cashless
North America Paytech Thought Leadership

Protiviti: How Businesses and Countries Are Moving to a Cashless Societies

COVID-19 led to a fundamental shift in how we pay for goods and services. Digital and mobile payments have become the predominant payment methods, leading many to believe that cash is on the verge of extinction.

This shift will have a massive impact on businesses, which must embrace the latest payment technologies to survive in this new cashless society. Exploring this topic further, we hear from Bernadine Reese, managing director of risk and compliance at Protiviti.

How businesses and countries are moving to cashless societies
Bernadine Reese, managing director of risk and compliance at Protiviti
Bernadine Reese, managing director of risk and compliance at Protiviti

In an era of technological advancements and evolving consumer preferences, the global economy is witnessing a historic shift towards a cashless society. Businesses and countries are at the forefront of this journey, driven by various benefits offered by digital transactions.

The transition to a cashless society is propelled by a convergence of technological innovation, changing consumer demands, and a quest for enhanced financial efficiency. The ubiquity of smartphones, in tandem with the expansion of reliable internet connectivity, has laid the foundations for the widespread adoption of digital payment methods. Simultaneously, consumers increasingly seek convenience and speed in their transactions, creating a desire for seamless payment solutions.

Businesses navigating a new landscape

Large and small businesses are adapting quickly to the cashless paradigm, accelerated by COVID-19. The integration of digital payment options, such as mobile, contactless and online payments, has become a cornerstone of modern commerce. For businesses, this shift represents a response to consumer demands and a strategic move to streamline operations and enhance overall efficiency.

The Protiviti-Oxford University Future of Money Survey, published by VISION by Protiviti, shows that over 80 per cent of executives anticipate that business risks will accompany the expected changes to the monetary system over the next ten years. This heightened awareness underscores the transformative nature of the ongoing shift towards a cashless society.

Interestingly, six out of seven executives predict that the cash economy will be surpassed by 2032. These statistics highlight the urgency businesses place on adapting to the new financial landscape.

Digital payments offer businesses several advantages, including reduced operational costs associated with cash handling and the ability to maintain transparent and easily auditable financial records. Moreover, integrating digital payment systems opens new avenues for customer engagement and loyalty programs, fostering stronger relationships between businesses and their customers.

For smaller businesses, the deliberation is often whether to pass on card payment charges to its customers, with banks receiving huge profits in payment fees. As we navigate these changes, it is evident that businesses are not only reaping the benefits of enhanced operational efficiency but are also navigating potential risks in this evolving financial landscape.

Countries at the forefront of change

On a national level, several countries are actively promoting the adoption of cashless transactions. Governments recognise the potential benefits of reducing the shadow economy, curbing corruption, and enhancing economic transparency.

Nations such as Sweden, the UK and China have made significant strides in their journey toward a cashless society, with a substantial portion of their populations relying on digital payment methods for daily transactions. For example, more than 23 million people in the UK used virtually no cash in 2021, according to The Guardian.

In China, mobile payment platforms, such as Alipay and WeChat Pay, have become integral to everyday life, with users making payments for anything from groceries to public transport using their smartphones. China’s support for digital currencies and CBDCs further illustrates the commitment to fostering a cashless economy. Beijing has also conducted a nationwide pilot scheme for e-yuan, also known as e-CNY, a digital currency, with more than 261 million people downloading the wallet in 2022.

Fintechs as pioneers, not passengers

As the world strides towards a cashless future, the impact this has on businesses raises the question: How will fintechs surf the wave of digital payments and a cashless world?

Fintechs are natural trailblazers in the cashless revolution. They can easily capitalise on personalisation, financial inclusion, and frictionless finance through their data-driven approach to customers and providing customised payment solutions to all, even those who are unbanked and financially excluded. They can bridge gaps in various ways, from offering digital wallets to streamlining payment processes and integrating them seamlessly into everyday experiences.

Though their opportunities are vast, steering through the torrent could also produce some hiccups in the journey. The digital divide, regulation and cyber security are three examples of developing challenges any fintech will face. Regulation is constantly evolving, with the FCA releasing eight guidance papers and an additional 78 ‘calls for input’ and ‘consultation papers’ in 2023 alone. Furthermore, unequal access to technological infrastructure will only widen the gap between those who can and cannot progress within a cashless society, something FinTechs must fight against by creating inclusive solutions to bridge this divide.

De-dollarisation – will the US Dollar maintain its reserve status?

According to The Protiviti-Oxford University Future of Money Survey, 78 per cent of the business leaders surveyed believed the US dollar would remain the world’s dominant currency in 10 years’ time. Whether the US dollar remains the world’s dominant currency and, consequently, the world’s reserve currency is one aspect; however, it is unquestionable that the role of digital currencies will impact its standing.

Intriguingly, countries do not agree with business leaders as 2023 saw the escalation of a de-dollarisation movement. This is an effort by a growing number of countries to reduce the role of the US dollar in international trade.

Countries like India, China, Brazil and Malaysia seek to set up trade channels using currencies other than the US dollar. Geopolitics also impacts the shift to a cashless society; the U.S. dollar now accounts for 58 per cent of foreign exchange reserves held by overseas central banks, a record low. With so much of the world economy reshaping itself in the post-pandemic landscape, is the confidence of business leadership in the US dollar misplaced?

Financial inclusion and accessibility

The move towards a cashless society also promises to foster financial inclusion. Digital payment solutions can reach remote and underserved populations, providing them access to financial services. Mobile banking and digital wallets empower individuals who may have been excluded from traditional banking systems, enabling them to participate in the formal economy and build financial resilience.

However, it is essential to address the digital divide to ensure the benefits of a cashless society are accessible to all. Governments and businesses must work collaboratively to bridge the gap in digital literacy and infrastructure, ensuring that marginalised communities can leverage the opportunities presented by the digital financial ecosystem. This will likely magnify the role of regulation in a cashless society.

Challenges and concerns

The shift towards a cashless society is not without its challenges and concerns. Security and privacy issues, potential disruptions in the event of technological failures or cyberattacks, and the need for robust regulatory frameworks, are critical considerations. This heightens the level of scrutiny on businesses with the need for real-time fraud detection, safeguards against financial crime and different authentication methods.

Moreover, the transition to a cashless society raises questions about the fate of physical currency, potential job displacement in traditional cash-related industries, and the impact on those who may struggle to adapt to digital payment methods due to age or socioeconomic factors. Policymakers and businesses must proactively address these challenges to ensure a smooth and inclusive transition.

For instance, in 2022, the BBC reported that “Ten million people would struggle to cope in a cashless society even though only 17 per cent of payments are now made with notes and coins.” For many people, cash is vital to managing weekly budgets, especially those on lower incomes.

The journey towards a cashless society represents a paradigm shift in the way businesses and countries engage in financial transactions. While challenges and concerns persist, the benefits of enhanced efficiency, financial inclusion, and economic transparency are driving forces behind this global transformation. As businesses and countries continue to navigate this digital landscape, collaboration, innovation, and a commitment to addressing societal needs will be key in realising the full potential of a cashless future.

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