With banks and fintechs competing as well as co-operating under regulations such as PSD2 and the Open Banking framework to build the digital payments infrastructure of the future, cash is quickly becoming obsolete in many areas of the world. In Sweden, for example, where even some of the banks won’t handle cash, it’s very common to see signs reading “No Cash Accepted” in store windows. In fact, cash accounts for just 2 percent of the value of all transactions in Sweden, and this number is expected to dwindle even further to half a percent by 2020.
The increasing obsolescence of cash and the rising ubiquity of electronic payments that go beyond using a physical credit or debit card is making it difficult for some members of our digital society to keep up. Even in a highly developed country like Sweden, the oft-referenced guinea pig for a cashless society, cash is disappearing too fast for the underbanked and older generations, who have been disadvantaged by the rapidly changing system. As a result, the Swedish government has been forced to consider mandating that banks handle cash and even creating its own official digital currency, the e-krona, to complement paper money.
Despite Sweden’s foray into a cashless future, however, most countries are actually showing no signs of abandoning cash as a means of payment. Even so, there will likely come a tipping point when the cost of maintaining the infrastructure to facilitate cash transactions becomes unjustifiable and unaffordable, and the pace of transition will accelerate. If and when this happens, banks, governments and technology providers will all have to work together to remove the last vestiges of cash and ensure the financial needs of the unbanked, underbanked and elderly are met.
No matter what happens in the near and distant future, we as fintechnologists serving customers need to focus on solving the myriad of problems preventing and caused by a cashless society. While dealing with some of the following issues isn’t part of our regular job descriptions, here are a few of the areas that need to be addressed before we migrate to a fully cashless society:
- Lack of access to financial services: The biggest societal barrier to going cashless in many parts of the world is the total lack of access to financial services faced by over two billion adults. The poor and underbanked can’t go cashless without basic access to online banking, but the World Bank has committed to enabling banking services for one billion of these individuals. By improving on some of the below points to increase access, we in fintech will have the opportunity to offer financing, loans and financial products like pensions and insurance to an entirely new customer base and, in turn, enable wealth creation in all corners of the globe.
- Inadequate infrastructure: Probably the biggest technology barrier is the sheer inadequacy of existing local and global infrastructure to support the frictionless straight through processing of instant electronic payments. When cash changes hands, the value of the goods or services is immediately transacted between parties, whereas cards and other digital payment transactions can take days to settle. As technologists, we can build better end-to-end infrastructure that is less expensive to maintain and develop new hardware to make cashless payments a reality in remote and underbanked locations.
- Balancing privacy and transparency: It’s not just criminals who care about privacy when it comes to transacting. While cashless payments are great at leaving a transparent audit trail and consistent ledger of transactions, they also spread a consumer’s payment information across the web with every new purchase. As such, enabling your customers to maintain anonymity should be a major concern for your institution.
- Insufficient security: You can’t hack someone’s cash wallet from anywhere in the world, but a skilled hacker can steal unsecured digital currency. It still happens all the time, even if encryption and security have been steadily improving for years. Still, new payment methods will require new security protocols and infrastructure, so we must remain vigilant and make this is a priority to protect our customers.
- Unrealistic costs and fees: While ATMs can be expensive to maintain for banks, steep fees and the cost of technology ownership in general can make cashless payments too expensive for some consumers. One solution could be for banks to pass these savings from foregoing cash ATMs on to their customers in the form of feeless accounts and transactions, but in business, that is easier said than done.
Generally speaking, the more ‘enfranchised’ the world or country or community becomes, the greater the opportunity for banks, financial services firms and insurers to provide much better services. Without further digitalisation, there will always be a barrier to new commercial services.
By tackling the above challenges standing in the way of a cashless society, we aren’t simply accelerating the obsolescence of cash. In fact, eliminating cash or championing digital payments doesn’t even have to be the end goal. Instead, we should do everything we can to improve the customer experience and increase access to financial services. The world depends on it.