End of cash? Use of coins and banknotes slumps by over a third in a year during pandemic

The analysis from the trade association for the UK banking and financial services sector shows that while cash was used in 45% of payments in 2015, now it has slumped to just 17% in 2020.

It comes after it ware revealed that over 2m Scots have been refused payment with notes and coins during the pandemic, threatening the viability of the cash network.

Natalie Ceeney, chairman of the Access to Cash Review has previously warned that cashless payments which are "creeping into the wider economy" could now prevent people from accessing everyday services such as buying food or paying for electricity.

UK Finances said that the decline in cash has coincided with a rise in the number of contactless payments made in the UK in 2020.  There are now 9.6 billion payments, a rise of 12%.

Overall, contactless payments now accounts for more than a quarter (27 per cent) of all UK payments.

The rise of contactless has seen it jump from being just seven per cent of all payments in 2016 to 27 per cent now.

But cash remains the second most frequently used payment method behind debit cards.

UK Finance, which said the lockdown had a far-reaching impact on the amount of payments in the UK added that their  findings are a reflection on how consumers were encouraged to pay by card when shopping.

In April 2020, the industry increased the spending limit on an individual contactless card payment from £30 to £45 in order to help with this.

READ MORE: The end of cash? Two million Scots struggle to pay with coins and notes during pandemic

Some 59% of payments were made by card, including use of contactless,  in 2020, up from 56% in 2019.

But the number of card payments actually fell from 20.4 billion to 19.6 billion in a year, the result of the fact that huge parts of the economy were shut down for significant parts of the year. 

Overall, payments declined by 11% compared with 2019 to reach 35.6 billion, UK Finance said.

David Postings, chief executive of UK Finance said: “The pandemic resulted in some marked changes in payments behaviour and while it’s too early to say whether they are permanent changes, we did see an acceleration in some existing trends such as the reduction in cash usage and the growth in contactless and mobile payments.

“The increase in the contactless limit to £45 coupled with retailers encouraging its use meant that more than a quarter of all payments in 2020 were made via contactless.

“The use of cash fell, reflecting the fact that large parts of the economy were closed during the year, although it still remained the second most popular payment method behind debit cards.

“There remains real diversity in the way in which people choose to conduct their day-to-day spending and the banking and finance industry is committed to helping customers make payments in a variety of different ways.”

During 2020, 13.7 million people used cash only once a month or not at all, nearly doubling from 7.4 million consumers the previous year.

On the other hand, 1.2 million consumers mainly used cash for their day-to-day spending during 2020.

Supermarkets were the most popular place to use contactless in 2020, accounting for 41% of such payments.

This reflects supermarkets remaining open during lockdowns, UK Finance said.

Growing contactless use was also caused by consumers being encouraged to reduce contact by using cards, and contactless payments in particular, during lockdown.

This is despite Bank of England research suggesting the risk of getting coronavirus from banknotes is low.

The report also highlighted strong growth in mobile phones and smart watches as ways to make payments.

Nearly a third (32%) of the adult population, or 17.3 million people, were registered to use mobile payments by the end of 2020, an increase of 7.4 million people compared with 2019.

Whereas contactless payments are widely used across different age groups, in 2020 just over 50% of 16 to 34-year-olds were registered for mobile payments compared with 11% of over-65s, UK Finance said.

And with more people working from home there was also a notable increase in remote banking, as well over two-thirds (72%) of adults used online banking and over half (54%) used mobile banking.

There was also an increase in business use, and in 2020 54% of all business-to-business payments were made via Faster Payments or other remote banking, UK Finance said.

The UK Government has said it will legislate to protect future access to cash and various industry initiatives have been taking place to help maintain cash access.

A study by the consumer organisation Which? warned in January  of a cash network in danger of crumbling revealing that 30 per cent of Scots reported being unable to pay with cash at least once when trying to buy something since March, when coronavirus restrictions were first introduced.

 And it was revealed that despite the lockdown affecting use of cash machines, around one in 25 across in Scotland said they were still relying on cash, which would equate 220,000. Some 14 per cent, equivalent to over 760,000 in Scotland, also said they would struggle without it.

And around 40 per cent, representing 2.2m in Scotland, said that they still viewed cash as an essential backup during the pandemic.