In our tech-driven world, we are already familiar with the idea that our smartphones have become an extension of our physical, real-life existence. Covid-19 and the worldwide lockdowns it led to sped up the digitization of many features of our lives, from working-from-home setups to the increase of services that have suddenly been made available online.
With financial technology, the heightened usefulness of our mobile devices extends well beyond our social online presence or the digital accessibility of information, for example. It is the conjunction between money and digitization that has given rise to concepts like electronic money or online payments, which is why we now speak of living in a cashless society. Indeed, the most prominent sign of such a society is that your smartphone replaces your wallet, and not just in terms of online banking or virtual cards.
So now that our societies seem perfectly poised to tip the balance between physical and virtual, analogue and digital, firmly in favour of the latter, let’s have a closer look at what a cashless society is really like and whether there are any threats or concerns to mitigate the seamless convenience it promises.
Main Takeaway: A cashless society makes handling money more convenient, traceable and safer, for all stakeholders involved.
What is a cashless society?
At the till, you no longer need to fish out your purse to count your cash and coins. Surpassing even the ease with which you swipe or tap your cards, imagine just grabbing your phone—which, let’s face it, is always within reach if not actually in hand, anyway—and tapping your phone or scanning a QR code to finalise a payment which is not only cashless but also cardless. If this is familiar to you, then you already know full well what it is like to live in a cashless society.
A cashless society is one where many day-to-day financial transactions are carried out online or electronically, making use of digital payment systems instead of paper money. Such electronic transactions are already prominent in the form of card payments and online banking, but with more recent innovations in fintech taking hold, other uses gaining momentum now include peer-to-peer payments, in which an individual sends money directly to a recipient through a mobile payments app. Even when shopping offline, consumers might use their phone to settle payment by tapping their devices against a point-of-sale system that reads mobile phones instead of cards. A wallet today no longer necessarily signals a physical belonging; rather, we now speak of digital or mobile wallets which may carry electronic money in various currencies, all of which are available on a user’s smartphone. Even more conspicuous to emerging cashless societies is the rise of digital coins as currency or investment opportunities.
Technically speaking, going cashless is not only for the tech-minded among us. Anyone using cards or cheques has already found an alternative way of handing money. However, developments in electronic transactions have brought the technology to our phones and to our everyday lives with a force that is as undeniable as it is appealing, and this change in the way we handle money is probably here to stay. Let’s see why.
What are the benefits of a cashless society?
Convenience
Convenience is the name of the cashless game. As obscure and intangible virtual systems may be, the advantages of going cashless are practical and very much real. The main benefit of swapping paper money for payments via card or smartphone is that regular individuals do not need to carry banknotes around or queue up at ATMs to withdraw money. Transactions can be made simpler and seamless once physical money is out of the picture, so that paying your electricity bills or splitting the restaurant bill with your friends can be done in just a few time-saving taps on your phone.
Visibility
A beneficial side-effect of paperless money is that it is easier to manage your finances. Instead of having to wonder where that €50 note went or just how much you spent in a month, your online bank records or app transaction history are immediately accessible on your phone and help you keep track of your money, whether you’ve been spending or saving it. Having your financial data so easily available can give you the kind of visibility you need for peace of mind and better money management and budgeting.
Inclusion
While some still feel that there is nothing better than the tangible feeling of cold hard cash in hand, paper money is fundamentally insecure, and conducting your finances in purely physical terms is not advisable. If you do not even have a bank account, you are missing out on any attendant interest rates and services—such as the provision of loans—dependent on a traceable financial history, the kind data-free cash cannot provide. An informal cash-based society is ultimately not as financially inclusive as a cashless one, in which individuals are automatically able to tap into a wider cache of financial services.
Security
Not only does going cash-free make life easier for the consumer, but it is also a safer way to handle money. The pandemic has already highlighted the hygiene benefits of electronic payments, but the protection afforded by cashless exchanges goes beyond viral threats. Rather, given the fact that cash is easily misplaced or stolen, going cashless gives you more security against the potential thief who needs to know your PIN number or is trying to unlock your device with biometric authorization. The real-time notifications that come with online payments apps add another layer of protection, as do the security features that come with such platforms.
Crime prevention and detection
Because cash still rules in the underground economy, the security that comes with digital money is not only beneficial for the individual, but it can also help the authorities monitor and prevent crime. Banks can detect and avert fraud much more efficiently when the economic activity in question is not based on paper money. Additionally, governments are also stakeholders in the switch to a cashless economy because non-cash transactions are easier to analyse and convert to data on a society’s economic behaviour. Such data not only helps decrease crime and clamp down on black market activity, but it may also be used to improve tax enforcement efforts and increase revenues. Societies dependent on cash can only provide their government with an incomplete picture of their financial performance.
Better for consumers and businesses
Sellers stand to gain as much as buyers do. Handling cash can be more costly than it needs to be for businesses but cashless transactions bypass this basic hurdle. Once again, since consumer behaviour is more visible when transactions are not made in cash payments, businesses can capitalise on this data by trying to turn it into sales.
From merchants to consumers, individuals to businesses and government authorities, all stakeholders stand to gain from the switch to digital payments.
Does a cashless economy come with any risks or dangers?
Despite the fact that going cashless is not only more convenient but also safer, there are still one or two concerns that we should bear in mind.
The first threat posed by a paperless money will not surprise anyone who is conscious of their digital footprint and how online data is gathered and exploited. As with all online activity, digital payments may leave a number of traces that collectively accumulate and which may be interpreted to garner data about us as consumers—data which we are not necessarily aware of having provided. Such records may vary and depend on how we pay, which platforms we use, which websites we shop at, and the settings on our devices. If we are not careful about the data traces we are leaving behind, some information may be visible to organisations or companies trying to target us with their advertis