Almost 50% of UK SMEs say cash is essential, the report says

Almost 50% of UK small and medium-sized businesses (SMEs) still rely on cash, says new market research.

According to the report prepared by iwoca, one of Europe’s largest lenders to small businesses, a significant number of small businesses still accept cash from their customers, and over a third have said they are not keen to switch to a completely cashless system.

The news flies in the face of plans by the World Economic Forum and the International Monetary Fund to eradicate the use of cash in most economies by 2030.

But while opposition to a completely cashless system is significant, the use of cash has declined significantly since the pandemic.

Despite this, iwoca’s data shows that 46% of UK small businesses alone use cash on a monthly basis, and 32% use it on a weekly basis. This is despite the UK being the second largest fintech hub globally, with more than 1,400 high-growth fintech companies currently active, including 20 fintech unicorns.

Business owners argue that cash remains an important payment component, with its presence providing customers with transactional flexibility and choice.

Cashless systems promoted by digital transformation and the pandemic

While iwoca’s data shows that three out of ten small businesses have reduced their use of cash since the start of the pandemic, most are using it to the same extent, and some are even seeing greater demand from customers.

Furthermore, over half of SMEs (54%) say the use of notes and coins has remained stable despite the rise of contactless and online payments rolled out during the pandemic, with more than one in ten companies seeing an increase (11%).

Small and medium-sized businesses still use cash for a variety of reasons, with flexibility for customers to come out on top. Almost six in ten businesses are offering refunds to promote consumer choice (57%), while a quarter are concerned that the cost of card payments is still too high (24%).

The future of cash in a fintech-driven world

When asked to predict the use of cash in the future, iwoca’s research found that almost a third (28%) still planned to use physical cash in five years, compared to half (49%) who did not think they would.

Speaking about the findings, Colin Goldstein, Commercial Director at iwoca, said: “For hundreds of thousands of small businesses, access to physical cash remains critical to the day-to-day running of their company. Yes – the pandemic has moved more businesses towards contactless payments, but the real story here is the sheer resilience of cash. From coffee shops to hair salons, restaurants to construction sites, it seems that SMEs want to continue using coins and notes well into the future.”

Five reasons why cash won’t be extinct just yet

Privacy: It ensures the user’s freedom and autonomy. Notes and coins are the only form of money that people can keep without involving a third party.

Legal currency: Just because digital payments are trendy doesn’t mean cash shouldn’t be used. Although many businesses began to refuse the use of cash during the pandemic and that trend has continued, cash and coins are still legal tender.

Inclusion: Financial inclusion in terms of digital payments is a big topic for fintechs and banks that aim to attract more customers and users. But for many emerging market populations, and many demographics within developed economies, cash remains an important transaction currency.

Track consumption: Many studies show that while electronic transactions can provide seamless records of spending, the psychological processes involved in crushing a note to make a purchase mean that the user will mentally track their purchases more sharply.

It is safe from online fraud: Although it is not always practical to carry around large amounts of cash, it means that the user is safe from a large number of frauds and crimes that only happen in the digital transaction space. This is of course offset by accidental loss and physical theft, which can occur but is less likely given the amount of online fraud currently occurring.

It provides flexibility: Using cash for small person-to-person purchases is often much easier and faster than using an app. Cash is also an important tool for teaching children about the values ​​and uses of currency in a clear and tangible way.