The Case for Cash

John J. Schaub 

Jan 9 , 2023

The financial services landscape in the UK is an interesting paradox. On one side you have a traditional banking sector that seems positively ossified and on the other you have a number of very forward thinking Fintech companies and neoBanks offering a completely modern suite of services. In the middle you have the public and the government beholden to them that is struggling to determine how to navigate what will in the next few years be a wholesale restructuring of the nations financial services landscape. To be clear for many that restructuring has already happened and it is entirely possible to operate completely cash and branch free in the UK and has been for quite sometime. But not everyone is there yet and the government and therefore the traditional banking sector are forced to determine how to ensure that the economic system continues to work for everyone, even those for whom cashless transactions and banking on your smartphone are a bridge too far.

One of the efforts to ensure continued access to the financial services sector is Cash Access UK which is in effect a co-operatively owned shared branch network offered by nine large UK based banks. If you know my career history you will understand why the notion of a co-operatively owned entity to provide core financial services resonates with me. The co-operative model has challenges but if you need to provide a basic set of services to a geographically distributed population for the lowest possible cost it is really the obvious choice.  That said there are a few commentors questioning the process asking things like: 'why do we need to provide access to cash?' and if so 'for how long?'. These are fair questions, cash is expensive, encourages robberies, spreads disease and facilitates tax evasion and crime so there are a lot of reasons to push for its abolition.

To be clear I have a horse in this race and have previously written about my efforts to remove cash from circulation so I am far from a nonbiased commenter but I am going to take a perhaps slightly unexpected angle here and suggest that the government and major banks are navigating a tough situation pretty well. The reality is that although the majority of people have migrated to a branchless and cashless banking model not everyone has and we are not going to get to 100% anytime soon. So we really have no choice but to provide some sort of in person old school banking model until we get to nearly 100% and as I said previously the co-operative model chosen is about as effecient an approach as you are going to get. Banking is absolutely a for profit enterprise but it is also a essential public service and as such on occasion the government is going to step in and request that the industry do things that do not necessarily make sense from a profit perspective but are necessary from a social good perspective. It might surprise people but in my experience essentially everyone in banking is on board with that approach and takes universal access to service pretty seriously.

So the remaining question is 'for how long?' and again I am going to take a perhaps surprising angle and suggest that we might need to maintain a cash capable network at least for the next decade. As I have written about previously finance is unlike a lot of other fields in tech in that it is inherently higher stakes. Multiple layers of redundancy and the target of 5 nines uptime are a deep part of the culture of financial technology simply because people use our services to feed their families. As a society the ability to conduct basic transactions is critical and cash for all its myriad of shortcomings is pretty much a bullet proof solution. Even during a natural disaster with the power out and communications disrupted a few bills in your pocket will allow you to buy food and essentials and preserving that redundancy is in my mind exactly the sort of thing that the government should be doing.

That said even supporting this approach I see a few challenges extending this model beyond about ten years. A few of them are obvious and a few are a bit unintuitive. First the obvious, this system will be a cost center and maintaining funding through successive governments as the population of people directly dependant on it day to day dwindles is going to be very difficult. To get around this I would suggest that governments start looking to how they can tie this system into another core service that will allow for additional efficiencies and help to keep the lights on when the day to day user base starts dropping into the low double digits. Simply put the more effecient you can make the cash system the longer it can survive before it is inevitably shut down. The model I would lean to is postal banking which is essentially the merger of community banks and post offices in a shared service model. With the rise in online shopping post offices are as busy as ever and putting these two services under one roof seems like a viable option. The second issue concern is a lot more novel but I think it will become a real problem in the next few years and that is simply the recognizability of cash. Going back to my previous example about using cash during a natural disaster it seems to make sense until you actually walk through the scenario and ask yourself if the 19 year old behind the till is going to have a clue what a real bill looks like. It may seem odd but I would contend that we are rapidly approaching the point where cash usage becomes novel enough that its novelty alone becomes a serious impediment to its use in that most people will not physically recognize it. So even if the government is able to make cash available to consumers and merchants are mandated to accept it I still foresee issues with that actually working when needed.

So in the end I think the government and the big banks are doing a pretty solid job of navigating the end to cash but to be clear the clock is ticking and even the absolutely best and well intentioned efforts will not keep cash viable beyond say 2035. While I completely endorse and support the efforts as an industry we need to recognize the coming end of cash and make sure we can deliver the level of ubiquity, privacy and resilience needed to fully transition in the near future.