Deutsche Bank’s Chief Executive, John Cryan, predicted at Davos last year that cash probably wouldn’t exist in ten years’ time. Sweden, where only 20% of all consumer payments are now made in cash, appears to be at the forefront of the movement to phase out notes and coins completely. It has been predicted that Australia could become cashless as early as 2022, and in recent months India’s citizens and small businesses have been actively exploring alternatives to cash since the government’s recently-launched demonetisation process.
Millennials born in the late 20th century have grown up understanding both the importance of cash and the ease and simplicity of digitally managing money. They appreciate the rise in digital payments: the simplicity of tapping your phone to pay and having the receipt appear on the screen almost instantaneously. Consumers have been driving the need for a cashless society, and the benefits of instant payments are easy to understand.
Businesses have also been moving to eliminate cash, cheques and manual processes for some time, as Andrew Reid, head of cash management corporates for Europe, the Middle East and Africa at Deutsche Bank points out:
“Corporate treasurers are already cashless in their minds – removing the costs and risks of dealing with cash is part of a wider drive for corporate efficiency (supported by their banking partners). As such, we can expect accelerated digitisation in the corporate space over the next few years, with the emergence of new business models and a stronger convergence with retail developments.”
Ingrid Weisskopf, Head of Cash Products and Advisory FI, at Commerzbank adds: “Companies need to be able to depend on rapid payments. In the past, a company may have accepted waiting one or two days for a payment to clear. But now, working in this environment of rapid communication and digitalisation, speed is of the essence. They seek greater flexibility, efficiency, and ease of access in their banking experience.”
Society is moving towards greater digitalisation. According to one recent report, eight out of ten young adults don’t carry any cash on them. Cheques are increasingly obsolete, instead there’s an increase in credit and debit card payments and innovations in device payments proliferate.
However, not everyone in the global population classifies as an innovative customer. Unless cash is regulated out of the economy, as India appears to be attempting to do, it will continue to fulfil certain needs in society. Cash gives us freedom, is reliable and allows us to manage our personal finances with ease. It also helps keep the economy stable, with cash flow enabling management in smaller businesses particularly and allowing them to operate and grow.
A cashless society might sound appealing, but with a McKinsey study finding that 2.5bn adults worldwide are still unbanked (with Africa, Asia, Latin America and the Middle East accounting for 2.2bn), it poses the question of how far and how fast the shift could happen.
Slow, but steady
A total of 417 billion cashless payments were made in 60 countries worldwide in 2014, according to consultancy Retail Banking Research’s (RBR) study Global Payment Cards Data and Forecasts to 2020. These are increasing at only a slightly faster rate than the number of ATM cash withdrawals.
One in four card payments in the UK is now a contactless payment, according to recent data from the UK Cards Association, and there are now over 101m contactless debit and credit cards in Britons’ wallets; a total that equals the population of Denmark, Hong Kong, Sweden, Australia, Spain, Greece, and Finland. There are also 42 million smartphones now used in the UK, pointing to further payments innovation.
At the same time, while an estimated 2.7 million Britons have weaned themselves off cash almost entirely in 2015, there were still 2.2 million who still depend on it, according to Adrian Buckle, Chief Economist at the UK payments industry body Payments UK. Those who use cash to process all their payments are said to be better at budgeting, and don’t enable spontaneous buying. Using cash is a “visual way of being able to budget,” says Buckle. “Consumers don’t change their habits very quickly.” Nonetheless, Payments UK expects debit cards to have overtaken cash as the most popular method of payment by 2021.
While faster online payments provide seamless and easy transactions, they also open up new possibilities for fraud. According to Visa Europe’s 2016 Digital Payments Survey, the number of Europeans regularly using mobile devices for payments has tripled in just one year, from 18% to 54%. At the same time, PwC’s Global Economic Crime Survey noted: “Digital technology continues to transform and disrupt the world of business, exposing organisations to both opportunities and threats. So, it’s hardly surprising that cybercrime continues to escalate - ranking as this year's second most reported economic crime.”
“There are two main challenges that accompany the cashless trend” adds Andrew Reid. “The extinction of physical cash certainly has many upsides. However, there is significant work taking place between payment providers and regulators around how best to adopt, secure and regulate digitalised and electronic payments, and ensure both consumers and the trade itself are safeguarded. At the same time, physical money is one of the most universally acceptable forms of value sharing that we have. After all, when you misplace your bitcoin, you can’t look down the back of the couch.”
India has taken a more sudden and direct move towards the cashless society. Last November, Prime Minister Narendra Modi removed 86% of his country’s currency from circulation by announcing that all 500 rupee and 1,000 rupee notes would be taken out of the circulation. The sudden demonetisation was justified as a bid to curb tax evasion, corruption and shut down the so called ‘black money’ economy.
Still the world’s biggest economy, America is a decade behind in introducing chip and PIN technology and is still working towards an initiative such as the UK’s Faster Payments, which has been enabling almost instantaneous internet and mobile payments since 2008.
The Nordic region countries are also leaders in the race towards a cashless society. Denmark’s government has attempted to accelerate the trend by proposing that retailers should no longer be obliged to accept cash payments.
Neighbours Norway and Sweden are also contenders to be first. “Sweden is a highly-digitalised society and we’ve been first for a lot of things,” says Olle Zetterberg, CEO of the investment promotion agency Stockholm Business Region. “We’ve been quite early with technology. What’s happening now in the past decade is that there are a lot of new companies and fintech is emerging.
“There are a lot of technologies that make it easy to live without cash. Now all shops are accepting credits card. If you look to the future, plastic cards are also going to disappear as there will be new and existing methods such as payments with mobiles and smart devices.”
“Yet apart from all of this, there will still be transactions with cash going on as in some circumstances people will have to use it. For example, in Sweden there are rural areas where your connection for your mobile isn’t that good, and then that creates a need for cash if you need to buy something. But, all the payment systems are about trust,”.
Additionally, many UK town centres are struggling to keep up with consumers in terms of their digital capabilities, and given the pace of digital growth many towns lack sufficient infrastructure and basic digital skills, according to the High Street UK 2020 report.
Ultimately, the benefits of going cashless provide greater speed and convenience for corporates and consumers, while for governments it promises fewer transactions that evade the radar and avoid tax. Whether small businesses and society’s unbanked are left behind on the journey remains to be seen.