Lies, damned lies and my statistics

[Dave Birch] I had a couple of queries from journalists about the up-to-date statistics for payments in the UK, so since I went and looked them up to be exact, I thought I'd share the answers with everyone. Here are the questions I was asked following being quoted in The Telegraph and The Times over the last month.

First of all, how much money is electronic money? Actually, it's almost all of it. According to the Bank of England's latest figures (which at the time of writing are for November 2009), the total amount of notes and coins in circulation (known as "M0") is about UKP 55 billion whereas the total amount of money in circulation (known as "M4") is about UKP 2 trillion. so physical money is less than 3% of all money.

Secondly, what fraction of payments are made in cash? The Payments Council's 2009 annual report (which is for 2008) says that of the 37 billion payment transactions in the UK, 60% are still in cash. But because the cash transactions tend to be small, they account for a much smaller fraction total value. In fact, according to the Chief Cashier of the Bank of England

But as a share of all transactions, the use of cash has been gradually declining, to around 60% in volume terms and 4% in value terms in the UK presently

[From Bank of England|Publications|News|2009|Banknotes in Circulation – Still Rising: What Does This Mean for the Future of Cash? Speech by Andrew Bailey, 6 December 2009]

Thirdly, what proportion of retail payments are cash? Since wholesale transactions are vastly bigger than retail transactions, it's more relevant to ask about the fraction of retail turnover that is in cash. Retail cash turnover has been below debit card turnover since 2006, when cash accounted for about 32% of retail spending by volume, and debit cards are no.1 by far in the retail payments value league. According to the Payment Council's "The Way We Pay 2009", which again covers the 2008 figures, cash payments are now down to 23% of retail payments by value.

Finally, is the use of cash going down? Well, that depends what you mean by "use". If you mean "is the fraction of retail transactions that are in cash going down?" then the answer is yes, slowly and steadily. If you mean "is M0 going down in absolute terms" then the answer is no (in fact, it is going up). This apparent paradox is resolved by the observation that much of the cash going into circulation (for example, the large number of UKP 50 notes being printed at the moment) is not actually being used in retail transactions but as a store of value to avoid tracking and taxation.

So for rough back-of-the-envelope calculations, we can say that cash accounts for two-thirds of all transactions by volume and a quarter of retail transactions by value.

cash and cashlessness, costs and interchange, notes and coins, retail

So as far as trends go, the proportion of transactions in cash is falling, but falling slowly. Having some time to spare because of a cancelled meeting, I've been reading through the Payment Council's "UK Payment Market" statistics in some more detail. The most recent release (from October 2009) had an interesting table tucked away on page 18, showing the predicted vs. actual volumes for payment instruments. I noticed that both cash (via the proxy of ATM withdrawals) and cheques fell faster than had been projected back in 2004, so I then had a look at the 2018 projections. The Payments Council has now decided to end cheque clearing in 2018, remember. I assume that these figures take the revision from 2004 into account, but even so I wonder if they fully take on board the magnitude of the changes likely to arise from further innovation in e- and m-payments. I suspect that over the next four years, again, the trend away from cash will be slightly faster than is currently predicted.

There are two main reasons for this. The first is practical: the new payment systems that take on cash (contactless and mobile) are only just starting to come into use and I think that once people begin to use them then they will use them to replace cash faster than might be predicted, because the new technologies are easy and convenient (where previous attempts at cash replacement were not). The second is generational: as more and young persons grow up in a world of Facebook and mobiles, IM and text, they will simply expect cash to work the same way.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]