Over the past few years, the usage of cash was slowly declining, but the process could stretch for years. The pandemic seems to have struck the death blow. With bills and coins rapidly falling into disuse, it’s time to think about the benefits and challenges a cashless society presents.
Cash In Decline: Some Statistics
Due to the spread of digital payments, cash has been losing its popularity. Here are some statistical data to show what the payment landscape of 2019 looked like.
- People used cash in 26% of transactions only;
- Paying with a debit card was the most popular option, followed by a credit card;
- Cash was often used for small value payments (under 10$) and in-person payments.
- Mostly, cash was used either by very young people (18–25) or by those over 65.
Now the process of cash decline is going faster, as many of us prefer more hygienic contactless payments that cannot transfer the disease. Hygiene is a newly-added benefit of a cashless society. But not the only one.
Cashless Society: Main Benefits
The biggest benefits of a cashless society are five. Let’s consider each of them below.
Benefit 1: Transparency and Traceability
Unlike cash, digital money usage leaves a trail you can follow. It means fewer opportunities for criminals who have always preferred cash payments. It would be harder to bribe a corrupt official with money that has no physical form. Also, various illegal practices like tax evasion and terrorist financing become increasingly difficult.
Some people may argue that we have Bitcoin and other cryptocurrencies for these dark activities, but it’s a common misconception. In fact, few cryptocurrencies can ensure the same level of financial privacy as cash. Besides, these “privacy coins” (Monero, Zcash, DASH, etc) are currently facing strong resistance from the regulators, who see them as a criminal tool. So, it’s not clear if such cryptos will go mainstream in the nearest future.
Benefit 2: Easier Budgeting
All active banking app users know that managing virtual money is way easier than dealing with hard cash. First, it takes a couple of clicks or touches to make a transfer or purchase. Second, the app keeps a record of all your transactions and categorizes your spendings. You can see where your money goes to and make the necessary adjustments to your budget. If you were dealing with cash, you would have to write every transaction down in a notebook and count your money manually. Few people are capable of it.
Benefit 3: Economy Stimulation
When money can take the form of banknotes and coins, the owner always has an option to withdraw it and store it under the mattress. If you choose comfort and security over potential gains, it’s your right. But while your funds stay quarantined at home, they cannot take part in the economy. On one hand, it’s bad for the system: cash hoarders siphon the working fluid from it. On the other hand, it’s bad for the hoarders themselves, since their money doesn’t work and earn nothing. For such people, it would be smarter to opt for safe assets with higher yields but they ignore this opportunity just because they can.
Benefit 3: Alternative Currencies Growth
A cashless society could become a breeding ground for cryptocurrencies. Right now, one of the barriers to entry is that many mainstream users see crypto as a sophisticated financial tool hard to understand and use. If the financial system goes digital, the average person will become more tech-savvy and comfortable with online payment software.
Over time, more people will move to cryptocurrency payment apps offering the same level of user-friendliness plus some additional benefits.
Benefit 4: Hygiene
Last but not least, digital money is safer to use. This advantage may shine in the post-pandemic world, where people will pay more attention to hygiene issues. The COVID-19 outbreak made all of us aware that cash can carry a disease. Digital money is almost risk-free just because it’s not tangible.
Right now, WHO encourages people to opt for digital payments and avoid dealing with cash to slow down the coronavirus spread. We expect this trend to persist.
Cashless Society: Challenges
As any global shift, a transition to a cashless society means we have to face several major challenges, too.
Challenge 1: Surveillance
It’s the darker side of the Benefit № 1. As digital transactions are easy to record and trace, it raises serious concerns about our financial privacy. Not only criminals and corrupt officials have something to hide. Law-abiding citizens have their dark secrets and guilty pleasures, too. For instance, a person may be an erotic art collector unwilling to expose his hobby. Or a gamer who spends money on custom armor and wants to hide it from the rest of the family. If every transaction leaves a clear trail, our privacy is under threat.
In this situation, richer people have an advantage, as they can apply different schemes to mislead big brothers and peeping toms. The average digital money user will be more vulnerable and it’s unfair.
Cryptocurrencies may help reconcile these transparency and privacy issues. To know it works, read our Ultimate Cryptocurrency Guide.
Challenge 2: Reliance On Technologies
The cashless society is only possible if we have a seamlessly working technical infrastructure. Banking app users from big cities may say that it’s already a reality, but it’s not exactly true. Many smaller banks rely on IT systems dating back to the 70s. In some cases, these systems have trouble talking to each other — that’s why we sometimes wait for days for a cross-border transfer to arrive. Also, there are problems like power outages or the lack of competent specialists.
So far, we have had cash to backup us for this. But when it’s no longer available, we will be relying entirely on the banks and other financial institutions. Even if their systems are faulty, we won’t be able to bypass them.
Challenge 3: Risk of Cyber Crimes
When every payment is made online, pickpocketing will cease to exist. Instead, we will be exposed to all kinds of cybercrimes, including identity thefts, phishing, and data breaches. The average user, who does not know how to detect and avoid these fraudulent schemes, will be very vulnerable and easy to reach.
To solve this problem, it’s important to educate former cash users so they can survive in a purely digital system.
Challenge 4: Marginalizing the Unbanked
Finally, if cash falls into disuse, the unbanked people will find themselves marginalized. They are more numerous than you may think, for various reasons. Such people may be living in remote areas with a poor internet connection (or no connection at all). Or, they may be unable to afford banking services or electronic devices necessary to manage the new type of money.
It’s important to understand how these citizens will interact with the rest of the cashless society.
Cashless Society: Conclusion
To sum it up, it’s clear that a cashless society is our near future that has many good things to offer. On the other hand, there is a lot to be done to compensate for the absence of paper money. The transition should be made gradually, with all categories of users in mind.