Amidst a wave of disruptive innovations unleashed by plastic money and e-wallet providers, one wonders whether we are slowly heading into a completely cashless society. Such a view is gaining currency when one hears about recently launched cashless eating chain Tossed in the UK and Sweden turning out to be the most cashless society on the planet, with Swedish using barely 1% of the value of all payments through coins or notes last year.
We have moved away from primitive forms of money such as metal coins to paper notes and later to paper cheque and now into electronic payments. The electronic banking, credit cards, and e-wallets are all milestones that signify our gradual distancing from heavy use of cash. People are adopting digital technologies ranging from smartphones and wearables to artificial intelligence at breakneck speed. The massive use of such technologies facilitates people to quickly embrace various e-payment modes. A study conducted by Forex Bonuses reveal Sweden is the global leader in adopting digital payments, with 59% of all payments are non-cash, closely followed by Canada with 57%.
According to recent estimates, people hold more cards and use them more often. While in the United States, Sweden, Australia and Korea, an average person uses a card for over 300 times in a year, India and Mexico sport a lesser number at less than 25 times a year. However, over the last decade and a half, the value of a typical card payment dropped in nominal terms from above $60 to less than $40. The increasing usage for small value payments can be attributed to the popularity of mobile terminals, lower-cost smartphones or tablet based PoS terminals.
Pros and Cons of Cashless Society
Let us now turn our attention to the pros and cons of adopting a cashless society. First the argument in favor of cashless society.
Some argue that going cashless would trim transaction costs, lessen instances of economic offenses and street crime.
Roubini ThoughtLab, a research firm in its report published last year note consumers in 100 cities across five stages of digital maturity spend 32 hours a year on cash-related payment activities. The report underscores that larger adoption of digital payments could reduce this number to 24 hours a year, translating to an average saving of $126 million per year. The savings would grow to $278 million per city when one considers other benefits accruing from digital payments such as reduction in cash-related crime.
Kenneth Rogoff in his book “The Curse Of Cash” makes a forceful pitch for doing away with high-denomination currency notes, as he believes such a move would discourage tax evasion and crime. Rogoff argues that though critics of a “cashless” or “less-cash” system would argue that such a system would pose the risk of hacking, threats to privacy, possibility of cyber blackouts, he believes such objections are superficial and can be easily dealt with especially given a long transition period.
Some believe phasing out high-denomination currency notes will make life difficult for those engaging in crime and tax evasion. Of note, recently European Central Bank unveiled its plans to stop issuance of €500 banknotes around the end of 2018 while introducing €100 and €200 denomination bank notes.
Some of the major arguments against full-adoption towards a cashless society include security, compromising individual’s privacy.
Various digital trails exposed by this trend towards cashless mode are assiduously tracked by digital service providers to maximize their commercial goals. If the cashless economy is thrust upon us, the service providers will have a goldmine of “big data” to harvest and track every detail of our financial lives.
As recent high profile security breaches demonstrated, other then a decentralized blockchain there is no such thing as hack-proof technology, with even the most secure and firewalled databases getting hacked into. When some unscrupulous elements glean our spending data, we are exponentially exposed to the risk of compromising our privacy.
Though it is perceived that going cashless would reduce transaction costs, Boston Consulting Group estimates Visa and Mastercard garner $1 trillion annually worldwide as fees for processing electronic payments and the amount is set to double by 2023 as more and more consumers adopt digital payment modes.
Cash remains the KING
A February 2018 survey results published by Bundesbank underscores that cash remains the most favored means of payment, with 88% of respondents voted for an unchanged preference towards cash payment, not only for the present but also in the future.
Bank for International Settlement’s March 2018 Quarterly review in a report titled: “Payments are a-changin’ but cash still rules” underscores that despite the enhanced use of electronic payments around the world, there is scant evidence of a shift away from cash. The report notes since 2000, cash in circulation has gone up from 7% to 9% of GDP in its sample of CPMI members that include Australia, Canada, China, France, Germany, India, Singapore, UK, USA and 22 additional countries.
Thus despite recent trends point to money is fast-talking through computer codes, the cash still remains the king and moving into a completely cashless society appears to be a distant dream for now.