Social Media is brimming these days with predictions of what the new normal will look like after the coronavirus pandemic subsides. High among the list of hotly debated topics is whether a cashless society is now a genuine prospect in the short term.
The World Health Organization in March was widely reported to have suggested that people should opt to use cashless transactions, in a bid to stem the propagation of COVID-19 on contaminated cash notes. The WHO subsequently said it was misquoted, but the idea caught on and people began avoiding using cash. Some large retailers and many smaller ones took note. In the U.S., for instance, some Chick-fil-A restaurants have shunned cash in favor of their mobile app. Out of necessity, significant numbers of consumers have migrated their purchasing preferences to the likes of Amazon, Uber Eats and Walmart.com.
The death of a millennia old process — paying in currency — often thought to be inconceivable, now seems to be a possibility.
In China, the birthplace of currency in 210 B.C., you would be hard pressed not to see people buying their goods and services using biometric authentication, and in particular facial recognition on their mobile phones. It is a radical shift in behavior over a relatively short period of time, but it’s just the beginning of the cashless revolution that is growing around the globe, and now being accelerated by the COVID 19 pandemic.
“For many fintechs, the pandemic has presented an opportunity long awaited for, as merchants look to digital payments as a solution to shoppers recoiling from paper money.”
— David Horton, Thynk Digital
For many fintechs and online payment firms like PayPal, Venmo and Square, the pandemic has presented an opportunity long awaited for, as merchants look to digital payments as a solution to shoppers recoiling from paper money. According to Venmo’s CEO Dan Schulman, the growth of new customers setting up accounts each day is basically doubling from before the coronavirus became a global pandemic.
Many will argue that a cashless society is now the new normal, but before we exaggerate the death of cash, it’s important to consider all the necessary factors needed to make a cashless society — more permanent.
Factor 1: Culture and Adoption
First and foremost, there needs to be a cultural shift and adoption among the general population for digital “value transfer” to displace cash entirely. The contrasting attitudes toward money of Swedes and Nigerians illustrates the role culture plays on cashless adoption.
Nigeria has extensive access to the computer technology and financial expertise needed for a move to cashless. However, an inherent fear of security breaches and corruption, and a traditional attachment to cash has culminated in a strong resistance to implementing a cashless society in that country.
On the other hand, Sweden is widely expected to become the first cashless society by 2023. Cash is no longer king in Sweden, where an estimated 80% of Swedes use a card or mobile wallet to pay for purchases. Such digital payments are so widely adopted that it is unusual for Swedes to carry cash. Even children are fully comfortable paying for things with debit cards.
A mainstream acceptance for trying new innovations comes naturally to most Swedes. (Full disclosure, I’m married to one.) However, it should be noted that much of this comes from the inherent trust that they have in the “system.”
To be fair, it is not all clear sailing for cashless in Sweden. An enthusiasm gap is emerging, mostly from the older population in the north of the country, who rely less on technology. A “Cash Uprising” coalition is now campaigning to continue cash usage at banks for deposits and payments.
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Factor 2: Technology and Infrastructure
To deliver on the promise of payment nirvana and go all-out cashless, the foundations need to be carefully planned and the technology infrastructure must be implemented well and be completely reliable. Continuing with the example of Sweden, in 2012, the big-six banks there collaborated to develop a real-time mobile payment platform to support customers and make digital payments easy. The solution, called Swish, is used by a major proportion of the population in Sweden.
The result is that today it is near impossible to find a merchant where they only accept cash, and often you will be frowned upon if you are not ready to pay by card or by the Swish mobile app.
Data drives cashless dominance in China. In certain parts of China the same trends are true, which explains the phenomenal growth of digital e-commerce platforms like AliPay and WeChat. China is seeking to become the digital superpower by 2030. There are four components behind this ambition:
- They are generating enormous amounts of clean data.
- They have an ambitious entrepreneurial culture facilitated by new technologies.
- They have a growing digital talent pool and are investing heavily on educating more.
- The Chinese government is offering unparalleled support and investment in the payment technology and infrastructure within the country.
Undoubtedly China’s biggest advantage is the volume of data it is producing and more importantly — it’s quality. While WeChat’s one billion active monthly users make payments and e-commerce transactions, China is also witnessing an explosion of O2O (online-to-offline) startups in which non-financial data is developing an ‘intelligence layer’ never seen before in the West.
In the United States, consumer data is ring fenced and isolated across areas like payments and government transactions, but in China the technology giants have enabled a unified online ecosystem that centralizes data into a structured and accessible location. What this means is that Chinese fintechs (and in particular mobile payment providers) have clean data on everything from your noodles purchase from a market cart to your recent contribution towards a pandemic relief fund. Such infrastructure is an imperative towards driving a cashless agenda.
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Factor 3: Government Support and Trust
The Swede’s high-tech culture and digital consumer habits have certainly helped in propagating a cashless environment. However, it should be noted that this has only been made possible through the government and central bank playing key facilitatory roles. At the root of the cultural acceptance for cashless transactions is the inherent trust Swedes have in their government and financial institutions.
For all governments the incentives for a cashless economy include less crime (apparently, it’s easier to steal physical than virtual money), less money laundering, better control over fiscal policy, reduced cost of cash creation and handling, and streamlined FX transactions.
There are many cities like Dubai, Seoul, Bucharest and Madrid that have pioneered smart-city initiatives, leveraging digital technology to improve everyday life. Digital-payments technology is a core component of that equation, benefitting small business and gig economy workers in particular. For central banks and commercial banks, electronic payments empower better oversight and monitoring, and ultimately acts as a catalyst in the credit decisioning process.
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Factor 4: Usability and Ubiquity
A key ingredient for any disruptive change, particularly when technology is involved, is usability and familiarity. How easy and frictionless a technology works often defines whether it is successful or not.
In the early days of contactless POS devices, adoption often failed, not because consumers resisted the concept, but because merchants were used to magstripe swiping and had little incentive to change their behavior to a new process which was less usable. After usability improvements in NFC readers, mainstream issuance of contactless cards, the launch of mobile wallets and a continuous education drive in the industry, adoption has now flourished with contactless being a familiar transaction in many parts of the world and growing now in the U.S. as well.
Numerous examples around the world have demonstrated how easy cashless payments can drive economic development. Bangladesh’s mobile P2P solution called “bKash” has stimulated economic progress and vastly improved financial inclusion in that country. The key benefits come not from increasing spend, but rather a simplification of the process of sending and receiving payments, which in turns spurs new innovation.
This is also particularly evident in the U.S. where P2P payment providers like Venmo and Zelle have facilitated instant value transfer and enabled things like splitting a bill amongst friends to be easy and “cool.”
The ubiquity of cashless payment technology is the final ingredient in improving usability and creating a populist embrace of digital payments. Ubiquity is highly dependent on market dominance of a few key players in money transmission that charge very low acceptance fees to vendors/merchants. This is certainly evident in China with the supremacy of WeChat and Alipay, and M-Pesa in Kenya, which operates through a network of local shops that convert mobile money to cash and vice versa. Similar such innovative services in other countries include PayIT in Dubai, Paytm in India, and Bankgirot in Sweden.
Thanks to the ubiquity of these payment systems, it is becoming increasingly easy nowadays to live an everyday life without a visit to the ATM, and instead to hear the familiar approving beeps initiated through a multitude of digital devices like mobile phones, watches, rings, bracelets, keychains and even gloves.