Cashless Society: The Future of Payments
From communication and entertainment to shopping and banking, technology has revolutionized how we interact with the world around us. One important shift has been the way we manage money, or how we no longer keep physically it in our hands.
The idea of a cashless society, in which real currency is replaced by digital transactions, is gaining traction all across the world.
This blog article explores the rise of cashless societies, examining the benefits, challenges, and the countries leading the charge toward a cashless future.
Table of Contents
What is a cashless society?
A cashless society is a system in which people do not use physical banknotes and coins for financial transactions. Instead of cash, all transfers are made digitally.
This is done using various money management tools: credit or debit cards, electronic payments, cryptocurrencies and online banking platforms, and mobile payment apps and mobile wallets such as PayPal and Apple Pay.
No existing society is completely cashless. However, economists predict that due to consumer preferences, competitive pressures on businesses, bank and financial institutions’ profit motives and government policies, it is likely that at least some cashless societies will emerge shortly.
What will happen in a cashless society?
In a cashless society, digital currency completely replaces all physical money. Paper dollars become invalid as a means of payment, and the money in one’s bank account only exists in digital form.
Money transactions in a cashless society can only be conducted through digital transfers. It can be accomplished using credit cards, as well as digital wallets Google Pay or Apple Pay.
Digital payments vs. cash payments
The increasing popularity of mobile payment services indicates a clear shift away from cash transactions. The number of persons paying in cash has declined considerably during the last five years. As an alternative to cash, an increasing number of customers are turning to mobile wallets and cashless purchases.
However, some differences have been observed when examining such a change. Location and income often determine the choice between cash and digital payment methods. Individuals from households earning less than USD 30 000 per year are more likely to spend cash.
By contrast, only 5% of people with incomes above USD 100 000 choose cash as their primary payment method. It suggests that higher-income consumers are more inclined towards cashless alternatives and use cash sparingly.
However, even individuals who predominantly use cards for payments still value the option of paying with cash. Many people prefer to have cash on hand when leaving home, indicating that they appreciate the flexibility and convenience it offers in certain situations.
Despite the growing popularity of payments using mobile devices, a sizable portion of the population still prefers cash. Many individuals dislike the concept of a cashless society. It implies that when it comes to payment preferences, people value variety and flexibility.
Digital currency is a type of currency that only exists in electronic form. It is created within a computer network.
However, it is critical to distinguish between electronic and digital cash. When you check your bank account balance, the displayed amount represents electronic currency, which can be withdrawn as cash if desired.
Additionally, electronic transfers, such as receiving a paycheck, contribute to the electronic currency in your bank account. However, you can’t exchange digital currency for cash.
If you draw parallels between digital currency and cryptocurrency, you are correct. It is one of the few digital currencies. However, it functions independently of a government’s central bank and does not have legal tender status.
Therefore, companies may not accept cryptocurrency as payment. Unless you encounter a business that accepts cryptocurrency, you may need to convert your crypto holdings into dollars or another traditional currency before using it for payments.
Benefits of a cash-free world
The transition to a society without cash offers several benefits and advantages:
Making purchases becomes simple when using credit cards or mobile payment methods. There’s no need to count out cash or make changes, and you can buy what you want whenever you want without visiting the ATM to withdraw cash.Retailers and small businesses also benefit from the convenience of electronic transactions, as they don’t have to handle as much cash and can easily manage their finances with seamless integration into computer systems.
- Crime prevention
Carrying less cash reduces the likelihood of becoming a target for robbery. Moreover, theft protection provided by companies safeguards against unauthorized transactions if someone steals credit cards or smartphones.Cashless payments also aid law enforcement efforts, as most forms of digital payment leave a digital record of the purchase, including the time, location, and items bought. It helps in detecting criminal activity and tracking the movements of suspects.
A cashless society can provide stability in situations where traditional banking systems face challenges. In some countries, years of war have had a significant impact on the banking sector.
There are also additional advantages. It includes:
- Digital paper trail and less money laundering
Cashless transactions leave a digital paper trail, making it easier to track and detect instances of money laundering, illegal transactions, or other illicit financial activities.
- Time and cost savings
Handling, storing, and depositing paper money can be time-consuming and costly. Going cashless and especially using contactless payments reduces these overheads.
- Simpler currency exchange
When traveling internationally, a non-cash system facilitates easier currency exchange, eliminating the need to carry cash and allowing for seamless digital transactions across borders. The same goes for international payments.
Disadvantages of a cashless society
The transition to a cashless society presents some concerns and challenges:
- Privacy concerns
Cash payments allow you to spend money and receive funds anonymously, letting individuals make purchases without leaving a trace.However, in a cashless system, every purchase is recorded, raising concerns that governments or corporations could track, monitor, or exploit our purchasing histories for various purposes, potentially compromising privacy.
- Monetary vulnerability
Cash offers a sense of security as it is safe from digital threats such as hacking or system malfunctions. In contrast, digital money is susceptible to cyberattacks and technical issues.Power outages or network problems can also hinder access to digital funds. While cash withdrawals are unavailable, individuals are unable to retrieve money from their bank accounts. Cash provides some monetary security that may be lacking in a cashless financial system.
- Sophisticated criminality
Criminal organizations, including drug cartels and terrorist groups, often rely on cash transactions to safeguard their illicit funds. Cash enables them to evade detection and maintain the security of their money.However, a cashless society could make it more challenging for law enforcement to track transactions and freeze accounts. Criminals may turn to offshore banking, cryptocurrencies like Bitcoin, and other advanced digital methods to conceal their activities, making it more difficult for authorities to seize or eliminate illegally obtained funds.
Additionally, there are some other considerations:
- Technological learning curve
The transition to a cashless system may require individuals to adapt to new technologies and platforms, which can pose challenges for those less familiar with electronic payment methods.
- Lack of physical reminders for spending
Cash serves as a tangible reminder of one’s spending. In a cashless society, individuals may find it more difficult to exercise control over their expenses without the physical presence of money as a visual cue.
Balancing the advantages of a cashless society with these concerns is crucial in shaping policies and frameworks that prioritize our convenience and security.
Who is leading the cashless society?
First, there is no country on the planet where people do not use cash. However, Finland, Sweden, China, South Korea, the United Kingdom, and Australia can all be considered leaders in the transition to a cashless society.
Finland currently leads the pack with high card usage and digital readiness. Sweden stands out with its widespread acceptance of digital payments, while China’s significant population and dominance in mobile payments contribute to its progress.
South Korea has already established the necessary infrastructure for cashless transactions, while the UK’s fintech innovation and high acceptance of card and mobile payments position it as a leader.
Australia is also making strides in digitizing its economy, with increasing smartphone penetration and a rise in digital non-cash payments. These countries are pioneers in adopting digital methods of paying and eliminating reliance on physical cash, paving the path for a cashless economy.
Is a cashless society coming?
Given the prevalence of smartphone and card payments, it’s tempting to think we live in a cashless society. While people still use cash, many choose the convenience of electronic payments for everyday purchases. Research indicates that 41% of Americans make no cash purchases in a typical week.
However, a truly non-cash society differs significantly from the current situation. A cashless society has no cash in circulation. People make all transactions with a government-backed digital currency.
While no society has reached 100% cashlessness, countries like Sweden and China seem to be progressing in that direction. Nevertheless, transitioning to a non-cash society entails addressing various logistical challenges and social issues.