What is a cashless society? Everything you need to know

The idea of electronic and contactless payments isn’t new, with almost all small businesses now accepting payment via credit card readers and research showing that usage continues to rise year on year.

Here in the UK and around the world, people are increasingly reliant on debit and credit cards and mobile payment apps to complete transactions. But are we headed towards a totally cashless society? And if so, what does that mean for your small business?

In this guide we’ll talk you through everything you need to know about a potential cashless society, and explore what the chances of physical money becoming a thing of the past really are.

What is a cashless society?

A cashless society is a concept wherein no physical money changes hands when people make transactions. Instead of handing over cash to make purchases or pay bills, people would solely use digital payment methods, such as a credit or debit card, a mobile banking app, or smartphone options such as Apple Pay.

In a fully cashless society, physical banknotes and coins would no longer be accepted. Customers and businesses would have no choice but to use digital currency for all transactions.

How does a cashless society work?

A cashless society works by banning the use and exchange of physical money, i.e. banknotes and coins.

Instead, every single monetary transaction would be made digitally. Whether that’s buying your morning coffee, paying your electricity bill, or giving money to a friend, no physical money would exchange hands.

For small businesses, it would mean they could no longer accept physical cash under any circumstance, including “cash in hand” jobs. Every payment would be made digitally and would be logged by banks online.

A cashless society won’t happen overnight. Instead, it’s a concept that is being steadily worked towards. In the event that the UK does decide to go fully cash-free, it’s likely that physical currency would slowly be removed from circulation, in a similar way to how the old one pound coin was removed and replaced with the new version back in 2017.

How close is the UK to becoming a cashless society?

There is no doubt that the pandemic certainly sped up the UK’s progress towards becoming a cashless society, as people opted to avoid contaminating and exchanging physical cash. But just how close is the UK to becoming a cashless society?

According to the most recent UK Finance report, only 14% of all transactions in the UK in 2022 were made with physical cash. This means a huge 86% of transactions are already being completed without any cash changing hands, whether that’s via card, mobile banking, or digital currency.

It’s also perhaps no surprise that London is ahead of the rest of the UK when it comes to going cashless. Figures show that, compared to pre-pandemic numbers, Londoners are now taking £500m less out from cash machines every month.

The same figures also indicate that, in London alone, there are now over 2,000 fewer cash machines than there were in 2019.

However, while some people predict that the UK will be completely cashless by 2040, the Bank of England has gone on record to say it’s unlikely that cash will “die out any time soon”.

The BoE claims this is largely thanks to the new polymer notes that have entered circulation, that are harder to counterfeit and are resistant to dirt and moisture, allowing cash to hold its own against digital currency…for now.

Cashless society pros and cons

If you’re trying to decide whether your small business should go cashless, it’s important to consider both the pros and cons. Let’s take a look at the changes we could expect from a cashless society, and who may be impacted the most.

Pros of a cashless society

One of the biggest advantages of a cashless society is a reduction in crime – at least, traditional crime anyway. Cash is pretty much untraceable, making it a target for criminals, while digital currency leaves a trail and is far harder to exploit.

With people no longer carrying cash and businesses no longer holding cash on their premises, the theory would certainly be that theft and robbery numbers would fall and time will tell if the data ends up backing this up.

As seen during the pandemic, a cashless society can bring valuable health benefits too, with a reduction in germ spreading making cashlessness a useful tool in the prevention of future outbreaks and pandemics.

Managing money is also considerably easier in a cashless society. For small business owners, it reduces the need for trips to deposit money at the bank and manual counting at the end of a busy day. You also don’t need to consider the safest way to store money either. When everything is done digitally, your chosen online payment provider will keep track of and transfer your takings for you.

For small businesses, another key benefit of a cashless society is legitimacy. With everything done digitally, you can be confident that the money you receive from patrons is above board. With cash, however, there is always the possibility that you’ve been handed fake notes.

A cashless society also makes it even easier to receive international payments. There’s no need to set up policies around what type of currency you accept, or take up time exchanging foreign notes. In a cashless society, payment processors will sort the exchange for you.

Digital payments tend to make the transaction process even easier for customers, and the digital records generated from cashless payments allow you to better track your sales and customer behaviour too!

Cons of a cashless society

Security is arguably the biggest concern for people when it comes to a cashless society.

Cashless and digital transactions are at risk of being targeted by hackers. While the chances are slim, it is a legitimate concern that individuals may have their accounts drained after falling victim to a scam, which are becoming more sophisticated.

Digital transactions are also considerably less private than cash ones. Your transactions will all be protected by your service provider, however, the more information there is about you online – even if it is incredibly hard to access – the greater the security risk.

Another key argument against a cashless society is the potential to discriminate and isolate key demographics.

Many campaigners have argued that the disabled and elderly would be most at risk, with these groups often feeling unconfident using digital payment methods, and more likely to be targeted by cybercriminals. Low income citizens, meanwhile, risk being alienated if they are unable to access digital banking apps without smart devices.

And of course, access to cash can be a lifeline for people in violent or unsafe circumstances, with the trackable nature of digital payments potentially putting vulnerable people even more at risk.

Which UK party wants a cashless society?

With the 2024 general election over and Labour elected, you may be wondering whether they, or any of the UK’s other political parties, support a cashless society. However, at the time of writing, a cashless society hasn’t appeared in any of the major parties’ manifestos.

Back in 2023, the right to access free cash was partly enshrined in law by the Conservative government, with leading MPs from the party stating that, while it’s important to embrace digital payment methods, a fully cashless society puts certain societal groups at risk.

But while you may be able to access cash, has the government done anything about consumers’ ability to actually use it?

Back in 2022 when a petition with over 33,000 signatures was handed to the government to try to make it illegal for retailers and businesses to refuse cash, the government made it clear that they “did not plan to mandate cash acceptance. Businesses are able to choose the forms of payment they accept.”

Startups and small businesses at the forefront of the cashless society 

Many startups are innovating solutions to help other UK businesses make strides towards cashlessness. Here are just two examples from our 2024 Startups 100 Index:

Stored

Stored is changing the way people shop and sell, making it even easier for customers to make purchases both online and in person.

The Stored payment platform allows customers to make purchases on their mobile phones – rather than via your point of sale system – meaning merchants don’t need to have complicated payment systems in place.

Customers can browse a product at a pop-up event and add it straight to their basket with just one click on their mobile. They can complete the purchase there and then, or do it later at home.

It’s integrated with systems such as Apple Pay too, meaning there are no friction points in the purchase process. No need for cash, and no need to enter laborious personal payment details to complete the sale.

SKOOT

While eco-offsetting is becoming commonplace when you make online purchases or book a trip online, it’s more difficult for in-person purchases and hospitality settings. Enter SKOOT.

With the help of SKOOT, hospitality businesses are able to add an optional on-the-spot contribution to a tree planting scheme to customers’ bills, offsetting the emissions from their meal or hotel stay. SKOOT takes care of the details.

Not only is it a great way to boost your eco credentials, it also offers a cashless way for patrons to donate to a worthy cause.

Verdict: is the rise of the cashless society a good thing?

It may be impossible to predict the future, but we feel pretty confident in predicting that the proportion of cashless payments is only going to rise. With smartphones and digital payment devices becoming increasingly accessible – not to mention the ease of setting up and using digital payment systems for small businesses – cash could well become a thing of the past.

The key for small businesses will be to ensure they support a variety of digital payment methods and implement the right systems to receive and track these payments, while also understanding that to ban cash payments altogether risks alienating a portion of society and potential customers.

A cashless society would bring plenty of benefits, especially for businesses, but it’s important to remember that some demographics rely on cash, meaning the country as a whole isn’t ready to go cashless just yet.