Cashless Society
I can still remember the excitement of opening my first bank account. Not because I was born with a shrewd sense of investment (my account balances don’t look too dissimilar now to when I was a child). No, my excitement was born from the fact that my bank had a promotion on with the World Wildlife Fund. It meant I got both a ‘gold’ coin and a panda shaped money box for opening an account.
Fast forward twenty, ok, maybe closer to thirty, years and I couldn’t wait to pass on that same buzz to my own son. Now it’s a Darth Vader head rather than a panda.
But his excitement was equal to mine when, for weeks, his favourite game became emptying and refilling his money box of whatever coins hadn’t found their way into his mum’s coffee fund.
His favourite game that is, until he found a more ‘permanent’ way of extracting the coins.
As I swept up the shattered shards of Darth Vader’s head from our bathroom floor, it suddenly dawned on me. This whole experience is one that my son may never share with his kids.
His might be the first generation to see our society become cashless.
The march towards a cashless society
A cashless society is an economic state where monetary transactions are not conducted with physical bank notes or coins.1 And there is no inherent reason cash should remain the primary means of payment.
Banknotes did not exist until the advent of the printing press, and we’ve had cashless payments before, cowrie shells, the barter system, more recently cheques, debit and credit cards. There have always been alternatives to cash payments.2
The difference now is that technology has opened the door to a revolution in payment methods.
"Access to the Internet is widespread, and computers, smartphones, and tablets are household items. Thus, the conditions are ripe for launching more electronic payment forms"
Cecilia Skingsley Deputy Governor of Sweden’s Riksbank
Nowadays, when we talk cashless payments we’re looking primarily at digital tools like MYOB Payby, PayPal, NFC payments, electronic cards or digital wallet systems like those operated by MYOB Payby or Apple.
The evolution of Payment Methods
Who wants to get rid of cash?
The pressure to go cashless is coming from both governments and consumers.
Millennial consumers in particular have grown up understanding the importance of cash and the convenience of managing your money digitally. They expect to be able to pay using a wave of their cards or phones and have receipts appear on screen almost immediately. Public transport, parking meters, road tolls, the amount of transactions that can be handled without the need for cash is rising all the time.
In fact, in the last 6 years, the amount of cash used by Australians has fallen by roughly a third.3
Governments across the world have stepped up their fight against cash. Put bluntly, cash transactions cost them a lot in unpaid taxes. In Australia, this figure is estimated to sit somewhere in excess of $3 billion per year.
So, what’s being done about it? Here are a few examples:
India
Recently scrapped 86%
of its banknotes
Korea
Plans to stop minting coins
by 2020
Sweden
Has adopted a
cashless society
Canada
Has tripled use of
contactless credit cards
China
Has seen mobile payments
leap 65% since 2015
But it’s not just a taxation issue for governments. They are coming under pressure from central banks eager to record as many transactions as possible to help them devise monetary policy. Technology providers too, spot an opportunity for potentially running the economic backbone of a society.
How much money is still in cash?
Globally, around 85% of all payments are still made in cash.4
In 2015, the Switzerland-based bank for international settlements, claimed there was a combined $4.54 trillion of cash in European countries and 17 other major economies. Only around 9% of combined GDP.
The U.S. had the most notes being used, at $1.42 trillion, but Japan had the highest banknotes-to-GDP ratio, at 19.4 percent.5
In New Zealand despite more than 80% of people preferring to manage their money online, the amount of cash in circulation has actually increased from $4 billion in 2010 to $5.5 billion.6
In Australia, in 2017 there were 1.5 billion banknotes in circulation worth $73.6 billion.7
What will replace cash?
The fastest growing alternative to cash is the use of cards. But as technology advances, the scope for alternative methods of payment will continue to grow. Some present alternatives include:
- Near field communication (NFC) – the dominant mobile tech, like Apple Pay and Android Pay
- Prepaid and gift cards
- ACH payments – eChecks or direct deposit
- Bitcoin and other cryptocurrencies
- Online payment services like MYOB Payby or PayPal9
In the short term this combination of an excess in cash is still in existence. A proliferation of new technology means we are likely to witness a move to societies using less cash rather than cash-less ones.
Should we change and do away with cash?
There are a number of benefits associated with going cashless:
Tax collection
"The reason to do it is that its estimated somewhere between $3.5 and $5 billion every year is lost in tax revenue in Australia"
Professor Richard Holden University of New South Wales
Since all transactions will be done through banks and financial institutions, transactions that were happening illegally enter the banking system, resulting in increased tax revenue for governments.11
It also becomes easier for tax authorities to find tax evaders, increasing the funds available to governments for other social programs.12
This is particularly valuable in developing countries where corruption and tax avoidance is particularly high and is stunting economic growth. In India for example, only 10 million of its 1.2 billion people actually pay taxes. For the country to develop and thrive, more of those people need to pay taxes.13
Security
Cashless societies can improve security in a number of ways. Here are a few examples:
Reduction in violent crime
Fewer bank robberies, burglaries etc. due to less currency being carried.
Minimising the black market
Fewer illegal transactions, less tax avoidance, fewer funds for other illegal activity.
Preventing counterfeiting
No physical currency = no fake currency.
New portable payment solutions are equipped with the latest security components to keep you protected. They use certified bank grade security to ensure transactions are completely secure.
Convenience
Most of us carry mobile phones with us wherever we go, so what could be more convenient when it comes to payments, than using your phone as your wallet?
Phone payments will continue to increase, cutting the amount of things you need to remember to carry with you and allowing you to transact more freely.15
Speed
"Companies need to be able to depend on rapid payments. In the past, a company may have accepted waiting one or two days for a payment to clear. But now, working in this environment of rapid communication and digitalisation, speed is of the essence. They seek greater flexibility, efficiency, and ease of access in their banking experience."
Ingrid Weisskopf Head of Cash Products and Advisory FI, at Commerzbank (16)
We all crave having more time for ourselves, and contactless card transactions are giving us more of it. According to the Reserve Bank of Australia, contactless card transactions are faster than traditional cash transactions.
Cost
The removal of cash will eliminate the hundreds of millions of dollars governments take from taxpayers’ money to fund the printing and minting of currency.
Korea plans to abolish coins because minting exceeds their value. In Singapore, where cash accounts for 60% of personal and 30% of business payments, a study for the monetary authority of Singapore showed that going cashless would save more than 0.5% of GDP.17
This increase in seigniorage stemming from no longer having to print currency would save governments substantial amounts of money. Digital currency is simply a more efficient way to operate.
The flip side of the coin
Despite the obvious advantages, there are still those who resist the move towards a completely cashless society along the lines of:
Overspending
Visa recently revealed that contactless payments have reached an all-time high in Australia, with 92% of its face to face transactions via that method.18
"Decision-making is more of an emotional process than a cognitive process. On balance, paying by cash triggers more positive emotions than paying by debit card..."
Frank van der Horst and Ester Matthijsen of the Dutch National Bank
"Cash has certain special characteristics that link it to feelings and to deep and primitive human sentiments"
Dario Negueruela Deutsche Bundesbankk
But why is any of that a problem?
Research has shown paying cash sends a different signal to our brains when compared to paying by credit card. Paying by credit card sends pleasure signals to the brain, spending with cash sends the same signals as pain signals.
The differed pain of paying by credit leads people into poor financial habits and encourages overspending.
Some people still want cash
While cash use is on the decline, many people still want to use it for particular purposes.
In the US, Americans still use cash for around 14% of everyday purchases.19
| BUSINESS TOOL | CASH | DEBIT CARD | CREDIT CARD |
|---|---|---|---|
| Department store | 9% | 31% | 36% |
| Discount store | 22% | 34% | 25% |
| Gas station | 16% | 39% | 35% |
| Supermarket | 13% | 46% | 34% |
| Dine-in restaurant | 18% | 33% | 35% |
| Fast-food restaurant | 33% | 30% | 21% |
| Coffee shop | 28% | 23% | 15% |
| Source: TSYS Consumer Payments Study, 2016 | |||
A cashless society wouldn’t be good news for everyone.
An ME study found that eliminating cash makes 61% of people less generous.21 In Amsterdam, the street magazine Z!, sold by the city’s homeless is on its deathbed due to a shortage of cash customers.22
For cash based economies that would mean:
Higher fees
Some digital forms of payments like credit cards, wallet payments and internet banking continue to incur some transaction fees. While this is the case, customers who prefer to pay cash will be deterred from doing business with companies who attempt to force them to so digitally.20
The disadvantaged
45%
fewer tips to waiting staff
44%
fewer donations to charity
42%
fewer donations to the homeless 23
Loss of freedom
Probably the most frequently aired concern about a cashless society, is the fear of what it would mean for our liberty and our personal information.
As our spending habits become digitised, it will become easier for companies to utilise big data and machine learning to examine our habits and profile us.
"I don’t think people really understand what they’re giving up. It isn’t just about convenience and costing savings, it’s about being able to sell you more things."
Martin North Digital Finance Analytics principal
How might this data become commoditised? Could it be sold on to marketers to track your preferences? How about insurers keen to see what you’ve spent on alcohol, cigarettes or anything else that might impact your premiums?
How much are you prepared to trust third parties regarding your finances? Do you trust your government not to abuse its new-found power to cut off a person’s finances at the flick of a switch? Do you trust networks not to fail and leave you without your hard-earned cash?
Fears such as these are why the US government recommends its citizens keep some cash on hand for emergencies.24
How far are we from being cashless?
It has been predicted that Australia could become cashless as early as 2022.
With the introduction of the New Payments Platform (NPP), instantaneous, cheap and secure digital payments will become a reality.
"You’re not going to have to worry about setting up someone as a payee in your online banking. It’s really going to be as simple as, I want to pay you $30 now for a service and I can just pay it based on an email address or phone number."
Professor Richard Holden University of New South Wales (25)
WHAT IS THE NPP?
The New Payments Platform is a centralised platform that facilitates real-time clearing and settlements of payments
between participating Australian financial institutions.
Over 60 Australian financial institutions are connected to the New Payments Platform. It’s a faster, simpler and smarter
way to move money in Australia.
The advantages of a cashless society are clear. In Australia online, the black economy fuelled by cash transactions, is worth between 2-15% of GDP, with no tax being paid on the earnings.27
While the NPP certainly makes it possible that Australia could go cashless, it still remains unlikely. Banks are still holding out on supporting some mobile payment systems like Apple Pay, whilst older generations and those with concerns over privacy and online security will still continue using cash.
The situation is replicated in New Zealand. The Visa cashless cities report lists Auckland as one of nine digital leaders worldwide in terms of cashless cities28, yet the amount of cash in circulation is on the increase.
MYOB’s CEO Tim Reed made his feelings clear on the direction we’re heading. During an inquiry into Taxpayer Engagement with the Taxation System with the Australian House of Representatives, he noted:
"If we were re-designing the economy overall, you wouldn’t design it with cash or paper documents. They are dead. The technology is available today for both businesses and individuals to go cashless. We know switching to cashless saves businesses time and money. Capabilities such as the New Payments Platform (NPP) will allow individuals to send money to anyone, at any time, with a mobile phone number creating convenience and ease. (29)"
Are you and your clients ready to give up cash?
It may be impractical for all of your clients to cut out cash altogether right now. But encourage them to gradually start phasing out the number of cash payments by promoting tap and go mobile payments.
While a cashless society may not be imminent, we are certainly well on the way to a society with less cash. However, as we’ve seen from other technologically led changes in society, the tide is hard to turn. Bearing that in mind when making decisions now, will help future proof your clients’ businesses as well as your own.
1 https://www.worldatlas.com/articles/which-are-the-world-s-most-cashless-countries.html
2 https://www.actuaries.org.uk/documents/cashless-society-benefits-risks-and-issues
4 http://www.imf.org/external/pubs/ft/fandd/2017/06/wheatley.htm
5 https://www.bloomberg.com/news/articles/2017-07-17/going-cashless-bad-for-tax-cheats-privacy-poor-quicktake-q-a
6 https://www.stuff.co.nz/business/93272085/banks-adjust-plans-for-cashless-future
7 https://www.rba.gov.au/publications/annual-reports/rba/2017/pdf/banknotes.pdf
10 http://www.abc.net.au/news/2017-03-27/is-australia-on-the-brink-of-becoming-cashless-society/8377288
11 http://www.letslearnfinance.com/advantages-disadvantages-cashless-economy.html
12 http://www.vipera.com/close-cashless-society/
13 https://www.managementstudyguide.com/cashless-economy-pros-and-cons.htm
15 https://swiftmoney.com/blog/the-pros-and-cons-of-living-in-a-cashless-society/
16 http://www.bobsguide.com/guide/news/2017/Apr/7/how-close-are-we-to-a-cashless-society/
17 http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Press%20Releases/Singapore%20Payments%20Roadmap%20Report%20%20August%202016.pdf
18 https://www.businessinsider.com.au/how-australias-move-to-a-cashless-society-is-damaging-millennials-2017-12
19 https://www.cardfellow.com/cashless-business/#easier
20 http://www.letslearnfinance.com/advantages-disadvantages-cashless-economy.html
21 https://www.dailytelegraph.com.au/moneysaverhq/cashback-sites-offer-shoppers-incentive-to-spend-online/news-story/110ff114a084e7317ab33fdffc8b07fd
22 https://futurism.com/societys-most-vulnerable-citizens-might-not-survive-in-a-cash-free-world/
23 http://www.news.com.au/finance/money/one-in-four-aussies-want-cashless-society-study/news-story/c018b57f38d36e4fb4602e25f9552557
24 https://www.bloomberg.com/news/articles/2017-07-17/going-cashless-bad-for-tax-cheats-privacy-poor-quicktake-q-a
25 http://www.abc.net.au/news/2017-03-27/is-australia-on-the-brink-of-becoming-cashless-society/8377288
26 https://www.westpac.com.au/faq/npp-what-is-it/
27 https://theconversation.com/australia-may-be-closer-to-being-a-cashless-society-but-it-wont-happen-by-2020-75258
28 https://usa.visa.com/dam/VCOM/global/visa-everywhere/documents/visa-cashless-cities-report.pdf
29 https://insidesmallbusiness.com.au/finance/is-cash-dead