Here's How a Cashless Society Will Impact the World
Many financial experts are predicting the death of cash as a means of paying for the goods and services we enjoy. As contactless cards, mobile payment platforms, and Open Banking drive faster development of digital payment options, the need to carry cash is significantly diminished.
Only 34 percent of payments in the UK are now made using cash and, in 2017, debit cards overtook cash as the most popular payment method for the first time. Likewise, in Sweden, cash now accounts for only two percent of all transaction values, with that number predicted to fall to one percent by next year.
The situation will likely soon arise where the cost of maintaining a cash-based system will outweigh its value, and this is the point at which we may see cash becoming a thing of the past.
It's highly probable that businesses will lead the drive to a cashless society with rising bank charges and the rapid closure of significant portions of the physical branch network (something we've discussed at length in previous articles) being the most likely motivator.
However, if businesses force the switch to a cashless society before consumers are prepared for it, there could be devastating consequences. A rush to a cashless society could lead to large swathes of the population becoming financially excluded and at risk of exploitation as they find themselves unable to adjust to the new status quo. The elderly members of society are at particular risk, as they are often not confident using digital payment methods or online banking services.
According to Which?, the UK is likely to go cashless in the next 15 years, but nearly 50 percent of the population would struggle if access to physical money was removed - that's around 25 million people.
Banks, FinTechs, and government organizations need to work together to ensure the switch to a cashless society is as smooth and gradual as it needs to be, and that no sections of society are left out in the cold and financially vulnerable as a result.
There are plenty of other potential issues with a cashless society which must be considered in order to establish an appropriate state of preparedness.
Digital transactions are easily tracked and recorded, which raises questions about data security. There have been several high profile data breaches in recent years - including Visa and Mastercard becoming compromised during the 2017 Equifax intrusion - meaning the industry still has a long way to go before it can effectively guarantee protection. With no cash system to fall back on, these kinds of security threats could potentially be devastating in a cashless society. The risk of other crimes such as identity theft, account takeovers, and fraudulent transactions will also increase when digital payments become the only option.
Many banks are also relying on outdated infrastructure with decades-old IT systems increasing the risk of glitches, crashes, and mistakes. This could potentially leave people without access to their money at crucial times, so significant investment would be required by financial brands to bring their systems up to date before switching to cashless.
The inability to withdraw cash from the financial system would also give governments and banks greater control of the economy via monetary policy. There would have to be significant legislation drawn up to make sure that no organization is able to abuse such a system in this way.
It's Not All Bad Though
It may seem like there is a lot of risk associated with switching to a cashless society, but there are positives to be found as well.
The anonymous and untraceable nature of physical cash makes it the ideal format for organized criminals to use. Those involved in bribery, tax evasion, money laundering, counterfeiting, corruption, and terrorist financing all rely on this aspect of cash to carry out their crimes, which would become significantly more difficult with trackable and traceable digital payment systems. Concealing income and tax evasion also becomes even more difficult without the "cash in hand" option of receiving payment.
While the potential for data breaches will be present, the range of tech-based authorization methods can also make digital banking more secure than cash. Biometrics, such as retinal scans, facial recognition, and voice, can all make your smartphone-based payment options more safe and secure than your wallet ever could be.
There are many risks inherent in the switch to a cashless society. However, with the change being considered all but inevitable, it becomes crucial for all organizations involved in the economy to work together responsibly and make sure no person is left behind and the vulnerabilities in a cashless system cannot be exploited by those with nefarious intentions.