Why the potential end of cash is about more than money

Wednesday, October 09, 2019

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by Jan Bellens - EY Global Banking & Capital Markets Sector Leader

Cashless transactions are nothing new, but their share of the payments mix is growing fast. Advancing technologies, particularly the smartphone, have driven the fast growth of the digital economy and enabled an explosion of non-traditional financial solutions.

The rise of digital economy

The pace and nature of the transition differs across the world:

  • Across the European Union, account-to-account payment services are proliferating.
  • Canada, Australia and Singapore are among the nations that are licensing non-banks to initiate digital and mobile payments.
  • In Asia, China’s WeChat Pay and Alipay which mix low cost, transactional functionality with shopping and lifestyle features are leading the way.
  • In the US, checks are still widely used and only 53.5% of card transactions used modern EMV chip and pin authentication in 2018.
  • The mobile money operator (MMO) model – where consumers transfer mobile phone credit – is strong in sub-Saharan Africa, led by Kenya’s m-Pesa, which has since expanded to Afghanistan, South Africa, India, Romania and Albania.
  • In Latin America, many people remain unbanked, despite a government push toward electronic payments to curb corruption.

Ensuring cash-dependent consumers aren’t left behind in a digital economy

While cashless transactions are increasing each year, cash is still king in all markets. Even in Europe, where online financial services are well-established, cost-effective and easy to use, household cash payments totalled €1.7t in 2016, compared with €1.1t for cards.

Some consumers are attached to cash for cultural reasons. For example, the US is a nation of great technological innovation, yet Americans still pay with cash about one-third of the time and use checks about as often as they do digital payments.

For others, the prospect of going cashless would not just be undesirable, but have harmful consequences. When India withdrew certain bank notes from the financial system overnight, the population found that 86% of its cash was no longer legal tender. Several years later, and despite a strong government push to end cash and a plethora of new digital payment providers, 72% of consumer transactions in India are still settled with cash. Many merchants, particularly in rural areas, just aren’t willing or able to pay charges for what are often low-value transactions. Network connectivity is also a problem.

Even in Sweden, famed as the most cashless country, the rapid phasing out of notes and coins from circulation has led to political debate about how some members of society, particularly rural, older or disabled populations, may be left behind.

Read the full article from here.

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