Covid-19 will impact our lives and our wallets for years to come. In this blog, we look at how the lockdown and ongoing social distancing measures are transforming the way we use and manage our money.
Decline of cash
Following the World Health Organisation’s advice to make purchases using contactless payments instead of paying with cash, its use has fallen dramatically. Many high-street chains like Costa Coffee quickly pivoted to card-only sales before they were forced to close. While the use of cash has been steadily declining for years, the lockdown has significantly sped up the decline. The latest data from LINK shows that cash withdrawals have dropped by 60% during the lockdown.
Even when the lockdown is lifted, LINK suggests people will be hesitant to return to cash. More than half of people surveyed said they now avoid using cash and three quarters said the virus will reduce their future use of cash. As the lockdown is lifted and more shops reopen, many businesses will only accept card payments for the next few months. While the use of cash may eventually return over time, it is unlikely that it will ever be used as much as it was before the lockdown.
Revival of the cheque
Surprisingly, the lockdown may have prolonged the lifespan of the cheque as thousands of people have begun digitally depositing them using their banking app. Lloyds Bank has reported that around 125,000 cheques a week have been paid in digitally since the lockdown began – a 20% increase compared to the start of the year. HSBC has also said it has seen a 30% increase in cheques being deposited digitally per day during the lockdown.
The technology allowing you to pay in cheques digitally has been around for a while, but its use has been increasing during the lockdown as many companies including utility suppliers and NS&I still pay customers with cheques. As more people use the technology, the cheque revival may continue as it will be easier for people to accept and deposit cheques, rather than pay in cash if social distancing remains in place.
Less credit card debt (for now)
Normally you would expect borrowing on credit cards to increase during an economic crisis, but people actually paid back more than they borrowed on credit cards in March, according to the Bank of England. Overall, households paid back more debt than they borrowed – the highest amount ever paid back in a month. This unexpected trend is partly due to people being more careful with their money and partly due to fewer opportunities to spend. But as the recession starts to hit household budgets, it is likely that credit card debt will start to rise again soon.
Open Banking comes into its own
The popularity of Open Banking technology has soared over the last twelve months. Open Banking API use has risen from 38.2m successful API calls during March 2019 to 409.4m successful API calls in March 2020 – a 987% increase year-on-year.
While we have not seen the figures for April yet, lots of Open Banking Fintechs have been busy during the lockdown. Fronted, 11FS and Credit Kudos collaborated to launch COVID Credit which lets sole traders self-certify lost income. Banks have also launched new Open Banking technology including Barclays, which now allows its customers to make payments from current accounts held with other banks from within its app. As the use of digital banking is set to increase due to social distancing, we expect to see a lot more Open Banking innovation and integration in the coming months.
As we will all need to be even more careful with money, the demand for digital tools and money management apps is also set to increase. Most people will be looking for more ways to save money and reduce their spending. At Youtility, we’ve strengthened our team with four new hires and launched the Android version of our app in the last few weeks, so even more people can track how much they are spending and switch energy suppliers to avoid paying more than they need to each month.