Good News & Bad News in UK: Cash Use Continues to Rebound As Government Unveils Digital ID Plans for “Pubs and Clubs”

What is the scandal-tarnished Japanese tech giant Fujitsu doing running the government’s digital Proof of Age Standards Scheme (PASS)?

Let’s begin with the good news: Cash has just completed a two-year revival tour in the UK. In 2022, cash payments increased for the first time in a decade. This was first reported by UK Finance, the UK’s largest bank association, in September 2023, with an almost one-year lag. The trend was confirmed by the British Retail Consortium’s annual survey, published in December 2023. The BRC’s payments survey revealed a 20% increase in cash payments, from 15% (in 2021) to just under 19% of transactions (in 2022).

As we noted at the time, it was a tentative sign of recovery. Card payments were still far-and-away the number one payment choice for UK citizens, the use of mobile payment apps was rapidly rising, and the rebound in cash use could merely be a dead cat bounce (apologies to cat lovers). That doesn’t appear to be the case, though it kind of depends who you ask. In its latest annual survey, published last Thursday, the British Retail Consortium found that use of cash had risen for the second year in a row to 20% of transactions in 2023 (from 18.8% in 2022):

Cash remains a vital form of payment for a sizeable minority of the population, particularly for its role in budgeting. This has made it important to many households during the recent cost of living squeeze. All large retailers are committed to accepting cash in their stores, which has a lower processing cost than other forms of payment and we welcome the new FCA rules introduced this year to support consumers’ continued access to cash…

Chris Owen, Payments Policy Advisor, British Retail Consortium said:

Persistent inflation and the cost of living crisis continued to affect households across the country and many consumers used cash to budget more effectively.

As card and mobile transactions take up an ever larger share of the payment pie, many merchants are having to pay more and more in transaction fees. In the past cash customers have subsidized their cashless counterparts by reducing the total amount merchants have to pay in swipe fees. But all that has changed with the recent surge in digital payments.

Who to Believe: Bankers or Retailers?

Interestingly, these figures clash directly with the data published by UK Finance in August this year, which suggested that the long-term trendline of broad cash abandonment had indeed continued in 2023. According to the bank association, the volume of cash payments fell by 7% in 2023 to six billion payments (2022: 6.4 billion), roughly where it was at in 2021. Cash accounted for just 12% of all payments made during 2023, down from 14% in 2022.

The findings of the BRC survey paint an entirely different reality. The question is: who to believe? Bankers or retailers? While both have their motives for wanting to pull the plug on cash, no one has done more toward achieving that end than the commercial banking sector and payment card industry. Thus, I am somewhat more inclined to take the word of the BRC on this issue over that of UK Finance.

The BRC survey also reveals that: a) in the UK, cash has a lower processing cost than credit and debit cards; and b) UK retailers are growing increasingly exasperated with the rapidly rising card processing fees they are having to pay:

[C]ard fees paid by retailers continued to grow. The total amount paid by retailers to banks and card schemes rose by over 25% in 2023, at an extra cost of £380 million. This brought the total card fees paid to £1.64 billion. Card companies continue to raise these fees without transparency or justification and retailers hope that the Payment Systems Regulator (PSR) will now implement meaningful reforms to tackle the lack of competition and rising costs identified in their current market reviews.

It seems that consumers are also becoming increasingly aware of these fees, many of which end up getting passed on to them. According to PayComplete’s Why Won’t Cash Just Die?! report, 65% of shoppers from the UK, the US, Germany, France, Italy, and Spain know that card transactions incur costs for retailers. Fifty-seven percent of the 5,000 respondents said they actively choose cash to help businesses save money. This figure surges to 71% when supporting smaller or local enterprises.

Perhaps the most impressive aspect of the resurgence of cash use in the UK is that it is occurring despite the concerted efforts by government, banks and retailers to limit its use. The UK’s high street banks have already closed some 5,000 branches over the past eight years and more than 15,000 free-to-use cashpoints, or ATMs, over the past six — a trend that shows no signs of slowing. According to John Howells, chief executive of Link, the UK’s main ATM network,  the U.K. will lose 23,000 free-to-use ATMs in less than 10 years.

Growing numbers of retailers have also refused to accept cash, which they are perfectly entitled to do by English law. The government could step in and do what many governments around the world have done — including, most recently, Norway’s — and pass a law prohibiting businesses from rejecting cash. But it’s not going to happen. In response to a 2023 petition asking for it to make it unlawful for shops to refuse to accept cash, the then-Sunak government said: “The government does not plan to mandate cash acceptance.” Nor will the Starmer government.

On the contrary, government is getting in on the act. Many local authorities, for example, have already banned cash as a means of paying for parking. The government even proposed closing all rail ticket offices, which would force all passengers to use card-only vending machines or make their purchases online. But the idea triggered such a visceral backlash, particularly from organisations representing the blind, wheelchair-bound and other disadvantaged groups, that the government ended up shelving it two months later.

Not Just About Cost of Living

So, why are Brits using more cash again?

The BCR, UK Finance and most media articles offer only one possible explanation: the UK’s cost of living crisis. Put simply, people find it easier to budget if they use cash. This is undeniably true. Payment card companies, banks and retailers knew from the get-go that seamless contactless payments would encourage compulsive consumption. And there has been a surfeit of evidence of people on both sides of the Atlantic, including many members of Generation Z, embracing the Cash Stuffing trend since high inflation reared its ugly head in 2021.

But there are other possible reasons for the post-Covid resurgence of cash use that are getting ignored in most mainstream reports. An obvious one is that people have gradually increased their purchases from physical shops, in line with a return to social interactions following the lockdowns and travel restrictions of 2020-22.

There also seems to be a groundswell of public support for keeping cash alive as a viable means of payment, evidenced by the emergence of pro-cash campaign groups. The best way to safeguard against a cashless society is to use cash more often, which is in the interest not just of individuals but of society as a whole. A cashless world is a far more exclusionary one. As the BBC reports, UK-based charities recently told a committee of MPs that numerous groups had been excluded from essential services and community venues that had started to refuse cash.

There is also the question of privacy. As the UK government grants itself more and more Orwellian powers (ever-increasing use of live facial recognition, overt censorship of online discourse, mass algorithmic surveillance of the bank accounts of welfare recipients, the scraping and sharing of digital health data…), cash has become increasingly important as one of the last vestiges of personal freedom and anonymity people have left.

And let’s not forget financial resilience. While the biggest payment outages affecting UK citizens have happened this year, including the Crowdstrike collapse in July, they represent the intensification of a trend that began long ago. In 2023, bank IT outages were already a regular occurrence. In March this year, a massive outage disabled contactless and mobile payments across Sainsbury’s and Tesco supermarket stores.

Perhaps more and more UK citizens are cottoning on to the fact that a fully cashless society will be an extremely fragile one, as the central banks of Norway, Finland and Sweden have been warning of late. And that can only be a good thing.

Digital ID for Pubs and Clubs?

Now, for the bad news. As part of plans to nudge the British populace toward an all-in-one digitised national ID, pubgoers and clubgoers could soon be asked to use their smartphone to prove their age. From The Times‘ article, Digital ID for Pubs and Clubs in (Half) Victory for Tony Blair:

Ministers are preparing to change the law for customers buying alcohol in shops and bars as they embrace a technological revolution that will move more state functions online. People will eventually be able to prove their identity for everything from paying tax to opening a bank account using a government-backed app.

It will use a “single sign-on”, rather than the two-step identity verification currently needed online, for all government services, including applying for benefits. The scheme appears to be edging closer to a unique digital identity for citizens.

Estonia is seen as a pioneer of the single sign-on for government services. Its citizens all have a state-issued digital ID, called e-ID, which people use to pay bills, vote online, sign contracts, shop and access health information. The scheme, which has existed for 20 years, is estimated to save Estonians five days a year when dealing with bureaucracy.

The UK government has ruled out ID cards and insists it will never make digital ID mandatory after Sir Tony Blair called for everyone to be given a unique online identifier.

By getting the ball rolling on digital ID while pledging not to make it mandatory, the article suggests that this latest move by the Starmer government represents only a “half-victory” for Blair, which is an absurd claim. As anyone who has been following the rollout of digital identity programs around the world, from India to Estonia, to Ukraine and, most recently, the EU, the last thing you want to do is make digital identity mandatory from the get-go.

You smart small, and gradually grow big. India’s Aadhaar is a perfect example, First introduced as a voluntary way of improving welfare service delivery, the Modi government expanded its scope by making it mandatory for welfare programs and state benefits. The mission creep didn’t end there. Aadhaar has become all but necessary to access a growing list of private sector services, including medical records, bank accounts and pension payments.

This is something even Blair himself has acknowledged. Speaking at a conference hosted by his Tony Blair Institute for Global Change (TBI) in central London in July, Blair said introducing digital IDs could improve citizens’ access to public services while clamping down on benefit fraud and illegal migration. But he conceded, to peels of laughter and applause, that there would be “a little work in persuading to do here, it must be said.”

The MSM coverage of the latest digital ID proposal has got a number of other things wrong, too, including conflating age-verification and e-government services:

2. The MSM conflate age verification & govt e-services, e.g. One Login, although there's some crossover with 'approved' IDVT [ID verification technology] providers who also act for commercial digital age-checks as well as govt services.https://t.co/OFvDBQlgSg pic.twitter.com/VBxAWrEaLk

— STOPCOMMONPASS 🛑 (@org_scp) December 9, 2024

As we posited a few weeks ago, it seems that age verification will be one of the Trojan Horses of choice for unleashing digital ID on a broadly unsuspecting public. Australia has just passed a law imposing a ban on under-16s using social media without explaining how such a ban would be enforced. One thing that is clear, though, is that for the ban to work, everyone, including adults, will have to verify their age in order to access social media. Spain and EU other jurisdictions are looking to impose similar age restrictions in the coming months.

Trying to prevent these initiatives from snowballing is likely to be a Herculean task. As Raphael Tsavkko Garcia recently wrote in an op-ed for EU Observer, “in the realm of political discourse, few arguments are as emotionally charged — or as manipulatively wielded — as the call to “protect our children:

At face value, it’s an unassailable proposition; who would argue against the safety and well-being of society’s most vulnerable members?

But the reality is far more sinister.

When politicians invoke the need to shield children from the dangers of the internet, they often do so as a pretext for introducing sweeping, authoritarian measures that curtail privacy, erode civil liberties, and fundamentally reshape the relationship between the state and the individual.

Now, the UK government is talking about using digital age verification technologies for the offline world of pubbing and clubbing. The company chosen to lead the project is none other than Fujitsu, which played a starring role in the UK Post Office Horizon scandal, a miscarriage of justice in which hundreds of subpostmasters were wrongly prosecuted for fraud, false accounting or theft over a period of decades due to a faulty Fujitsu-designed computer system called Horizon.

A system that was intended to keep track of transactions in local branches was actually creating bugs in the Post Office’s computer system. The Post Office spent years covering up evidence of Horizon’s faults. Meanwhile, many of the postmasters and postmistresses accused of fraud or theft were left bankrupt. Some went to prison while others ended up taking their lives. Sixty people died before any sort of justice was served. The resulting outcry was the subject of a critically acclaimed television drama series for ITV, Mr Bates vs The Post Office.

Yet the company at the heart of the scandal is still running a host of UK government projects, including the digital ID scheme, despite a pledge earlier this year to refrain from participating in UK government procurement. According to The Register, it seems that the PASS procurement was already in train by the time Fujitsu made the pledge. If there is any kind of silver lining, it is that the resulting digital ID scheme, like Horizon and so many other UK government IT projects, including at the NHS, is likely to be so full of holes that it will end up being unworkable. The question is: how much damage will it do in the interim?