Are consumers checking out of a cashless society?

Rebecca Crook at Somo argues that banks need to be far more proactive about providing the budgeting tools that today’s consumers are demanding

When was the last time you thought about popping to the cash machine? Or wondered if you had enough coins for the parking meter?

The reality is that most of us today aren’t just surprised when we encounter a demand for a cash payment, we’re often mildly inconvenienced as, like the Queen, few of us carry cash anymore.

Only it looks like the tide may be turning. According to the Post Office, more than £800m was withdrawn in cash during July 2022 alone, more than at any time in the past five years. That means we’re using even more cash than before the pandemic, when experts predicted that Coronavirus was going to herald the final definitive switch to contactless.

Why the sudden switch? Well, despite the trend towards ‘improve, not move’ and the rocketing cost of building materials in recent years, we haven’t become tax dodgers en masse, paying cash in hand wherever we go. The reality is much more mundane, and worrying.

The UK’s consumers are withdrawing cash because they see it as the only sure-fire way to budget properly to meet the ever-growing threat of a cost-of-living crisis. Called ‘cash stuffing’ it’s even become a trend on TikTok, showing how young adults are managing their budgets by stuffing envelopes with cash to keep track of spending.

Under today’s cost-of-living squeeze, most consumers understand the need to tighten their belts. But modern life has a way of leaking cash. A streaming subscription here, a digital paper there. Accidentally missing the free trial period on a craft box or indulging too often in a next day Amazon Prime delivery can soon mount up, threatening precarious finances. It’s simply all too easy to overspend digitally these days.

Psychologists agree that cash in hand is a powerful budgeting tool. Overspending becomes painfully obvious when you start to reach the bottom of the pile of notes.

Digital banking providers should be troubled by this turn of events. With cash stuffing, consumers are taking the initiative where banks should be taking the lead. Financial institutions – particularly more traditional organisations – are letting a golden opportunity to connect with their customers and develop deep, lasting loyalty simply slip through their fingers.

Especially with a new survey showing how challenger banks have overtaken established ones when ranked on how satisfied people are with their services amid the cost-of-living crisis. Starling and Monzo hit the top spots with RBS and The Co-op falling to the bottom.

In brand new research Somo conducted in the financial services sector, over a quarter of respondents said they’re most likely to switch insurance providers because of a poor digital experience, and 60% that they weren’t happy with the service received from their mortgage providers – proving how important it is for FS companies in general to be more intuitive and supportive using digital tools.

So it’s no surprise to see that the challengers are already getting ahead of the opportunity. Starling Bank’s Spaces function is a digital alternative to stuffing envelopes with notes. Allocating savings goals, the Spaces tell you how close you are to your target and generally keep the cash out of the way of everyday spending so there’s no accidental dipping in.

And to prevent those accidental free trials becoming a costly mistake, Revolut’s Smart Subscriptions service automatically drops you out just before the period ends. If every unwanted subscription was ditched on time, it could save consumers an estimated £1.8bn a year.

Traditional providers have dipped a toe into budgeting tools and spend visibility, but it’s just not enough. If they’re going to be real partners to their customers through the cost-of-living crisis – and, hopefully, in more fruitful years in the future – they’re going to have to be much more proactive with the tools and content customers are looking for today.

They have the technology. They have the know-how. It’s time to put the two together, before it’s too late.

Rebecca Crook is Chief Growth Officer at Somo

Main image courtesy of iStockPhoto.com