the digitalisation of cash -...

Trends, disruptions and the impact for businesses

The digitalisation of cash

The Digitalisation of Cash

Is cash on its way out? What will take its place? How can businesses use digital payments to their advantage?

There is a new dawn upon us. Digital payments overtook cash for the first time in 2015. Cash payments have been in decline for several years and as digital payments become more accessible and importantly more convenient to consumers, you won’t be surprised to know that this decline is expected to continue over the next 10 years. In the future, we may not need our wallet or purse to pay; in fact 54% of consumers are ready to leave them at home now if they had the choice.

So what’s driving this change? In this report, we investigate the technological affects (such as contactless), the cost of cash management to businesses, consumer behaviour trends, innovations causing disruption (wearables), as well as a look at businesses who have used digital payments to fuel their success.

Use these insights to see how you can make the most out of the digitalisation of cash. We hope you enjoy the report.

James FrostCMO, Worldpay

Welcome



The steady decline of cash

Part 1

In 2015, for the first time, digital payments overtook cash transactions in the UK. The decline of cash has been widely publicised over the past few years, and although it remains a dominant method of payment, transactions made in cash have nonetheless declined by 10% over the past 5 years1.

This has been fuelled by a number of factors. Firstly, the rise of contactless payments has meant that physical cash payments have reduced as consumers increasingly ‘tap and go’. The number of businesses accepting

card payments has also impacted cash, with 1.7 million businesses now accepting cards, an increase of 2.9% from 2014 to 20152. More and more businesses are now seeing card payments as critical to operations, offering consumers greater convenience and choice in how they pay.

Finally, the eCommerce revolution has enabled more businesses to offer their products and services online. This includes businesses that traditionally relied on cash payments to trade. Consumers can now pay for almost anything online or via mobile,

from ordering flowers to paying for their taxi ride home. Importantly, new technology has meant that a greater number of physical transactions are now actually processed digitally. As a society, it’s clear we are moving from old money to modern money.

The opportunity for businesses lies in understanding the benefits that can be unlocked from moving from cash to digital payments and how optimising payments can help you save money and improve efficiency.

A digital future beckons

1.7 millionbusinesses are now accepting cards, an increase of 2.9% from 2014 to 20152.



Cash is no longer kingThe UK is slowly advancing towards a cashless society.

decline in cash spend over the last 5 years1.

10%Proportion of payments in the UK made using cash3.

*estimated

2005 2015 2025*


7.1bnDebit cards

1.2bnFaster payment435m

Direct debit48m

Standing order

-148mBACS Direct Credit

-309mCheques

-5.9bn

Cash

Payment card transactions to increase by 8.2bn to 2025, largely at the expense of cash and cheques.

1.1bnCredit /

charge cards

Expected change in UK payments volume by 2025 (41.5bn)4.

Consumers will put greater reliance on their cards, especially contactless, as cash and cheque usage declines.

Payments made by consumers: Average per adult each month3.Note: The contactless card payments shown here are a subset of the debit and credit card payments, not additional payments.

2015

2025


27Cash

4Credit /

charge card

0.5Cheque

0.20.7

Standing order

1

5

Faster payments

0.72

6Contactless

Direct debit

2

16

17

Debit card

614

25

Sweden

3.9

Poland

3.9

Italy

4.8

Spain

6.3

France

19.0

Belgium3.4

UK

21.3Netherlands

6.5

Germany

18.0

Top European countries for cashless payment transactions (£bn)5.

UK leads the way in Europe for volume of cashless transactions processed.


The move from cash to cards

research shows

1 in 4 cardholders would leave the store if it did not accept

card payments.7

237%

year-on-year rise in UK contactless payments

(Oct 2015 - March 2016).8

A typical Brit has a maximum of

£5 in cash on them at

any given time.6 43% now carry less cash

than they did two years ago.6

90% of adults in the UK have a debit

card, 60% have a credit card.3



The cost of cash management

Part 2

An economy with high levels of cash in circulation faces several challenges. In fact, the cost of cash to countries can be as much of 1% of GDP9.

This is driven by a number of factors but includes the operational cost of managing cash, such as producing, collecting, storing and safeguarding it; counterfeiting costs; and the time spent processing cash payments in business tills, business back offices, and banks9.

The knock on effect of this is that several countries, including Sweden, Norway and the Netherlands, have imposed caps on cash payments. These countries have given authority to business to refuse cash as a payment method in order to increase the use of cards at point of sale. Here in the UK, we are in an advanced stage of cashless transactions, which is set to rise further as digital payments mature.

For businesses, it’s the time and effort expended in managing physical cash payments that can cause many unwanted headaches. A recent survey found that the cost of cash to UK businesses is around £18 billion a year, with an average cost of £3,520 for small and medium sized businesses associated to storing, transferring and handling fees10.

Coming out of the shadows

Challenges of cash management Considerable time spent counting,

reconciling, and processing cash.

Cash is vulnerable to fraud and theft, which is always at risk to both external and internal perpetrators.

Bank charges for paying in cash to business accounts.

Lack of accountability with cash – it's difficult to track down where and when errors have happened. There’s also an increased risk of accounting errors from counting and sorting physical cash.

These challenges have led to many businesses employing strategies to reduce the amount of cash transactions, instead replacing them with digital based payment methods.


Case study:

Sweden sets the mould for a cashless society

Perhaps the most progressive nation in Europe when it comes to digital money is Sweden, a country where only 2% of payments are made with cash11.

The government has supported the gradual reduction in cash payments as card usage has increased incrementally. Swedish buses haven’t taken cash for years and the metro in Stockholm doesn’t deal in cash at all as the people increasingly use only their card and phone for payments. Card is the main

method of payment, with Swedes using cards more than three times as often as the average European11.

The most interesting cultural factor fuelling the decline of cash is the rise of peer-to-peer payments, with 30% of all smartphone owners using payment apps12. The majority of Swedes, around 2.4 million of them, use the domestic player Swish, which is backed by the leading banks12.

The technology allows anyone with a smartphone to transfer money between bank accounts in real time. This is helping to kill off cash, as peer-to-peer payments offer real-time clearing, making it as instantaneous as cash without the hassle of an ATM or bank withdrawal. In fact, its success has led to predictions that this will spread rapidly into business to business and consumer to business transactions.

30%businesses are now accepting cards, an increase of 2.9% from 2014 to 20152.



Consumer trends affecting cash

Part 3

Consumers are becoming increasingly accustomed to card and mobile payments. In fact, 25% of consumers won’t go into shops that do not take card payments, and a third of shoppers will only use cash if completely necessary13.

In addition to traditional card transactions, consumers are now getting more used to phone based payments. Smartphones are now critical to our connected lives, one in which people can chat, search, play, and buy in real time.

With more phone based interactions, it opens up new possibilities for a cashless world. We’ve already seen card payments integrated into phone handsets through near field communication (NFC) and mobile wallets. Consumer behaviour is now starting to show how mobile commerce can be embedded into different platforms.

59% of UK consumers are said to have used their bank’s mobile banking app, 72% have downloaded a retailer branded app, and finally, 58% have downloaded a communication app such as WhatsApp14.

As mobile becomes fundamental to our everyday interactions, it’s natural that these digital platforms will evolve to become the epicentre of commerce, connecting businesses and consumers globally.

The opportunity for a cashless society relies heavily on the adoption of mobile payments within these platforms. Today, more than half of UK consumers believe that within 5 years their phone will replace cash as the main method of payment. 54% would like to leave home without their wallet, instead paying for everything via their smartphone15. It’s perhaps a matter of time before that becomes reality.

Mobile is driving digital money

25%of consumers won’t go into shops that do not take card payments13.

54%would like to leave home without their wallet15.


of UK adults have now made a mobile payment in-store,

with 12% doing so on a regular basis17.

of consumers are likely to use mobile payments for

in-store purchases in the next two years14.

73% 24%

300%Mobile payments are expected

to grow three-fold by 202016.

UK Data


50%of eCommerce payments are

now made from smartphones18.

How likely would you be to use your smartphone to make a mobile payment in the following scenarios14?

Supermarket

Coffee shop

Department store

Payment to individuals

Restaurant

43%

41%

39%

39%

38%

(friends, family, handy man, etc.)



Cash disruptors

Part 4

Contactless is gradually eroding cash

One of the key contributing factors to the decline of cash payments has come from the rise of contactless payments, which trebled in growth throughout 2015 – reaching more than 1 billion transactions19.

The simplicity of the ‘tap and go’ payment method has had a huge affect across a range of sectors, such as hospitality, with low average spend and emphasis on speed of service. The speed makes it great for reducing queues and increasing the number of sales processed during busy periods.

As a result, one in six card purchases on the high street are now contactless19. Furthermore, there are 11 billion cash

payments which could be replaced with contactless, particularly in sectors like grocery, convenience stores, and restaurants or takeaways20.

The contactless phenomenon is only set to rise now that Apple, Google, and Samsung have enabled near field communication (NFC) based payments in many of their handsets. The additional verification required for the likes of Apple Pay and Android Pay means consumers can pay with contactless for transactions over the current £30 limit, helping drive further usage of mobile payments.

Contributing factors to the demise of cash


Peer-to-Peer payments

Peer-to-Peer payments is an online technology that allows people to transfer funds from their bank account or credit card to another individual’s account via the internet or a mobile phone. Why is it interesting? The simplicity and ease of use means that it has seen significant growth globally, with the peer-to-peer transfers market worth over £700 billion21.

Peer-to-Peer payments allow people to transfer money more efficiently, eliminating the need to go to a money transfer agency, remember a cheque book or find an ATM. In emerging markets it has greater potential as often there isn’t the barrier of legacy financial infrastructure, and with so many compatible phones in circulation adoption

has had considerable success. This is true of Kenya, where various companies have gained traction – resulting in an impressive 92% of Kenyans having claimed to have used mobile Peer-to-Peer payments21. Naturally it will be harder for widespread adoption within mature banking markets such as the UK, where there already several platforms operating.

The rate of growth however, will largely depend on the cooperation between the banking industry, the FinTech community and other participants in the payments industry, similar to that of contactless.


Wearables

For the past couple of years there has been a lot of noise about wearables. These are items of clothing or accessories that incorporate a computer, many of which enable payments. There are a number of different devices that are already vying for consumer attention, including bracelets, rings, and even coffee cups.

Perhaps the Apple Watch is the most recognisable payment enabled wearable in the market today, allowing users to pay seamlessly using contactless.

At the moment the market is still in its infancy, however, a recent study by Gartner predicts that by 2018 half of consumers in markets including North America, Japan and parts of Western Europe to be using a combination of smartphones or wearables to make payments22.

The simplicity and convenience of mobile and wearables means that it could further limit the need for consumers to carry cash.


IoT – Internet of Things

By 2020 there will be 25 billion things connected to the internet23. The Internet of Things – consisting of billions of interconnected digital devices sharing services and data – has meant smart technology can now be embedded into a vast network of items, each one with a potential for payment. This will fundamentally change how consumers will interact with brands and will further blur the lines between our online and offline worlds.

The shopping journey has already moved away from a linear type journey due to the rise of omni-channel, something that most businesses are still trying to figure out. The Internet of Things will mean that these journeys will become increasingly hard to track, twisting and turning through a

variety of platforms from smart TVs to wearable technology.

From a payment perspective, it opens up a whole new opportunity for digital payments. The future may be one where consumers will delegate payment authority entirely or complete via a quick device authorisation process. We’ve already seen Amazon introduce the ‘Dash Button’ which can be stuck onto anything and is directly linked to the Amazon website.

The consumer specifies how much they want for an order and once up and running the consumer simply presses the button with Amazon automatically placing the order with an alert sent to their phone.

The second example is a conceptual idea whereby your smart fridge measures and tracks the weight of your items or whether an item has been thrown away and adds the items to a virtual shopping list. The consumer simply edits and selects buy or possibly delegates authority for certain items so they are automatically ordered.



Business success stories

Digitising cash

Part 5

Twickenham Stadium, the home of England Rugby, has long been a high cash estate. On match days, over 82,000 fans pour into the stadium, spending money on tickets, food and beverages, and merchandise.

The predominant method of payment historically was cash which brought several challenges for the RFU. Not only did it take several days after the match had finished to reconcile the cash before understanding the event takings, but there was also an average variance between 4-9% when matching sales to takings. Cash was literally costing money.

The solution? To put in place a digital first strategy to increase the number of card based transactions across the stadium. The difficulty was ensuring that the visitors could pay quickly and seamlessly to avoid the long queues that often cause frustrations at large venues.

The answer was to install contactless and mobile payment devices across Twickenham, offering a greater choice of payment methods to fans. This has been a phenomenal successful for the business, with cash sales down from 92% of total sales in 2013 to 48% in 2016 – the highest card penetration of any stadium in Europe.

The overall banking variance is now negligible resulting in a positive impact to their bottom line. The benefit isn’t limited to business efficiency, the digitalisation of cash has opened up the door to rich data insights from card transactions that are helping the RFU understand their customers better.

For example, RFU now know that 20% of fans contributed to 50% of card sales. From this data, they can determine the differentiation of spend between both merchandise and food and drink. This is helping the RFU look to secure their position as the UK’s most progressive stadium venue.

Hospitality:

The Rugby Football Union

92% 48%Cash sales down from

in 2016in 2013


The best ideas seem so simple once they hit the mainstream. None more so than Uber, the cashless taxi app that lets users order and pay seamlessly without having to rummage through their bag or detour via a cash point to ensure they have the money for the fare. Downloaded by 30,000 new users every week in London alone, Uber is now valued at $60 billion24. From a technology point of view, the beauty of Uber is that your card details are stored securely on the phone, with a simple interface through the app letting users pay without exchanging any physical money.

Uber won’t rid society of cash on its own, but it represents yet another step towards a cashless society in a traditionally cash based sector. The frictionless and invisible nature of Uber’s payment approach is changing the game for businesses and we are now starting to see the ‘Uber effect’ impacting on other sectors, with companies such as coffee chain Harris & Hoole pioneering the cashless app in their coffee shops.

Travel:

Uber


The benefit of going cashless is starting to have impact within the public sector as well. Led by the government’s digital first approach, local authorities are starting to migrate services away from traditional cash payments. Leading the way is Brent County Council, who have completely removed cash transactions from their payment workflow. As a result, the council has brought about several cost and resource savings.

This includes greater transparency of costs with less audit requirements, significant reduction in administration costs associated with handling cash, and far less paperwork and filing which is helping free up valuable time for staff25. It’s of little surprise that the concept of cashless councils is gathering pace across the UK.

Government:

Brent County Council


Launched in June 2016, Air Money from City Forex is changing the way we order and receive our foreign currency. An online only service, Air Money allows consumers to order their currency online for delivery or collection, mirroring the click and collect retail strategy. This is another example of a traditionally store based business transforming into a digital service.

Air Money have partnered with Doddle, the collection and delivery service, to create a virtual presence across the UK. In doing so, they save on the overheads associated with brick and mortar sites, which they can pass on to consumers in their currency exchange rates.

Finance:

Air Money


Even charity boxes are at risk of becoming extinct thanks to Pennies, the digital charity box. Pennies allows consumers to donate to charity via card payments online and in-store, removing the need to cash based collection boxes. It’s simple to install and works quietly in the background, giving consumers the option to donate as they pay at the till or at online checkout.

Since Pennies launched in 2010 there have been over 32 million transactions, raising more than £7.5 million for UK charities so far26. It is another great example of how cash has become displaced in favour of digital based payments that offer a more efficient solution.

Charity:

Pennies


Digital payments offer many benefits over cash. They provide greater speed from acceptance to processing, improved security, and more efficient cost management. However, changing consumer behaviour has meant that digital payments present a significant opportunity for businesses to unlock deeper understanding of their customers.

Modern consumers shop across multiple channels, making it more important for businesses to track individual behaviour across these channels to ensure a

consistent and complementary experience. This is where digital payments really hold an advantage over cash. The digital footprints left by card payments means that businesses can start to use payment data to track performance, identify trends, and better understand customers. As digital payments accelerate and cash continues to decline, it will become essential for businesses to use this data to understand the behaviour of their customers.

This rich data is already being used by businesses to help understand consumer behaviour. From detailed loyalty measures based on purchasing habits, profile segmentation to help identify consumer types, to multi-channel analytics that connects spend across in-store and online channels to evaluate the impact on consumer loyalty.

How digital payments can help your business



The impact for businesses

Part 6

Consumers want ease of use and simplicity when it comes to payment. People can now make payments with debit and credit cards, via internet banking, mobile wallets, and smartphone apps.

All of these payment methods are accessible via your mobile. We’ve seen the example of Uber, where customers don’t have to worry about having enough cash to pay. Mobile is now the dominant payment method online, with more than 50% of online transactions now via smartphones18.

With the introduction of contactless via smartphones in-store, it’s increasingly likely that mobile will dominate payments over the next 10 years – both in-store and online. From settling a debt to a friend via peer-to-peer payments to purchasing a coffee via an in-app payment, the accessibility of the smartphone makes it standout for consumers wanting a simplified shopping journey.

Of course there are hurdles to overcome, but in time it will become second nature, the daily norm. Businesses must utilise simple and convenient payment options that work on the consumer’s terms.

mobile will dominate payments over

the next 10 years.


Perhaps unsurprisingly, the biggest concern for consumers regarding mobile payment adoption is around ‘security and fraud protection’ (87%)14.

There is concern also around the risk of losing their phone and having their information stolen (58%), or fraudsters being able to steal information when the payment is sent wirelessly (49%)14.

Clearly there is an inherent security fear around mobile payments that must be addressed. Businesses and schemes must work together to dispel such fears through campaigns that showcase the fraud prevention measures that keep mobile payments secure, such as encryption through services like tokenisation. Undoubtedly, this trust will come in time.

There are still barriers to overcome

58%of consumers are worried about losing their phone and having their information stolen14.

49%of consumers are concerned about fraudsters being able to steal information when the payment is sent wirelessly14.


How Worldpay can helpWorldpay are a leading global payments company, providing an extensive range of digital payment products and services to over 300,000 customers in the UK, helping them to grow and prosper. Worldpay process over 42% of transactions in the UK27, connecting and simplifying payments across all sales channels; omni-channel, in-store, online, mobile, telephone, and kiosk.

worldpay.com/uk/larger-businesses


1. British Retail Consortium, Annual Payments Review 20152. UK Cards Association, 20153. 2016 UK Payment Markets – A summary of recent and emerging developments and forecasts for all forms of payment.4. 2016 UK Payments Markets, Payments UK; excludes CHAPs payments.5. European Central Bank, 2015.6. MasterCard study, Independent ‘Wallets forgotten as we stop using cash’ October 24th 2016.7. Visa Europe Research, January 20158. Visa Europe, April 2016.9. McKinsey on Payments, ‘Forging a path to payments digitization’ 201310. Sage Pay, Payments Landscape Report, 201511. The Guardian: Sweden cashless society 201612. Mashedsociety.com: ‘Forget Apple Pay, the peer-to-peer payment revolution is here’, March 201513. Conducted by TNS on behalf of Worldpay, 1,999 consumers, 201414. TSYS 2015 UK Consumer Mobile Payment Study15. Conducted by Research Now on behalf of Worldpay, 2,500 consumers, 201616. Visa Europe, 'Smart devices on track to replace cash and card', Accessed October 201617. NFC World, ‘A quarter of Brits have made an in-store mobile payment’ April 201618. IMRG Capgemini Quarterly Benchmarking: Over half of online sales now made through mobile devices, February 201619. The Guardian 2016: Cashless Britain advances20. Innovation in Retail Conference: Retail Week, 201621. Business Insider: Peer-to-Peer Payments Report 201522. NFC World, 201623. Gartner: 21 Billion IoT Devices To Invade By 2020, November 201524. Guardian, How Uber conquered London, April 201625. WiredGov, London Borough of Brent becomes the UK’s 1st Cashless Council, January 201626. Pennies.org.uk, accessed October 201627. Nilson report, June 2016, transaction value and volume

© Worldpay 2016. All rights reserved. This document and its content are proprietary to Worldpay and may not be reproduced, published or resold. The information is provided on an “as is” basis for information purposes only. Worldpay makes no warranties of any kind in relation to the content. Terms and conditions apply to all services. Worldpay (UK) Limited (Company No. 07316500 / FCA No. 530923), Worldpay Limited (Company No. 03424752 / FCA No. 504504), Worldpay AP Limited (Company No. 05593466 / FCA No. 502597). Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AF and authorised by the Financial Conduct Authority under the Payment Service Regulations 2009 for the provision of payment services. Worldpay (UK) Limited is authorised and regulated by the Financial Conduct Authority for consumer credit activities. Worldpay B.V. (WPBV) has its registered officein Amsterdam, the Netherlands (Handelsregister KvK no. 60494344). WPBV holds a licence from and is included in the register kept by De Nederlandsche Bank, which registration can be consulted through www.dnb.nl. Worldpay, the logo and any associated brand names are all trade marks of the Worldpay group of companies.

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