There have been significant changes in the way that consumers pay for goods and services, and how businesses accept payments for those goods and services. Think about the last time you used cash, it was likely months or possibly even years, ago.

The relentless growth in popularity of smartphones, contactless payments and digital-only financial services providers have all been key drivers of change. For merchants and retailers, accepting digital payments continues to become easier, enabling them to offer a seamless way to connect a card reader to a smartphone for a truly mobile point of sale.

But while many of us appreciate the convenience digital affords, cash is still critical for many consumers and small businesses. As the digital payment evolution continues, we need to ensure a gradual transition to avoid alienating those people who depend on cash as their primary payment method.

The use of physical money accounted for 14% of all payments in 2022, and although it’s the second most popular method, it is now dwarfed by cards. Compared to a figure of 60% in 2008, it’s clearly evident how much the payments landscape has changed in just a short space of time.

However, that doesn’t tell the full story when it comes to financial inclusion.

In 2022, the use of physical cash increased by 7% to 6.4 billion payments, this is according to data from UK Finance, with observers suggesting that was due to households trying to manage limited budgets during a cost of living crisis.

We’ve all seen the signs at your local coffee shop, restaurant or retailer, saying ‘card only, no cash’.

For many the question is no longer about whether we should use digital payments. The shift to a cashless society is seen as inevitable, with a focus on how to make payments better, faster and more secure. For businesses, there are also plenty of reasons why going cashless is a positive step, primarily due to convenience, lower costs and additional security.

As customer payment preferences have changed, the cost of providing cash handling infrastructure is becoming disproportionate to the number of customers using it. Banks have increased their fees for depositing cash. That, coupled with the ongoing closure of local branches across the UK, has meant businesses are forced to make longer journeys and pay more to deposit their money.

With such poor economics, a growing number find it easier to simply not accept cash.

Any discussion around digital financial services shouldn’t focus on personal preference but rather on the broader principles of fairness and inclusivity.

In 2019, the Access to Cash Review highlighted poverty as the biggest indicator of cash dependence, primarily because the poorest in society are less likely to have the means of accessing computers or smartphones to enable them to bank digitally.

Other groups with a high dependence on cash who would be disproportionately affected include rural communities without access to reliable internet or mobile coverage, the unbanked, the elderly, and those with physical or mental health issues.

Recently, the Financial Conduct Authority (FCA) updated its Access to cash policy, outlining its plan to ensure continued consumer access to cash. The FCA wants to prevent people and businesses from facing unreasonable costs to access their money, whether that is due to bank charges, travel costs, or time.

The FCA's original consultation document showed that in the two years, to the first quarter of 2023, 1,391 bank and building society branches closed, as did 2,176 free-to-use ATMs.

Financial institutions will need to assess cash access and understand if additional services are needed when changes are made to local services to respond to local residents, community organisations, and representative groups.

Bank customers will be able to request an assessment of gaps in local cash access, and banks will be required to deliver what the FCA calls ‘reasonable additional cash services’ when significant gaps are found. Facilities such as bank branches and ATMs will need to be kept open until additional cash services are identified and available

Educating the wider population about the benefits of digital banking and electronic payments must continue to be a priority for governments, fintech firms and banks, to ensure that people become more comfortable with using less cash in their day-to-day lives.

High Street banks through to infrastructure providers such as ClearBank, have a crucial role to play in the evolution towards a cashless society and doing so in a controlled and considered manner.

Inclusion begins with a bank account, the facility to receive, hold and transfer funds. While this may seem like a given, according to the FCA there are approximately 1.1m people in the UK who do not have a bank account.

While no single entity can solve these issues, our award-winning collaboration with PayPoint is one example of how current infrastructure can be used to help bridge the divide. In partnership with the Department for Work and Pensions (DWP), the two firms developed and launched the Payment Exception Service (nPES), offering those without a bank account the ability to choose how they receive their benefit payments.

Through integration with ClearBank’s API, PayPoint receives Bacs and Faster Payments and translates these into secure digital vouchers, which are issued in near real-time using the customers’ preferred delivery method. These include SMS, a unique barcode displayed on a smartphone, a PDF delivered by email or a re-useable mag stripe plastic card. These can be used to withdraw funds at any one of almost 28,000 PayPoint retailer outlets or just over 11,500 Post Office branches.

When UK Finance publishes its 2023 payment statistics later this year, it will be interesting to see if cash usage has changed. It expects it to decline over the coming years (once the current financial squeeze has eased), with nearly 22 million people only using cash once a month or not at all last year.

However, as an industry, we must be mindful of not rushing to a cashless future without first creating a safety net to ensure that no one is inadvertently shut out of the financial system. Cash is still vital in supporting financial inclusion and we have a social responsibility to ensure that as it is phased out, the most vulnerable in society are not left behind.

But we must also find ways to serve the underbanked, the unbanked and the segments of society that struggle to use digital payments. This will require collaboration between regulators, banks and interest groups such as charities.

At ClearBank, we’re incredibly proud of our work with credit unions and down the country, as well as our ongoing collaboration with PayPoint. We’re also determined to continue to support financial inclusion through access to bank accounts and enabling businesses and consumers to make payments, whether digitally, by cheque or cash.

Sandy Sancaster is Group Head of Agency Banking at ClearBank, he joined ClearBank in 2016 at the point of its inception and has over 20 years of experience within the financial sector, working across multiple disciplines, including revenue, product, operations, customer services and compliance.