Retailers Report Growth of Cash Use for 1st Time in Decade

A selection of UK bank notes and pound coins, in an undated file photo. (Dominic Lipinski/PA)

The use of cash is on the rise for the first time in a decade, as Britons try to keep an eye on their spending due to the cost-of-living crisis, retailers have reported.

The British Retail Consortium (BRC) said that 19 percent of all transactions were made with cash this year. This compares to 15 percent in 2021.

The BRC suggested that high prices, as well as “a natural return to cash usage following the move to contactless during COVID,” prompted the growth in cash transactions.

Cash use has also increased in spending, with coins and notes making up 11 percent of consumer spending this year.

In 2021, the figure was 8 percent.

“We are now seeing a return to many of the pre-pandemic trends in payments, including smaller but more frequent purchases, and a slight return of cash payments,” said Hannah Regan, a payments policy advisor at the BRC.

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Retailers welcomed the rise in cash use and called on the government to ensure that it is accepted as a viable option for merchants and customers.

The call comes after the government set in August the minimum expectations on banks to protect cash-based services.

The new policy means that people or businesses who want to withdraw or deposit cash will be able to find a bank providing the service no further than three miles away.

“People shouldn’t have to trek for hours to withdraw a tenner to put in someone’s birthday card—nor should businesses have to travel large distances to deposit cash takings,” said the then treasury secretary Andrew Griffith.

The measures are believed to particularly benefit customers who live in rural areas, the elderly and those with disabilities.

Cash use could help Britons to manage their Christmas spending in the coming weeks. The last weeks of December are part of what is known as the “golden quarter,” when retailers expect strong trade.

However, this year the BRC reported sales growth below 3 percent in two of the three months of the “crucial golden quarter.”

Hard-Pressed Retailers

Retailers have also seen an increase in card processing fees, including a 27 percent increase in scheme fees and a 7 percent increase in interchange fees (as percentages of turnover) in 2022.

Overall, vendors spent 1.26 billion on card processing fees last year.

Alternative methods of payment, such as open banking and buy-now-pay-later, offer some competition to card payments, the BRC said. These methods enjoyed a rise in popularity last year, from two percent to 4.9 percent of transactions.

While open banking charges a fixed cost per transaction, card networks charge a percentage of the transaction amount.

“Though alternative payment methods could provide much-needed competition to the market, the dominance of card payments means it is essential that action is taken to prevent fees from rising further,” said Ms. Regan.

The BRC has called on a number of measures to reduce costs for “hard-pressed retailers.”

This includes the growth of open banking in the UK, without copying the existing card system, reforms in the payment market and a full review of interchange fees.

The Treasure should examine whether interchange fees—that represent 70—90 percent of the total fees paid to banks by merchants—are fit for purpose in the UK market, the BRC said.

Reform to interchange fees will make a significant difference in the retail sector, considering the dominance of card payment methods in the market.

Card payments were used for 76 percent of transactions this year and accounted for 85 percent of the money spent this year. Debit cards were reported to take three-quarters of the spending.

Customers use debit cards more often than credit cards, the BRC said, but for smaller value transactions.