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A World Without Cash

The concept “cash is king” is rapidly becoming outdated in modern economies, with many governments, financial institutions and businesses speeding up the transition to a society in which cash will be obsolete.

Sweden, Canada and the UK are nearing the point where cards, digital bank transfers and cellphone payments have replaced the use of cash. France, the US, China, Australia and Germany are moving rapidly in that direction, too.

Supporters of the trend believe that using other means to pay for products and services is more efficient, safer, and completely transparent – leaving a digital record that will make money laundering and tax evasion much more difficult.

But critics point out that enabling companies and governments to track every individual transaction will rob people of their privacy and generate the kind of data that can be used for nefarious purposes – as was the case with Cambridge Analytics’ use of Facebook data in US elections and the Brexit vote.

They say cash theft is being replaced by fraud and computer hacking. While phones and cards can also be stolen. Governments with access to payments data in countries where people use phone apps for most of their payments can, for example, disrupt major protests by ordering companies not to process payments from any phone in the area of unrest.

Critics also argue that the elderly – many of whom do not use the internet – will struggle, and that millions of poor, unbanked people will eventually become even more marginalised.

Research from the World Bank’s Global Findex database shows that 1.7bn adults – mainly in the developing world – still cannot access a bank account or a mobile money provider.

Even in the US, an estimated 16m adults are unbanked and another 24.5m are underbanked, meaning that they rely on services such as payday loans, cash advances, and other “alternative” products.

Nonetheless, the march to eradicate cash is gathering momentum.

The consulting firm Capgemini has estimated that electronic payments will grow by about 10.9% a year between 2015 and 2020 and forecasts that in Europe, cash transactions will amount to only 0.5% of all payments by 2020.

A growing number of retail outlets in cities from New York to Stockholm and Beijing no longer accept cash, to the consternation of tourists from less tech-savvy countries.

Only a quarter of the people in Sweden say they use cash at least once a week and the proportion of cash transactions in the retail sector has plunged to 15% from 40% in 2010, according to the central bank.

In total, coins or banknotes are only used in 1% of all payments in Sweden – even casinos only use cards.

Most of the country’s banks no longer allow customers to withdraw or pay cash over the counter, and Eurostat figures show that 85% of Swedish people between the ages of 16 and 74 banked online in 2017, compared with 68% in the UK and an EU average of 51%.

Public transport systems in many modern cities – including London – no longer handle cash, using a system of “contactless payments” instead, where a chip embedded in a credit or debit card can be waved over the point of sale to pay for a journey without the use of WiFi.

In China, however, most people who access the internet do so using smartphones and have little use for credit and debit cards.

People in big urban centres rely on mobile wallets created by China’s dominant online giants, Alibaba and Tencent, to pay for anything from hospital appointments to taxi fares and market produce.

Even beggars reportedly accept money through Tencent’s WeChat, or QR codes linked to payment accounts.

The United Nations Capital Development Fund hosts the “Better than Cash Alliance”, a group of governments, international organisations and companies that intends to speed up the transition from cash to digital payments, in the belief that this will increase the number of people included in the formal financial system and give them access to credit and savings accounts.

However, it appears that although many individuals in developed countries are keen to adopt new payment technologies, they are reluctant to give up the option of using cash.

A survey by Swedish polling firm Sifo in April showed that seven out of 10 Swedes still wanted to be able to pay with cash in the future.

Sweden’s central bank, the Riksbank, is also cautious, saying that while transformation of the country’s payment infrastructure is “essentially positive”, it has to take place “at a rate that does not create problems for certain social groups or exclude anyone from the payment market”.

And few advocates of a cashless society appear to have considered that, without electricity and the internet, the whole payments system would collapse.

Written by: Mariam Isa

Taken from: https://www.fin24.com/Finweek/Opinion/a-world-without-cash-20180508

The Accounting Lab Team