Dream or fantasy

We are going to be a cashless society, yes one day. The use of cash is declining, especially in major economies. The digital economy is accelerating the use of electronic money more than ever; the contactless payments through mobile devices and P2P money transfer networks are spreading wide. The fees banks are charging the businesses are decreasing too.

As per a recent study reported on Reuters, “more than a third of Europeans and Americans would be happy to go without cash and rely on electronic forms of payment if they could, and at least 20 % already pretty much do so. Overall, 34 % of respondents in Europe and 38 % in the United States said they would be willing to go cash-free, according to the survey conducted by Ipsos for the ING bank website eZonomics.”

In USA, the use of cash in retail has declined from a 40% in 2012 to less than 30% in 2016. This is still quite a high percentage for a country that is said to be high-tech. The Americans are concerned about the online privacy as well as fraud during online shopping. However, there are clear signs that Americans are using more and more mobile payments. Take Venmo, one of the fastest-growing apps of the last couple of years (acquired by PayPal in 2013). It jumped from handling $7.5 billion last year to an anticipated $20 billion this year.

Sweden is one of the leading countries on the way to cashless society. In 2015, cash transactions made up 2% of all value payments in Sweden. The popular app Swish, allows the transfer of money between Swedes in real time and it is used by over 50% of the population, making 9 million payments over a month. Experts predict that rate to fall even further, to 0.5%. Sweden's central bank is considering launching a digital currency.

In Australia, the ATM withdrawals are now at a 15 year low and have been declining between 6 to 7.7% for the past 3 years.

There are several benefits of going cashless. First advantage is against the black economy and underground production, including cash-in-hand jobs not reported and so not taxed. In Europe, 500 euro notes will be phased out by the end of 2018, in part because of its links to criminal activity.

The digital payments have multiple benefits such as increasing monetary room for central banks and lowering security constraints in retail. However the most important one is the financial inclusion of the “unbanked” population with direct impact on reducing poverty. Cashless societies seem unfeasible until the last unbanked person opens up a bank account.

There are some risks too over the convenience of operating cashless. The loss of privacy may be a major hassle for a cashless society. Electronic payments can be tracked and misused by cyber criminals and private bodies. Continued investments and developments in cyber security are crucial to transit into the full digital economy. On the regulatory side, common frameworks as well as globally co-ordinated approaches are necessary to deal with the arbitrage opportunities and cross-border exchanges of data. Furthermore, during urgent demands such as natural catastrophes cash may still be needed.

So far, we have seen that the regulations follow the technological evolution in financial services and time-to-time blocks the way. To enter the cashless era as many governments are protecting and deliberately planning for, the regulatory bodies shall show leapfrog progress beyond their conventional attitude, which has been so far more reactive than innovative.

Building and maintaining trust in the society will be key to move towards a cashless era. The regulations should be transparent and willing to raise deliberately the social standards, financial inclusion and efficiencies globally, while fighting against corruption and fraud.

Whatever the driving force will be, the people shall be ready to trust an entire ecosystem of exchange of values to leave their papers behind.