Mastercard operates a global payments technology network, investing in innovations that enable and protect economies. Mastercard’s network connects consumers, businesses, charities, and governments and allows them to conduct card payments securely either in person or online, across the UK. Through Vocalink we are also responsible for building and running the UK’s Faster Payments and Bacs account to account payment systems. We also play a central role in facilitating access to cash in the UK. Whilst we do not make decisions on how many ATMs, where they are based etc, it is our infrastructure that underpins the LINK network of over 40,000 ATMs. The investment that Mastercard has made - and continues to make - in developing innovative new services allows us to continue to support the UK economy; and continued investment is critical to the UK maintaining its competitiveness in payments.

 

 

November 2024

 

 

 

[1] Summary UK Payment Markets 2024.pdf

[2] Ibid

[3] Ibid

[4] Ibid

[5] Ibid

[6] Cash acceptance within SMEs research

[7] Ibid

[8] Summary UK Payment Markets 2024.pdf

[9] Mastercard UK Consumer Survey, 2022

[10] Access to Cash Report, 2019

[11] Ibid

[12] Summary UK Payment Markets 2024.pdf

[13] Access to Cash Report, 2019

[14] Boston Consulting Group, The hidden cost of cash and the true cost of electronic payment in Europe (March 2022)

[15] Harvard Business Review, ‘The Hidden Costs of Cash’ (2014) 

[16] European Central Bank, The social and private costs of retail payment instruments: a European perspective (2012) 

[17] Accepting Cash vs Credit Cards for Your Small Business | Square

[18] Ibid