Is it worth going cashless?

There has been much chatter over the past few months on social media around the use of cash versus card in independent retail. As smaller shops struggle to keep the lights on in the face of rising costs across the board, some have pleaded with customers to use ‘real’ money at the counter, in a bid to avoid card charges, which they say take even more profit from their bottom line. 

However, with banks shutting at a rate of knots, and some consumers still wary of handling money, are these retailers just holding back an inevitable tide?

The answer is tricky…at the moment. While cash machine network operator, Link, reveals £81 billion was withdrawn from ATMs in 2023 (a huge sum), its statistics also show this is a decrease from £83 billion in the previous year. A notable decline.

The Cash Supply Alliance, set up to promote cash as a continued valid payment option for UK consumers, believes it’s imperative consumers are given a choice, with steering group member Nigel Constable saying it is critical deposit and withdrawal facilities are maintained. “For many it is also about the freedom to use cash, for personal budgeting, or as a desire to avoid card data being captured and monetised.”

In the USA, the Payment Choice Act was passed in 2022, making it illegal for businesses to refuse cash payments valued at under $2,000.

Greg Strolenberg, who runs the multi award-winning Lavenham Butchers, would welcome such a move in the UK, and his business is just one independent that’s been asking customers to use cash where they can. “For me, it’s more about not being pushed into a society that we don’t want,” Greg said. “People seem to be walking into this blindfolded as if it’s a good thing. We want to take cash. We pay our suppliers cash. Why should we give to banks and card machines for doing nothing but eating away at our profits? All we get here is bills and it’s frightening. You can’t make a living!”

Paula Bui, of Fusion Chocolate, agrees. “It’s hard,” she said. “I can understand why post-Covid everyone ended up using cards, but from a small business perspective, it’s another cost we have to factor into pricing. For me, one of my smallest products only costs £2.50, but if 2.5% of that goes on card processing fees, it’s quite a chunk to miss out on.”

When asked at markets whether she’d like cash or card payment, she more often than not goes for the former, especially as, she said, there may be delays in card payments coming through, which can make life quite difficult. “Depending on which processing system you use, there can be a delay in receiving the funds, certainly by 24 hours, but sometimes longer. One of my systems can take three to four days before money pops through and that is frustrating, certainly as I’ve been with them for the best part of three years. That’s another factor which can be challenging for a small business, whereas cash is readily available, and you can bank it straight away, or use it to pay suppliers. I just feel the rates on card payments are almost a stealth tax.”

More needs to be done, Paula feels, to not only regulate card charges, but to “push on the payment times. When you’re looking at cashflow and you’ve got a delay of four days for funds from a market on the Saturday, as well as paying out 2.5% on top, it’s difficult.”

The British Retail Consortium (BRC) backs British businesses, such as Paula’s, in their concerns. Hannah Regan, the consortium’s payments policy advisor, told Speciality Food, “Ineffective competition in the payments market has led to high fees across the board. Retailers paid £1.26 billion to process card transactions in 2022. This includes high cross border interchange fees, as well as high scheme and processing fees, all of which have risen significantly in recent years.”

Hannah says the BRC is calling on the PSR (Payment Systems Regulator) to “implement meaningful reforms to increase competition and reduce costs in the payment market. Furthermore, the Treasury should conduct a full review of interchange fees to examine if they are fit for purpose in the UK market.”

Mark Kacary of The Norfolk Deli says card payments are the inevitable future of retail. “I would politely suggest the cost associated with digital transactions represents the cost of doing business,” he said. “When we used to bank cash as a business we were charged by the bank every time. Possibly less than card charges, but the difference was not that great. Now that the banks have closed what are our options for being a business relying purely on cash transactions?

“We still take cash, but unlike card transactions, which are in our bank within 24 hours, I would need to do a 32-mile trip to get to the nearest bank. I would be charged for making payments into my account, and then of course I have all the ancillary costs, such as petrol, wear and tear to the vehicle, and not to mention the cost of somebody not being here and instead travelling to and from a bank.”

Mark concedes that if most transactions are sub-£5, card costs could create pain. “However, we sell cheese, beers, spirits, and products that when added up would require a person to carry a lot of cash with them.” There is also the argument in fine food retail, Mark continues, that if people spend with card, they will generally buy more. Businesses just need to, he said, factor the cost of using card machines into their prices.

East Street Deli in Dorset has only ever accepted card payments, having opened during the peak of Covid, when no one wanted to handle cash. Owner Simon Warren said being cashless was an easy decision. “We fully intended to take cash eventually. A lot of our demographic, especially during the week, is the elderly, and they like to pay cash, but then you have the logistics of paying that money in. There’s such a lack of banks in town. If we ever get a customer who’s funny about us not taking cash, we would say, ‘which bank will I pay it in to?’, and that stops them in their tracks.”

Simon says running a small business is hard enough as it is without having to find a bank, and potentially shut the shop early to pay cash in.

He hasn’t found any negative affects being cashless, with money taken today being available in the business account tomorrow. But he does agree there should be standard payment terms across the board, both regarding card costs, and the length of time it takes for funds to be processed.

“We were using one terminal and the money from American Express would take several days,” he said. “Now it happens in one lump payment on the same day, and goes through the next morning.” Key, he said, is monitoring rates, and perhaps even joining forces with neighbouring businesses to ensure you’re all accessing the best deals. “We monitor rates quite regularly. It’s something I’ve always got my eye on,” Simon admitted. “They can sneak up the rates you’re paying, and you could be in trouble if you haven’t been watching them. In this street half a dozen of us are all on the same payment supplier and we talk quite closely about what they are doing!”

“It’s been interesting to see the cash versus card debate in a post-Covid moment,” said Edward Berry of The Flying Fork, who thinks using card more readily is a hangover effect of the pandemic that’s stuck, like many other things such as working from home, and the increase in home deliveries. “Add to this a generation of phone payment users, higher limits on contactless transactions, and fewer banks.

“It is clear that, of all consumers, Millennials seem most keen to give up cash altogether and pay directly with a card – with many ready to abandon coins and notes in a completely cashless society. However, whilst card usage has increased, so do the costs associated with accepting these payments. These card fees can add further cost pressures to retailers.”

The decision to go cashless is most noticeable, he adds, in urban areas, and in sectors with a local demographic of shoppers. But, “the independent food sector that includes a more traditional shopping experience – butchers, bakers, greengrocers and farm shops, for example – is still frequented by the older generation. For them, cash still exists, and for some is preferred,” Edward said.

On the other side of the coin, he added, shoppers can become frustrated with cash only businesses “even taking their custom to card accepting competitors”.

“I’m glad to say that it has become more and more rare to be forced to pay a minimum value transaction to use a card. While I understand the rationale, in particular any fixed per transaction costs to the retailer, it displays a lack of competition. If you hand everything to the larger chain who can afford it, your days may be numbered. How many transactions are cancelled by customers who do not appreciate being forced to buy unnecessary items, and will probably never return?”

Cash, Edward added, is not free. “Time spent visiting the bank is time paid. You also need to factor in forged notes, petty theft and errors. Some business owners have found that going to a cashless model has been cheaper.”