Calling it quits on cash

Key takeaways

Around the world the use of cash is declining, and in some cases, being banned outright.
Mobile, digital and card use is increasing as smaller payments become acceptable and customers demand convenience.
Businesses wishing to compete in a cashless economy must be open to new technology and ways of working.

Back in 2015, a Digital Pulse article about contactless payments said: “Between now and the surmised days of microchip implants, a spectrum of innovative technologies will enter the payments space. This won’t be a slow process.”

As we head towards 2018, this prediction is coming true as a number of cashless milestones have occurred, ushering in the age of digital transactions around the world.

Here are just some of the ways consumers are removing paper money from their lives.

Cards for cash(less)

According to research from the Reserve Bank of Australia (RBA), “consumers globally are shifting away from cash and towards electronic payment methods such as cards.”¹ Australia is no exception, with the RBA’s 2016 Consumer Payments Survey showing a solidification of previous trends as consumers switch to electronic payment methods, particularly debit and credit cards, for the majority of transactions.

In fact, the jump in card use has been quite dramatic, going from a mere 26% of payments in 2007 to 52% in 2016. Cash has correspondingly dropped in the same period, from 69% of payments to only 37%. The rise in the use of cards is due, the results found, almost entirely to an increase in in-person payments. Shifting consumer preferences, with the adoption of tap-and-go functionality, has led to people making smaller payments via card. Retailers should take particular note of this, especially those charging a premium for card payment, which customers are increasingly finding unacceptable.

Social media and payments

In China, cash has also started to disappear. Unlike in Australia, this hasn’t been replaced by credit card use, partly because credit card penetration is relatively small in China. Instead, mobile payments via social media platforms have become the norm. To make a payment, consumers need only scan a retailer’s QR code at the point of sale.

Major cities across China now accept smartphone payments via social media platform WeChat or mobile payment platform Alipay. This change in consumer preference has occurred incredibly quickly, going from cash to cashless in only a few years². This isn’t true just for the technologically forward-thinking of retailers either, with everyone from buskers to trains and temples getting in on the mobile action.

What is also astounding is the amount of money that’s now being transacted in this way. In 2016, the value of transactions conducted via third-party mobile apps in China reached US$5.5 trillion³. Mobile payments in the US rose by 39% but even so, ‘only’ reached US$112 billion.

Cold turkey with cash

Some countries are simply leapfrogging past the slow death of cash straight to its wake. In Sweden, more than half of banks don’t carry or accept cash, and many don’t have ATMs4. There, cards have been king, but apps have led the charge for mobile payments. The Bank of Ireland is following suit, with plans for 40% of its branches to stop transacting in cash5.

Last year, the Indian government banned two banknotes that accounted for 86% of India’s currency6. For a country whose transactions were 90% cash, the effect was swift and problematic. However, this was just one step in India’s digital plans. What the government also did was create 1.1 billion biometric identities (in a country of 1.3 billion) for people who often had no official record of their existence at all.

In turn, this allowed for 270 million bank accounts to be created and US$10 billion to be deposited in them in just three years. India’s Unified Payments Interface (UPI) payment system for mobile transfers, combined with a person’s digital identification, suddenly allows for a digital economy. Moreover, India could relatively easily move to biometric payments in the near future7.

Cashless for customers

A 2016 report by PwC’s Strategy&, Future of payments in Australia, outlined some of the forces that business will need to deal with in the coming years. First, customers want quick, personalised and secure payments – regardless of whether they are an individual or a business – and whoever can provide that will win their transactions.

Disintermediation by third-parties is moving consumer finance away from business and banking, so it is critical for current players to make sure they work with emerging ones in order to keep the link with (and data from) their customers.

Globalisation has led to an increase in cross-border exchanges, which bring with them regulatory and technological challenges but also the potential for growth. It may also see the establishment of blockchain as standard for international exchanges and a rise in the use of crypto or alternative currencies, such as Bitcoin. Again, the lesson here is to be open to such change and ensure technological compatibility.

The bottom dollar

For business and banks, the idea that cash could soon be obsolete brings differing levels of trepidation depending on where they are in their digital journey.

The overwhelming call to action is that if a business doesn’t offer alternative payment methods to cash, it needs to think about doing so. Customers use digital payments for convenience, which means the chances of them going elsewhere if a retailer doesn’t accept cash, or requires a minimum for card use, is high.

It’s essential that business explores its digital options. A penny for your thoughts will go a long way when the world has no more cents!

^{1 www.rba.gov.au/publications/rdp/2017/pdf/rdp2017-04.pdf

2 www.nytimes.com/2017/07/16/business/china-cash-smartphone-payments.html

3 www.ft.com/content/00585722-ef42-11e6-930f-061b01e23655?mhq5j=e1

4 www.theguardian.com/business/2016/jun/04/sweden-cashless-society-cards-phone-apps-leading-europe

5 www.irishtimes.com/business/financial-services/bank-of-ireland-to-have-100-branches-cash-free-1.3116768

6 www.washingtonpost.com/news/innovations/wp/2017/01/23/what-the-u-s-can-learn-from-indias-move-toward-a-cashless-society/?utm_term=.03b4f33228f2

7 http://money.cnn.com/2017/01/19/technology/india-cash-biometric-payments-davos/index.html}