Blog: Cash, digital payments and data - all change?



Catherine MacPherson

Catherine MacPherson considers issues on the horizon for the cash and digital payments regimes.

What Scot doesn’t love a conversation on legal tender? It’s been the focus of many a joke, those of Michael McIntyre and Kevin Bridges come to mind. Most people will be familiar with the adage that “cash is king”. There has been talk that the advent of Apple Pay and other digital payment schemes could see cashless economies arriving in our lifetime. For all the chatter, what is going on? And are government or regulators giving any indication as to their thoughts?

For anyone working in banking products or dealing with terms and conditions, 2017 was primarily focused on the implementation of the Second Payment Services Directive (PSD 2) and the Competition & Markets Authority (CMA) mandated API for Open Banking. Customers may not have experienced dramatic change yet but the stage is set.

I doubt anyone is unaware of the implementation of General Data Protection Regulation (GDPR). You certainly don’t need to working in banking or payments to have had your inbox flooded by GDPR emails. The “privacy paradox” has had many companies scratching their heads. Mary Meeker touched on this when delivering her 2018 internet trends report. The 294 slides have been dubbed “the most highly anticipated slide deck in Silicon Valley”. Whilst she was focusing on US trends and what can be learnt from China, her comments on regulators and data ring true here.

The CMA and the Financial Conduct Authority (FCA) have both commented on the opportunities for innovation, technology and data to improve competition for consumers. They are also clear on the responsibilities owed to consumers. When discussing the regulatory sandbox, the FCA has been clear that converting an existing process to make it digital won’t automatically result in innovation and improved customer outcomes. On 6 June the CMA published their written evidence to the House of Lords Select Committee on Communications: The Internet: To Regulate or Not to Regulate?

In March this year HM Treasury called for evidence on Cash and Digital Payments in the New Economy. The Bank of England (BOE) responded to this call for evidence. The BOE stated that:

  • whilst the use of cash is evolving there is a significant public demand for banknotes and they expect this to remain for the foreseeable future
  • cash payments dropped between 2006 and 2016, from 62 per cent to 40 per cent of all payments
  • banknote usage is highest amongst those aged 16-24 and 65+
  • there are regional differences in usage - cash is prevalent in the North East and West Midlands. In London and the South East fewer people carry cash.
  • 1 in 10 people do not carry cash, increasing to around 1 in 5 among 25-34 year olds

Despite regional and generational differences the need for cash remains. It certainly wouldn’t be fair to say that all young people are switching to digital payments.

For the eagle-eyed Scots, the BOE make clear that the BOE are the sole issuer of banknotes in England and Wales, whilst the government authorises seven commercial banks to issue banknotes in Scotland and Northern Ireland. There is a voluntary code that seeks to minimise the counterfeiting of banknotes (Code of Conduct for the Authentication of Machine-Deposited Banknotes) which has applied to BOE banknotes since 2013. It will be extended to Scottish banknotes by March 2019.

The publishing of the BOE response was remarkably timely. They published their response on 31 May and the systems of VISA went down on 1 June, 2018. Across Europe people were unable to make VISA payments. You might have felt quite smug if you were one of the 2.7 million people entirely reliant on cash across the UK.

Catherine MacPherson is a solicitor at Morton Fraser



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