The arrival of contactless payment technology means we’re closer than ever to becoming a fully cashless society.
The world’s first public digital cash system is here – and it’s happening in Ecuador. The System de Dinero Electronico is a government-run initiative, inspired by the success of mobile money schemes across Africa, Asia and Latin America. Under Ecuador’s system, users can swap cash for electronic credits which are stored on their mobile phones, and then use these to make payments or transfers. The idea is that this scheme can contribute to nudging the country further along on the road towards becoming a cashless economy.
Mobile money schemes have been praised for bringing banking services to the masses, while also reducing fraud and theft. However, Ecuador’s government decided to run the scheme itself instead of leaving it to private companies: “We did it from the government because we wanted it to be a democratic product. In any other countries, it is provided by private companies, and it is expensive. There are barriers to entry, like [expensive fees] if you transfer money from one cell phone operator to another. What we have here is something everyone can use, regardless of the operator they are using,” Diego Martinez, an economist in Ecuador’s central bank, told ‘FastCoExist‘.
Becoming a cashless society is challenging for every country, even those where almost everyone has a traditional bank account. In the UK, last year marked a watershed moment: less than half of all payments were made with cash. That means 52% of payments were made using debit and credit cards as well as mobile payments, according to the Payments Council. Cash volumes are expected to fall further by 30% over the next 10 years.
The arrival of contactless payment technology, as well as new initiatives such as Apple Pay, means we’re increasingly using non-cash methods to pay also for small purchases, which has represented the real challenge on the road towards cashlessness.
Proportion of UK cash payments by sector in 2014, according to the Payments Council:
Petrol station: 25%
Electrical goods: 34%
Travel and transport: 59%
Discount stores: 68%
Convenience stores: 79%
Pubs and clubs: 84%
Other Western countries are considering more aggressive measures to stamp out the use of cash. In Denmark, a law is expected to pass next year meaning that selected retailers will be able to refuse cash payment altogether. “We’ve recognised what merchants have been telling us for some time now,” Sofie Findling Andersen of the Danish Chamber of Commerce, told ‘BT.com‘. “Using cash is expensive, because it takes time for salaried employees to handle, and it’s also a security concern.”.
But there’s a reason we’ve been using paper banknotes for over 500 years: cash is easy to carry around and use, and everywhere accepts cash. But as even small amounts can increasingly be paid using contactless payment, the convenience argument is starting to fall away, at least in Western countries. Still, a lot of people like the security and flexibility of having some cash on them, just in case.
One reason why governments are keen to cut down the use of cash is that electronic payments reduce fraud; a key attraction of cash, at least for those with criminal intent, is the fact that a cash payment can’t be traced. All this means we’re still some time away from a complete conversion to electronic payments.
“The prospect of a totally cashless society in the UK remains some way off as we expect consumers will find it hard to wean themselves completely off hard currency due to its physical nature and flexibility,” Spiros Theodossiou, vice president of product strategy at online payment system Skrill, told ‘BT.com’. “People need some time to change ingrained habits and tradition.”.
So what does this mean for your business? It is, of course, a sure sign that we are moving with momentum towards a complete digital dependence, particularly in our spending habits. Most of today’s businesses know very well that having an online presence – whether it be a shop or an environment for sharing content or news – is vital for companies to succeed. This movement towards a completely cashless society is sure to propel today’s consumers forward in their digital consumerism journey; we could see a further decline in high street shoppers. However, the existence of a digital currency on the streets could boost consumer trust in high street shopping and hence send them out to more physical stores.
The jury is out on just what effect a cashless economy could have on your business; make sure you’re ready to accommodate your customers in both virtuality and reality. Power your website with a dedicated server from UK2.