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Not cashless, but less cash: Economic justice and the future of UK payments

IPPR | Rachel Statham, Lesley Rankin and Douglas Sloan | Jan 24, 2020

not cashless but less cash - Not cashless, but less cash: Economic justice and the future of UK paymentsThe future will have less cash. By 2028, forecasts suggest that fewer than one in 10 UK consumer payments will be made using cash. The digital revolution in finance will transform our economy and shift the balance of economic power. The prospect of a fully cashless society remains beyond the horizon, but the actions of government, regulators and financial service providers in the immediate future will determine the course of this transition and crucially who stands to benefit from it. Change is needed to design a future economy that is both more digital, and more just.

To prepare for a just transition to a more digital economy, this report sets out three key areas for action: 

Excellent financial services for all

For many, the benefits of cash payments – in terms of control, trust and privacy – have not yet been replicated by digital alternatives. As the recent Access to Cash review made clear, urgent action is needed to protect access to cash for the 8 million UK adults who rely on it. One in five UK adults still lack essential digital skills, with digital exclusion most concentrated among groups who are already economically marginalised.

This digital access gap locks people out from sharing in the benefits of a digital future.

See:  Fintech is Driving Financial Inclusion

How far new realms of innovation, such as open banking, offer tools for a more equitable future will depend on how services meet the needs of people on low- and middle-incomes, and how far they are taken up beyond those who are already digitally savvy. Ensuring everyone can make payments in the future will mean both protecting access to cash and supporting people to access digital services that work for them.

Bringing workers and businesses into the formal economy

As the shift towards digital payments accelerates, there are growing incentives for businesses to move into the formal economy, or to formalise previously undeclared streams of income. Digitalisation makes it harder for firms to hide economic activity from tax authorities, offering opportunities to reduce criminality and recoup tax revenue lost to the shadow economy.

By supporting businesses and workers into the formal economy, the most precarious workers can enjoy stronger employment protections through minimum wage enforcement, paid leave, and sick pay, while cutting down on labour exploitation.

Democratising data and shaping an inclusive digital finance market

Data is transforming the world of finance, supporting more personalised services, flagging problem spending earlier, and reducing criminality. But, as platform giants move into payments and personal banking markets and the card payments market continues to be dominated by two major schemes, there is a clear risk that economic power in a digital economy will be increasingly concentrated within a small number of dominant firms.

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As new realms of finance are digitalised, action is needed to protect against the monopolistic tendency of data-driven business models in which huge economic value is extracted from ownership of data. Protecting against excessive market concentration can strengthen competition, diversify
innovation and ensure competitive prices for consumers.

There is a path to a digital economy that delivers not just greater prosperity, but also greater economic justice: where more people can access better payments and banking services, where the power of payments data is harnessed for public good, and where tax revenues are increased and employment protections strengthened for the most precarious workers. How we reimagine the world of personal finance, and for whose benefit, will shape the digital economy of the future. Action is needed now to ensure that future is hardwired for economic justice.

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