Cashless transactions are nothing new, but with technological advances moving on apace, particularly in the smartphone market, the ‘digital economy’ has enabled an explosion of non-traditional financial solutions.
Some consumers still prefer cash, and in many areas that will remain so for the foreseeable future. Take India for example. They withdrew certain bank notes from the financial system overnight, meaning that the population found that 86% of its cash was no longer legal tender.
Although there’s been a strong government push to end cash as well as many new digital payment providers, almost three quarters of India’s financial transactions are still made in cash.
That’s principally because large numbers of merchants, particularly those in rural areas, aren’t willing or able to pay charges for what are often low-value transactions. Banks may rejoice at the prospect of a cashless society, but the digital economy certainly raises questions around inclusion. Sweden’s rapid phasing out of notes and coins from circulation has led to political debate about how many members of society may be left behind too.
Banks have to play a key role. Development of digital solutions will ensure vastly more participation and provide a growth opportunity. The financially excluded in emerging markets can’t go on being ignored, and the issue can’t just be left for regulators to deal with.
Technology can help to drive the digital economy which in turn will help enable participation. At present there are many customers who don’t have identification documentation necessary for traditional know your customer (KYC) vetting. Biometric authorisation, for example, will help to overcome such problems, meaning that billions of new customers across the world can then be included.
It must be said, however, that digital identity creation raises concerns, principally around the management and protection of the same. It’s this area of trust which has, to this point, stopped many engaging with a digital bank. Wary of sharing data for fear of this being compromised, there’s also uncertainty, particularly with the older demographic, as to the benefits. The UK population are the most wary despite the country having the toughest banking laws.
Another element to consider is whether the cashless economy would ever be truly global. Cross-border transactions in a digital world may not be so easily achieved, and is probably a decade away at least in any event. The huge hype around ‘cryptocurrencies’ has subsided significantly too, almost to the point where some are questioning whether Bitcoin and the like will every truly evolve into the mainstream. A cashless society makes sense but global financial inclusion is a must, whilst digital systems have to be safe and have ‘bank level’ security attached.