What are the implications of becoming a cashless society?

In a world where virtual transactions are becoming increasingly commonplace, there is ever increasing speculation that we are becoming a cashless society. The term cashless society has come to refer to an economy in which physical money is no longer used for transactions; instead, all payments and financial dealings are conducted electronically through, for example, bank cards and online accounts. Many economies across the world have been moving in this direction and the trend has been further accelerated by the COVID-19 pandemic. This is partly due to people’s fear of transmitting the virus through banknotes and coins. In the UK, cash use over the last decade has more than halved and only around 23% of total transactions now use cash. This shift raises questions about the implications of becoming fully cashless, were we to do so today, with far-reaching social and economic consequences making the need for preparation paramount.

One of the key advantages of a cashless society would be faster consumer transactions which would reduce waiting times in shops and restaurants while allowing businesses to increase throughput. It is estimated that physical cash transactions take nearly three times longer to process than cashless ones; the salad restaurant Sweetgreen, for instance, found that their cashless stores were able to conduct 5-15% more transactions every hour. This improvement may, therefore, provide better experiences for customers as well as higher revenues for businesses. Going cashless could also eliminate many of the costs associated with the handling of cash including the operation of facilities for the storage and distribution of cash, the training of staff to handle cash and the transportation of cash. The Mercedez-Benz Stadium in Atlanta, for example, saved $350,000 in operational expenses in its first year of going cashless (whilst simultaneously increasing customer satisfaction and revenues).

Another key consideration is theft since both businesses and individuals are more susceptible to robbery when handling cash. Recent estimates suggest that, in a given year, nearly a quarter of Americans experienced physical cash being stolen, by contrast, only 3.2 million fraud cases were reported to the Federal Trade Commission in 2019 (the equivalent of around 1% of the population). In addition, when physical money is stolen it can often be difficult to retrieve whereas online it is sometimes possible to track and recover funds. In 2018, for example, a more centralised system was installed in the UK enabling banks to track and freeze stolen money. If a bank cannot find a victim’s money, they can log this into a central system which Vocalink (part of Mastercard) runs. Here, they are able to trace where the money went, even if it was spread out into multiple accounts. The ability to track transactions and the flow of capital digitally can also help governments reduce tax evasion (particularly on VAT). The cost to governments of tax evasion should not be understated- a staggering €825 billion of tax revenue is estimated to be lost in the EU each year, the equivalent of over 5% of its total GDP. An improved ability to track the movement of these funds would enable governments to more accurately enforce and collect taxes, and reduce one channel of the underground economy. In 2015, the Bank of England stated that it could only account for approximately half of its banknotes, with much of the rest being used in the shadow economy (although it did admit that the untraceable nature of cash made it difficult to tell precisely where and how it was being used). Although going cashless might not necessarily eradicate all these issues, it could provide opportunities to address them.

Despite these benefits, a cashless society could also bring certain disadvantages, including financial exclusion. The elderly, as well as those with little or no access to WiFi, may find going cashless challenging; The Access To Cash Review suggested that 17% of the UK population would struggle to cope in a cashless society and that 1.3 million adults do not have or cannot afford bank accounts. They also concluded that poverty is a more accurate indicator of one’s ability to cope in a cashless world than age, highlighting that multiple segments of society would be vulnerable in such a system. Many may not be able to make necessary, everyday purchases due to the cost of having bank accounts, or simply because of the nature of electronic payments. These segments of society would require support and a cashless society could risk leaving these groups behind, creating new, potentially more severe problems and costs, such as exacerbating inequality.

The tangible nature of cash is also cited as an advantage- some people find it easier to manage their spending with physical cash rather than the more abstract, electronic format. Furthermore, despite some advantages in tracking money, it may be naïve to believe that there would be no fraud in a cashless society as people could accidentally give away access to their bank accounts. The cost of safety measures could also increase as we become more reliant on digital systems, for instance, it is estimated that cybersecurity spending in 2021 will increase by 10%. Moreover, the rise of cryptocurrencies, which are decentralised, shows that the elimination of cash does not necessarily mean all transactions are more traceable. Transactions on some of the more established cryptocurrencies, such as Bitcoin, can be tracked by governments due to the record of each payment and their links to wallet addresses. However, there are multiple platforms on which government scrutiny is much more difficult (as these records may not be available). This lack of visibility might make it difficult for governments to monitor, measure and understand general activity in their economies and, likewise, the outcomes of their policies and actions.

There is no doubt that the UK’s and also the global economy is becoming increasingly cashless and that this shift will considerably alter our world. Some of the benefits include faster transactions which could help consumers and businesses. Likewise, the elimination of cash could reduce handling costs and, potentially, tax evasion. However, the human and financial costs of exclusion need to be considered, alongside security risks. While we may be well on the way to becoming fully cashless it is clear that much remains to be done to avoid potential pitfalls, a secure infrastructure for a cashless society must be established. Banking systems will also have to be secure if they are to be entrusted with all savings and transactions, both in terms of cybersecurity and the stability of the financial systems themselves. A loss of confidence in a banking system is catastrophic under normal circumstances but in a cashless world, where there is no alternative, it can be particularly damaging. It is difficult to predict every possible outcome of moving to a cashless society but the risk of far-reaching, unanticipated consequences is substantial.

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