Cashing out: is the cashless society already here?

Paying with cash is beginning to look outdated. All around the world digital transactions are increasingly replacing cash payments, and people are carrying less cash than ever before. Are we now in the middle of an evolution that takes us towards a fully cashless society?

Adoption of digital payment systems has progressed rapidly in many countries. Paying for things with a credit card or debit card began to displace cash many years ago, and in recent years, new electronic payment platforms like e-wallets and other mobile applications have become popular. You’ve been able for some time to use a contactless card and near field communication (NFC) to transmit payment messages to a point-of-sale device and remove the need to insert, swipe or type in your PIN code.

QR code “scan-and-pay” systems gained popularity during the COVID-19 pandemic, as banks and retailers sought new ways to take payments safely and hygienically. Indeed COVID-19 accelerated a trend that was already underway. The UK has been shifting to being increasingly cashless for some time, with ATM usage declining at a rate of between 6% and 10% a year. The pandemic saw this figure leap, with UK cash withdrawals from ATMs down by around 60%. The rapid rise of cryptocurrencies and non-fungible tokens (NFTs) would also indicate a general cultural shift to people being more accepting of cashless alternatives.

So, are we on the way to a completely cashless society? It’s possible. If you think of the science fiction movies you have watched over the years, few of them feature characters paying for things with cash. It might be that in years to come we look back at cash payments in movies in much the same way that millennials today look at someone walking into a metal box in the street to make a phone call.

Sweden leads the way

Some countries are ahead on the journey to being a completely cashless society. Sweden, for example, is even piloting a digital currency, the E-krona, with a view to potentially establishing its own central bank digital currency, or CBDC. The shift to cashless in Sweden seems to sit well with the country’s generally progressive societal outlook: one cashless payment app, Swish, has already entered the Swedish language as a day-to-day term, with the verb swisha (to swish) now commonly used.

Between 2010 and 2020, the number of citizens in Sweden using cash to pay for goods fell from 39% to 9%, according to research by Sweden’s central bank, the Riksbank, with cash payments most typically used by more elderly citizens. The Riksbank is even piloting a digital currency, the E-krona, one aim of which is to protect the Swedish krona against the rise of decentralized cryptocurrencies. And in another – perhaps slightly extreme – example, more than a thousand Swedish citizens have had a microchip implanted in their hand that makes it possible to pay simply by waving your hand rather than even needing to carry a bank card or smart card around with you.

Other European nations forging ahead

Other European nations are transforming quickly towards cashless, too, with seven of them featuring in the world’s top 15 cashless countries. According to a report by Money, financial experts believe that there may be genuine cashless societies in just five years’ time.

Like its Scandinavian neighbor, Norway is making major headway towards cashless. 98% of Norwegians today own a debit card, and Norges Bank estimates that just 4% of the country’s financial transactions use cash. The debit card ownership figures are similar in Switzerland, Finland, Denmark and the UK. In the Netherlands, it is even higher, with reports showing that 99% of citizens now own and use a debit card for purchases.

It isn’t just a European trend of course. In Asia Pacific, almost half the 1.8 billion online citizens use an e-wallet regularly, and two Asian mobile payment platforms, Alipay and WeChat, have over a billion users each. In North America, cash is projected to make up only 8.7% of all point-of-sale (POS) transactions by 2024. Cashless is catching on all over.

Pros and cons

There were already incentives and benefits to going cashless even before the pandemic made it a hygiene imperative. It’s convenient and can also help reduce fraud and combat money laundering, because the ability to track electronic payments makes it more difficult for criminals to launder money. Plus, at a personal level, it’s safer: if you have no cash, there’s no cash for thieves to steal. So there is the potential for a knock-on reduction in crime overall.

For countries that go cashless, there are cost savings to be had. Manufacturing banknotes and coins is expensive, and handling it, storing it, withdrawing it and depositing it as business functions is even more so. Cashless is also cross-border and can make international travel a simpler exercise. No need to exchange your domestic currency for a local one when visiting a foreign country if you can pay for everything anywhere in the world with your smartphone or card.

Where there are pros, though, naturally there are cons. Some reports have shown that consumers can struggle to budget properly when not using cash, since they lose track of spending and find it difficult to save. Paying via your smartphone or with a card also relies on being connected to the Internet, and technical glitches can mean that if the electronic payment system goes down, merchants cannot take payment, and you can’t make purchases.

A cashless society can also risk excluding certain people, so there is an access factor. There are still many unbanked citizens around the world, and without a bank account, even buying essentials can become problematic. People who rely on cash in today’s world often tend to be the most vulnerable, such as people without legal immigration status, the homeless, or just elderly people who live in rural areas without a strong broadband connection.

So, with that in mind, it is good to see mobile payments reaching the unbanked in Africa, for example. Over 400 million consumers in sub-Saharan Africa use mobile payment banking systems to handle more than $300 billion worth of mobile money transactions. Armed with just their mobile phones, African consumers can transfer money quickly, cheaply and generally without needing access to an existing banking account. It enables helpful new use cases, like small businesses being able to take payments, or workers working overseas having the ability to send money home to families. Orange Money has been a huge success in Africa, empowering millions of people without access to traditional bank accounts to carry out financial transactions quickly and easily.

For cashless to work, a roadmap is needed

The seven European countries mentioned earlier have all implemented moves and policies that could serve as a roadmap for other countries that want to pursue the benefits of cashless, while avoiding the pitfalls.

Those strategies can include things like governments bringing in regulation that bans cash purchases over a certain value, for example. Countries also need to ensure that they have appropriate network infrastructure in place to support a cashless economy. Smaller businesses might need subsidizing or assisting to procure digital payment terminals. It’s something that will require large degrees of public/private collaboration, with governments working together with specialist partners to ensure that the requisite tools and systems are in place and do not leave anybody out.

Momentum is building

Cashless payments look very much here to stay: even in early 2020, a Mastercard study found that nearly 80% of people worldwide were using contactless payments. From a purely consumer point of view, cashless payments save time and hassle, they afford the buyer extra protection and they’re just generally more efficient.

The shift towards a cashless society looks unstoppable. There are risks and potential downsides to iron out, but cashless payments are increasingly popular with consumers. Research by the European Central Bank asked consumers what method of payment they prefer to use in a shop, with 49% saying they prefer cashless versus 27% saying they still prefer cash. That gap is likely to keep on growing over time as more Generation Z and Generation Alpha enter the economy.

Read this research from Orange into the future of a cashless society: What if, one day, cash ceases to exist? Hopes and anxieties of the cashless society.