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Is the Future of Cash – free coming into question?
Well before COVID-19, some countries in various parts of the world we’re moving towards cashless societies. And, with consumer demand for more payment options leading the charge for non-cash payments, including contactless credit cards, talk of such a movement is on the rise again. But, while offering a choice of payments (on top of the use of a credit and debit card) is certainly a good thing, there are growing concerns that the option to use cash is being taken away from consumers. It may already seem like we’re living in a cashless society. But what would life without cash really look like?
In Sweden, for example, a growing number of shops and restaurants no longer accept cash (although, with the right technology, they accept digital cash). And, while the country has long been held up as a leader in the cashless drive, there is increasing pushback from consumers who feel that physical cash is still an important part of their lives.
These worries may not be entirely baseless. Because there are a number of challenges associated with a cashless society that can’t currently be overcome, meaning a 100 percent cashless economy is still a long way off – or even unrealistic.
But as this debate rumbles on, it leads to the question – what would a world without cash look like and what are the potential advantages and disadvantages that would follow?
So, here are some pros and cons to consider about societies without cash.
Pros of a cashless society
Although it may feel like we are already in a cash-free age, physical cash still plays a pretty big part in our lives – both here and overseas. But a cashless society is less about the physical media and more about the domestic currency system as a whole. Digital and physical cash coexist in our lives, and generally, they tend to represent the same type of currency with the same value. For example, if you transfer money to your PayPal account, you’ll be able to make online or in-person transactions up to the same value.
However, fans of a future “cashless society” are thinking bigger than coexistence – they are imagining a world with a completely new type of digital currency that will replace physical cash altogether. This would allow people to keep digital wallets and financial accounts housed entirely online, and easily accessed on their mobile devices or computers. With the introduction of alternative digital currencies, such as private cryptocurrencies like Bitcoin or Ether, we’re starting to see how a digital-only financial system might work in the real world.
So, what’s the push for digital currency? A truly cashless society would present a massive change in how we conduct business, how we interact with our financial institutions, and how we trade and exchange money overseas. It would also come with a lot of added benefits, such as:
Security and Safety
What would you do if someone stole your wallet right now? Your first move would likely be to cancel your credit and debit cards to prevent any thieves from having access to your bank account. You’d have to go through the process of replacing things like ID and loyalty cards, but you’d likely accept that any cash you may have been carrying is long gone.
One plus of a cashless society would be the impact on criminals who deal in cash. Without physical currency, countries around the world would see a sharp decline in cash-related crimes like petty theft, money laundering, and even violent crimes like assault and high-value robbery.
We’ve also seen the value of cash-free payments during the COVID-19 pandemic. Many businesses enforced “no cash” rules at their drive-thru windows, counters, and self-service stations to prevent the spread of germs from customer to customer. In a cash-free society, consumers and merchants would keep their hands to themselves, using contactless payment methods to purchase and shop.
Better Digital Payments
These concerns may be reduced with the incredible innovation that has made using digital payments easier and safer over the last few years. Technology such as EMV chips, NFC technology, AVS, digital wallets, geolocation, and artificially intelligent payment systems have made it easier for businesses and consumers to manage their money wisely and prevent fraud. Contactless and encrypted digital payments could grow, making the possibility of fraud and theft less likely.
With the fall of physical currency, digital payment methods would become more efficient and advanced. Security issues in card-not-present, online, and other digital payments would be given priority, making it safer for consumers and merchants to interact. Contactless and encrypted digital payments could also become the norm, making the possibility of fraud and theft less likely.
Cons of a Cashless Society
Security and privacy concerns with new technology
An increasing worry for many consumers is the data and cybersecurity issues of cashless payments aren’t well monitored (by a central bank). In today’s environment, cyber threats from both organized technology-fueled thieves and rogue actors in nation-states are increasing.
It seems that they are always coming up with new ways of attacking digital systems resulting in data breaches and personal information identity theft—and non-cash solutions, especially credit and debit cards, maybe more exposed.
Also, on the flip side, consumers have privacy concerns that come with every transaction having a digital footprint, whereas cash is more anonymous—you don’t need personal numbers to use the physical currency. For consumers wary of their behavior being recorded by their financial institution, that can be off-putting—and for some consumers, that’s putting it mildly.
And the bottom line is that consumers are potentially more vulnerable to fraud by making digital transactions. Just look at what has been happening during the pandemic. As more consumers increasingly buy things online, data breaches have escalated. As reported by Yahoo Life, this year consumers are spending 30 percent more money online with many more people purchasing things like third-party food delivery and online video and audio-conferencing services.
That’s created a feast for thieves and hackers. “We’re now in totally uncharted waters, especially when it comes to hacking and identity theft,” Adam Levin, cyber security expert and founder of Cyberscout, tells Yahoo Life. “Breaches have become the third certainty in life behind death and taxes.” He says that identity thieves “prey on vulnerability and distraction.”
It turns out that the popular US digital payments network, Zelle (used by many trusted banks), is actually a risk for hackers. As reported by NBC News, posing as a consumer’s bank, scammers make phone calls saying they are calling to let banking customers know that their accounts have been breached. Then, after getting the information they need, they can quickly and easily access bank funds (and create fake Zelle accounts in consumers’ names).
Resilience and system vulnerabilities
What if a natural disaster or by some other means a cashless country’s supporting system gets knocked out—and it becomes a big problem for financial services? Suddenly, the ability of consumers to access their funds would be blocked and, with no one able to pay for anything, the result would likely be an economic shutdown. Take, for example, the Visa outage in 2018 which wreaked havoc for those relying on digital payments. The ATM became the trusted backup consumers needed.
While the latest infrastructure solutions are secure enough to likely prevent that scenario, 100 percent uptime is never a guarantee. If connectivity should fail, having cash as a reliable backup option will be essential, especially if natural disasters such as flooding, earthquakes, or hurricanes knock out critical infrastructure.
In fact, when using digital payments, it can be very easy for consumers to lose track of how much they’re spending and that could leave people approaching the end of the month with a lower balance than they think, simply because they cannot see in front of them how much money they have available.
Cash also has a key advantage when it comes to issues such as consumers budgeting and monitoring their money—and giving themselves a spending limit. When money physically leaves your hand as part of a transaction, this tends to register much more than when paying by card or other means.
Regardless of how effective public education campaigns maybe, with some consumers still wary of technology in general, there will always be a certain number of consumers who are resistant to the change—often with very good reasons. These are often thought of as more elderly citizens who are not as tech-savvy as their younger peers and at-risk people who simply need to be able to use cash. Those who cannot provide identifying information, such as the undocumented or the homeless, may also be barred from buying simple goods such as food and water. On top of that, people of all ages still prefer to use cash for a variety of reasons, from birthday gifts to the wariness of digital footprints, and their wishes must be respected.
Small businesses may also have difficulty adjusting. Credit card and mobile payments generally come with a fee – a 2-3% processing charge that can add up for merchants who rely on thin margins to keep their doors open. If forced to go digital, cash-only merchants such as fruit vendors, used booksellers, and even beauticians or independent artists may be unable to start or maintain their small shops.
Loss of control
Many of the concerns about moving away from cash essentially come down to consumers feeling as though they are in less control of their finances. Whether it’s being able to physically carry money in their wallet or purse or worrying about putting their faith in the systems of private companies or governments, cash gives people a sense of comfort and security that can’t be matched by other alternatives.
So, while non-cash payments are the norm for many transactions—and may remain so for many years—there will likely always be a place for cash. This is emphasized by the fact that 80 billion cash withdrawals are done at the ATM annually, while non-cash payments are approximately x10 this figure.
The final goodbye probably isn’t coming
Despite the many new convenient ways consumers can pay for their goods and services, cash remains a trusted, secure, reliable way to pay. And it carries a tangible sense of worth, which is particularly handy when budgeting. Cards and mobile payments definitely provide flexibility, choices, and convenience for consumers, but a fully cashless society remains unlikely.
It’s all about consumer choice and we’re more likely to see ATM and mobile convergence and a focus on a digital and physical channel combined experience where consumers have a choice of transactions—and cashless and cash can happily coexist together.
Cash is essential to financial inclusion
Financial inclusion is a large global objective, with 7 of the United Nations’ 17 Sustainable Development Goals including it as an essential factor. Across Eastern Europe, as much as 33% of the population is unbanked – which means they don’t have access to a bank or similar financial services. For these people, having access to cash and keeping it part of the economy is vital.
In his speech at Deutsche Bundesbank’s 5th International Cash Conference, Fabio Panetta, Member of the Executive Board of the European Central Bank (ECB), said: “Evidence suggests that without cash, both merchants and consumers, particularly those with low income, would be significantly worse off. This may also be the case for other segments of the population, such as older people or those with a lower level of education, who report preferring cash over other means of payment. And the private costs of restricting access to cash seem to be much greater than the social benefits of curbing cash-related illegal activities. To address concerns about such activities, the Eurosystem no longer issues the largest euro banknote denomination.”
Indeed, even in those countries where financial inclusion isn’t an issue, cash remains important. Many European countries, particularly in Scandinavia, have very high levels of digital payment adoption and low levels of unbanked. But even in Sweden, which tried hard to go completely cashless, cash is still used for 12% of retail transactions.
Despite COVID-19, cash withdrawals across Europe have risen by 21% over the last four years, according to RBR. And it’s not just the amount of withdrawals. The amount of cash being withdrawn per transaction is increasing too. As a result, the cash in circulation levels is at a record high – with the demand in Euro banknotes increasing by €190 bn- €550 per capita – between March 2020 and May 2021.
Surviving the digital revolution
Cash is therefore here to stay. And the ECB has four key strategic goals to support the use of cash.
1. Provide an efficient and robust supply of cash
2. Ensure euro banknotes and coins continue to be universally accepted by merchants and available to consumers
3. Provide safe, state-of-the-art banknotes
4. Reduce the environmental footprint of cash via new products and processes
Access to cash and self-service solutions
But the growth of digital means financial institutions are facing a challenge. Branch visits are falling and all across the globe FIs are reducing and transforming their brick-and-mortar estates – branch numbers have fallen by 35% across Europe in the last decade, and the top 5 Spanish banks reduced their branch networks by 8% in the last year. Such changes in making Governments take action – the UK Government for instance is currently holding a consultation on Access to Cash – to ensure they take the legislative steps required to protect access to cash and ensure that the UK’s cash infrastructure is sustainable for the long term.
With consumers after greater convenience and the ability to bank on their own terms, the need for self-service technologies is vital. But what’s more, they need to attract the modern, digital consumer who’s used to using facial recognition on their smartphone, biometric authentication and setting up payments on apps. The technology needs to mirror the technology they use elsewhere – such as tablet-like interfaces, contactless authentication, and ATM marketing to give more personalized experiences. The self-service channel of today needs to be able to bridge the digital and physical. Consistency across channels is no longer preferred but expected. Consumers wish to start transactions on their mobile phones and finish with physical cash in their hand or wish to search for financial products and services online and find out more about them in the branch or at the ATM.
Self-service technology empowers financial institutions globally to rethink the traditional banking model and redeploy resources to channels with higher ROI. Self-service ATMs provide a better total cost of ownership as not only do newer devices use less power, but they also encourage staff to focus on building relationships with customers and take more of an advisory role in the branch, upselling higher value products and services.
Investment in self-service technology with the latest functionality and design not only advocates financial inclusion and access to cash but is a meaningful investment for wider branch transformation strategies and makes the financial institution attractive to the digital-first and the cash-preferred consumer.