A wise person should have money in their head, but not in their heart. Nowadays it’s about having a card in your wallet and cash in your memories. Cash use fell a further 1% last year and now accounts for just 22% of purchases, according to recent statistics released by the British Retail Consortium. In fact, UK Finance estimated that 3.4 million people hardly used cash at all during the year. So where once cash was king, it appears it’s cards that now rule the country.
This week marked the launch of the 7th ACS Local Shop Report. This is a report that is close to my heart, having been involved with the research from its inauguration in 2012. It provides a fantastic barometer for the convenience retail sector and a vital link between people on the coal-face and those in Westminster.
One statistic, though in particular, caught my eye and got me thinking about the cause and effect involved. According to the report, 76% of convenience shoppers pay with cash. This feels like a significant, and disproportionate, swing from the national average. It begs the question…why?
Looking back at previous years of research we can see that in the 2013 report, cash payments made up 87% of all convenience store transactions. We have, therefore, seen a decrease in cash transactions over the last 5 years, but in no way to the same extent as with the national retail average. Is it the shopper or the retailer that is driving this high cash use, or is it simply the nature of the shopping mission?
The cash decline has partly been driven by UK consumers increasingly using cards for lower-value payments, traditionally dominated by notes and coins, the BRC said. That has been helped by the rise and ease of using contactless technology. Latest ACS results show that 94% of retailers accept card payments and 80% have contactless payment technology. So, it’s not a lack of facilities in-store which is instigating the lack of card usage. Furthermore, the average spend is £6.50 and thus right in the sweet spot of the type of low-value payments which the BRC refers to. Surely then, convenience stores should be the home of not just card payments but of contactless. Looking at the bare facts it’s hard to understand why everyone is still paying with cash.
The instant reaction is to claim that convenience stores must therefore have a disproportionate number of old and low-income shoppers compared to the retail average.
Whilst it would be right to suggest that this is a factor, as typically 90%+ of UK consumers would have visited a convenience store in the last month, it would be fair to say that old and low-income shoppers are more likely to rely on shopping little and often.
Where, for me, this argument falls down is when you look at the statistics for debit card ownership. According to the UK Cards Association, around 51 million adults in the UK (96% of the population) have a debit card and 32 million adults (60% of the population) have a credit card. This would suggest that, regardless of age or social demographic, in this day and age, we (nearly) all have debit cards.
Perhaps it’s perceptions and historical hangovers that are underlying this whole dichotomy. It was, of course, only in January this year that the government finally put a ban on convenience stores surcharging for card payment and in fact it still remains legal for stores to have a minimum spend for debit card transactions. If, for example, that minimum spend is £10 then you’re pretty much banning the use of card for the majority of your shoppers (average spend is £6.50, remember) and even at £5 your kind of saying “mmm I’d rather you didn’t use your card thank you very much”. Throw this in with certain stores hiding their card machine behind the till or under the counter and you start to see a picture emerge that the associated transaction fees are prohibiting retailers from actively pushing for card payments and the thought of being charged or the threat of getting to the till and not having enough items to cover the minimum spend means that shoppers just feel a bit safer having cash in their pocket when they enter the store.
So what? Who cares if people still use cash? The simple fact is that if cash is becoming less common amongst shoppers then it won’t be too long before certain shoppers stop withdrawing cash before they visit the convenience store, and just choose to go somewhere else instead. We’re already seeing more and more stores open up that don’t even accept cash payments. IKEA have tested a cash-free store in Sweden and the majority of Amsterdam’s local cafes, stores and even markets are cash free zones. It’s also true that young consumers, aged between 18 and 34, are most likely to make contactless payments and those who shun cash entirely are also most likely to be among that age group.
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The other big factor is speed of service. I feel the need, the need for speed. And so does everyone else. Speed of service is fast (excuse the pun!) becoming one of the most important factors influencing consumer behaviour across all formats and channels. Research by Barclaycard says that using contactless payment is 15 seconds faster than using cash. If you the average transactions at a convenience store of 3.4 per person, per week (source: ACS LSR 2018) then that equates to almost 45 minutes saved in a year. Saving yourself enough time to have a massage and relax after a year of all that convenience shopping, or just kick back and watch an episode of the Sopranos. Forget about it!
Blake Gladman
Strategy & Insight Director
@gladtobeblake
