The Cashless Society: Finally Here?

It’s been predicted ever since the advent of the credit card was that modern societies would become “cashless”.  There are good reasons to be averse to cash: first, if you lose your wallet, there is no way the money can be retrieved.  There is no traceability or recourse: it’s not possible to find out who ended up with your cash and spent it.

Second, it’s inconvenient: how many times have people been in queues and wondered when the individual ahead of them would be finished counting out their coins to pay for a transaction?  How many times have people lost a coin which was at the bottom of a pocket or bag?  

Third, cash’s limitations can be irritating for merchants: not only does the shopkeeper have to count the cash received, he or she has to put it into the cash register, store it in a safe, go through the inconvenience of accounting for it, and then physically take it, which may be in the form of heavy coins as well as bills, to a bank to be deposited.  This is necessary to liberate it from its physical form so it can be used to pay all the digitised bills that most businesses face.

Fourth, cash can encourage criminality; “off the books” transactions invariably utilise cash. Furthermore, having printed money encourages counterfeiters, and with the advent of inexpensive, high quality colour printers, it is a constant headache for central banks to keep ahead of the forgers.  Recent moves by central banks to plastic notes are likely to only provide a temporary advantage.

Given these reasons, forward thinking organisations and countries have been trying to plot their way towards a cashless society. Sweden has been particularly progressive in its planning; according to a Wired article dated April 2020, just one percent of Sweden’s GDP circulates as cash.  This compares to 11% for the Euro area.  Sweden is presently working on a solely electronic currency, the e-krona.  China is working on a cryptocurrency of its own; this move may not be due simply for reasons of convenience, rather, it is possible it wants to create a digital rival to the dollar. 

Despite all the efforts that have been made in recent years to get us to give up cash, Sweden appears to be the exception, not the rule.  As late as February 2020, Britain was predicted to be cashless only within the next 10 years, according to the Daily Telegraph.   It was only in September 2019 that the British Retail Consortium noted that card transactions had overtaken ones using cash; on a more positive note, the BRC also stated that 80% of all transactions were done using either credit or debit cards.

Enter the Coronavirus

With the advent of the coronavirus, it has become clear that physical cash is not only inconvenient, it presents dangers.  Estimates vary on how long the virus can live on surfaces, but what is not in doubt is that paper and plastic can be mediums by which the virus can transmit from one person to another.  Given this, it has been much safer for individuals to utilise contactless payments, either via cards or mobile phone-based systems such as Apple Pay.    Because of the virus’s potential transmission via cash transactions, some shops stated that they would only accept “contactless only” or “card only” payments.  According to a recent article published by the Institute of Chartered Accountants in England and Wales (ICAEW), China removed cash in circulation from virus-hit regions and stipulated that all remaining cash should be disinfected.

As the coronavirus lingered, we became increasingly used to not using cash: it isn’t used for purchasing grocery deliveries online.  Amazon doesn’t take cash.  Yes, open air markets have re-opened in some parts of Britain and elsewhere; these historically rely on cash.  However, this dependence has been diminished by new technologies: contactless payment solutions such as Square have become more widely available and at low cost for merchants.  For larger transactions, bank transfers via mobile apps have become ever more convenient.  Even donations to the homeless can be done via contactless payments at specialised points in some cities.

Is the Future Now?

The main problem a country may experience in attempting to abandon cash may be consumer trust or rather, the lack thereof.   According to a 2018 article published by the Payments Cards and Mobile website, this lack of faith in the system remains the most significant obstacle for a full transition to a cashless society.   Crimes such as identity theft and payments fraud create a legitimate suspicion in the mind of the consumer that anything electronic and connected is not quite secure. As Sam Oxlade, a 15-year-old, stated for the This is Money website: “Without tangible money, we would be placing all of our earnings and wealth into the financial industry’s hands, and that idea discourages some for sure”.   Trust in banks has been particularly hard to come by in recent years: in 2017, only 40% of UK consumers surveyed trusted UK banks, according to Business Insider.

The laws of most nations state that any consumer who is the victim of fraud must be recompensed by the financial institutions involved.  Nevertheless, this isn’t sufficient for trust to be sufficient for digital transactions to replace cash entirely.  It can take some time for victims of fraud to be recompensed; this delay acts as a further hindrance.  Furthermore, some forms of fraud, including so-called “push payment fraud” whereby consumers are tricked into sending their cash into the account of a scammer, has taken a heavy toll: according to the Financial Times, £354 million was stolen this way in 2018 in the United Kingdom alone.  Over £208 million was pilfered via this means during the first half of 2019.  “Push payment fraud” relies on social interactions: even if the technology is right, so long as the human element remains fallible, nothing is ever quite secure.

The sole remaining advantage of cash is that trust remains absolute: a £10 note in your hand is £10 you possess somewhere other than as a number in the digital ether.  Cash transactions are invariably face to face; the goods are handed over directly.  The purchase is settled and final.  Furthermore, from a merchant’s point of view, there is no reliance on distant systems, no down time for maintenance and no failures which mean the bank or payment system is offline.  Thus, there is no risk associated with a cash transaction, apart from the chance that a note might be counterfeit.  The £10, once handed over, is securely in one’s grasp.  Yes, in order to maximise its utility, the cash needs to be deposited and turned into an electronic form.  Also, the cash needs to be accounted for the purposes of one’s ledger.  Nevertheless, there is a strong form of safety and security in transactions of this type.

Apart from Sweden, we are apparently not entirely ready to give up cash. Trust in contactless payments due to the pandemic has not seen uniform growth.  According to the Financial Times, cash volumes in Spain fell year on year by 90% in 2020.  However, the United States and Russia saw increases: this may be due to a lack of trust in the financial system and the instinct to hoard cash as a response.  This may be a related impulse to that which led some consumers to hoard essential goods in light of the pandemic. 

A Generational Shift?

The aforementioned 15-year-old, Sam Oxlade, stated a belief which may be prevalent among young people, while he wouldn’t turn down cash, he said, “my debit card sufficiently packs what could be a heavy bundle of coinage and notes into a simple and compact utility”.  With the bundling of payment services into a mobile phone, the utility has increased, while the number of items one needs to carry has become fewer.  Convenience is associated with ease and compactness, and now, there is the additional element of improved safety. 

The pandemic may have shifted age groups which previously favoured cash towards using electronic forms of payment.  According to the ICAEW, the Office of National Statistics reported that December 2019 marked the first time that over half of those aged over 65 were shopping online.  More recent figures in light of the pandemic suggest that necessity has forced this shift to take place at an accelerated pace.  It may very well be that a broader range of age groups have been made to confront the “simple and compact utility” that operating without cash offers.  Once the pandemic ends, the shift may prove to be permanent: whatever technological barriers existed for older generations to access electronic payments, once overcome, the superior convenience may be sufficient to erode cash’s utility to the point that the oft-promised “cashless society” may arrive sooner than previously thought. 

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