A cashless economy is defined as a situation where there is little or very low cash flow in society. Every other transaction and purchase is made through electronic channels like mobile payments, electronic transfers, internet banking, multi-functional ATMs, debit cards, and credit cards. The main benefit of the cashless economy is that all the electronic transactions made through the electronic medium make it impossible to sustain the black market.
Even though cash transaction is predominant in many countries, few countries follow the cashless economy like Sweden, South Korea, Kenya, Somaliland, and Canada. And countries like Nigeria, Hong Kong, Australia, and Singapore are also trying to step into a cashless economy. This concept of a cashless economy is beneficial for the poor with developing the mobile money platform. So people can digitally pay their bills without having a bank account.
Kenya is the global leader in the mobile money program, and they have been practicing digitalized money payment through M-Pesa. The M-Pesa is a money transfer process done through the mobile platform; even the micro-financing and financing works through the mobile money transfer. Similarly, Somali- the country devastated by the civil war has an excellent mobile subscription where fifty-one people out of one hundred people have mobile access, and the mobile money platform replaces the banking system. In a day, a person can transfer three thousand US dollars through the mobile money transfer system of the Hormuud Telecommunication Company.
Switching to the cashless society
Tufts University’s Fletcher School of Law and Diplomacy conducted a research analysis to determine the countries that will benefit when switched to the digital payment system. One of the members in the research study was the senior associate dean of the international finance and business, Bhaskar Chakravarthi. He said that the research was conducted under four main perspectives of the cash cost, those of the users or consumers, banks, businesses, and governments.
The perspectives of cost of cash
Users or Consumers: The cost includes the cost of the ATM fees the traveling expenses to go to the bank branch or ATM where they can withdraw the cash.
Banks: They face the logistical cost of transporting the money, storing, and restocking the money, especially in developing countries with highly secured infrastructure challenges.
Business: In the company, the cost includes storing cash, keeping it safe, and transporting it through well-secured vehicles.
Government: The government has to spend on printing and the amount of cash the government never collects for the under-report and unreported cash or tax gap.
According to the report, the United States alone has spent two hundred billion dollars only to keep circulation. The report suggested the names of the countries that can unlock the values and move on to a cashless economy. The Netherlands, Germany, Czech Republic, Belgium, Spain, France, China, Japan, Brazil, and the United States.
Americans- Cashless economy and online privacy
A survey report shows that around sixty-two percent of Americans use credit cards, debit cards, and electronic payment modes to make transactions and purchases. People are slowly shifting from paper transactions to digital sales, and they feel that it is much safer to stay without paper cash. About fifty-six percent of the population between 18 to 29 suggests that they feel great comfort without the money in hand. Forty-two percent of the adults and thirty-two percent of the senior citizens welcome the digital economy.
But, they are also worried about the privacy and security factor involved in the online banking platform; this is the primary reason for the population to accept the cashless economy. However, they are comfortable making mobile payments like PayPal and other mobile money transfer systems.
The cashless economy can prevent money laundering, tax evasion, fraud, and terrorist financing, and it also demolishes the black market. But, when every transaction is made through the internet, issues that lead to security are possibilities. The identifiable information has advantages and disadvantages when it comes to money transactions. The government traces the sale for the betterment of the people, but the anti-social base can also use the same process and corrupt the system.
The current status of the technology is quite dangerous, as the lack of a reliable fraud detection system among the online shopping websites, so when a criminal activity or fraud happens in the account- it is closed, and the cash backup becomes handy. And because of this issue, many people will have their accounts locked in the cashless economy until the case is resolved. Another factor is using personal computers to access online shopping sites, and management sites where credentials are required are being compromised at higher rates. Without using a high-end security system, the users might not feel safe accessing the computer and making transactions.
The challenges faced by the countries
Before entering the world of digital transactions, countries have to face many technical and economic modifications in society. And the switch from the physical cash system to the cashless society might be costly because the country needs proper infrastructure to implement the digital economy. And asking people to adapt to the new technology is quite risky because physical cash is a real-time experience.
However, cashless transactions are a transparent way of doing business, and each transaction record is tracked and stored in a secured database. But, this might not be welcomed by all the people in society. And the time consumed during the cashless transaction is higher than the physical cash transaction and requires the individual to have a smartphone to make a transaction and use the debit or credit cards in some banks and retail stores.
With advanced technology and mobile and internet connectivity development, many people in developing countries possess a smartphone and better data connectivity. However, the World Bank released a report that about two million people worldwide did not have a bank account in 2011, but the number kept increasing in the later years, and there was a twenty percent increase by the end of 2014. And eight percent of the adults in the United States do not have any savings account, money market account, or checking account because they find it more expensive, while some are not qualified for it.
Potential issues in the digital economy
The cashless economy also has its issues and problems, like the consumers might find it easy to handle cash in their hands rather than having digital money, and some of the credit card firms take a cut of the transactions made on the cards. Already there is a financial crisis happening in the European market as people want to use more physical cash because the government has imposed limitations on the transactions using real money. And cybersecurity is another primary concern because of the daily news about hackers breaking into the payment system of retailers.
There is a long way to go before completely adapting to the digitalized system of transactions and purchases.
Digital Monetization is the Future of Transactions
Follow us on LinkedIn