Is Cashless as Close as We Think?

Ken Paetzold, Senior Manager at Applause

Much of how we pay for goods and services has been fundamentally unchanged since the 1950s.

Despite widespread technological innovation in other spheres of modern life, ‘cash only’ is still common on high streets the world over. There may be an awful lot of hype around fintech, but our love of cash runs deep.

This belies the hype surrounding the ‘cashless society’ – the peak goal of a society where technology is king. In a cashless society, the vast majority of payments are digital transactions, where consumers use mobile or contactless to carry out purchases. 59% of UK citizens believe that the UK will be a cashless society soon. Sweden ispredicted to go cashless by 2023. But the truth is: there are still some serious hurdles to surmount before cashless can be fully implemented.

The state of play

The benefits of a cashless economy are huge. An independent study conducted by RoubiniThoughtLab and commissioned by Visa estimated that “relying more on electronic payments, such as cards and mobile payments, could yield a net benefit of up to U.S. $470 billion per year across the 100 cities studied – roughly the equivalent to 3% of the average GDP for these cities.”

In Europe, however, cash payments still account for 79% of all retail transactions. In Germany, cash is still the most popular form of payment, with an astonishing 74% of payments settled using cash in 2017, according to a study by Deutsche Bundesbank. In Italy, that number jumps even higher to 88%.

Even countries on their way to cashless are facing a backlash, and are having to deal with a growing number of people who are either unwilling or unable to make the permanent move to digital when it comes to payments. Some fear being left with piles of physical cash that they don’t know what to do with. There’s a serious concern that moving completely cashless as a society ostracises the low income population even more than they are already.

In order to transition to a truly cashless society where everyone can and will purchase easily without cash, there are a few points – and some serious obstacles – for countries and their financial institutions to consider.

A cultural shift

Driving the cultural change to a cashless society is going to be long and complex. What we’ve seen so far is ad hoc functionality introduced by financial services companies or technology companies, often with little adoption outside of city dwellers – the archetypal ‘early-adopters’. Even mobile wallets, that great breakthrough in mobile payment technology, has seen “underwhelming [adoption] to date by nearly every objective standard” in the US, according to Goldman Sachs analysts quoted by Business Insider last year: only 8% of eligible iPhone users use Apple Pay every week, according to First Annapolis statistics.

Aside from the technology evangelists who are adopting cashless in swathes, there are people who are either too reluctant, too suspicious, or both, to make the move to 100% cashless an inevitability. Real change will come when we can convince sceptics that it doesn’t make sense not to make the switch. We need to provide a real incentive and demonstrate that going cashless has significant benefits over and above current methods of payment or conducting business.

Take mobile. Mobile adoption wasn’t driven by any particular campaign. Rather, people adopted mobile technology because it solved a problem that other communication at the time couldn’t. Stranded at the side of the road in a broken-down car? With no mobile phone, you have to walk to the closest store or hope that someone drives by. Mobile was the natural answer to societal communication problems and was widely adopted accordingly.

When it comes to cashless, however, people don’t yet consider that the problem it claims to solve is compelling enough for them to make the switch. Cash is glitch free, readily available and has been established for millennia. What’s going to drive the change to encourage consumers to let it go?

Making steps

First of all, it needs to come from ground level. We need to start by acknowledging that different consumers want to pay in different ways and at different times. Buying a pack of gum in the corner shop, purchasing an outfit online, doing a weekly grocery shop, putting down a mortgage on a house: customers will pay for all of these in different ways, either on a whim or purposefully taking money out of the ATM. This means that retailers and other businesses need to provide the payment instrument that the individual wants to use at that time, whether that’s cash, card or mobile.

Secondly, the technology companies building the payments services themselves need to make sure that they are innovating in a way that provides the best service to the consumer. Whilst innovation is happening, it’s happening in a fragmented way, meaning that it’s taking a little longer to seep through the ecosystem. Interoperability is a key word here: every innovation needs to be able to interact with each other, whether it’s a mobile wallet, Apple or Android Pay, or the hardware itself. Tech companies also need to cooperate to tackle concerns surrounding data security and privacy, major concerns for those whose trust in cash remains higher than in alternative payments.

Nudges from above can create an environment that both encourages consumers towards cash and nurtures innovation among technology companies. In January 2018, PSD2, or Open Banking, brought in a host of encouraging benefits for European businesses and consumers alike, forcing banks open up their APIs to third party providers and making it illegal for businesses to charge extra for using a debit card. And in the US, Visa and Mastercard are due to pay a $6.5bn settlement to consumer-facing US retailers who are charged every time a customer uses a credit card.

Cashless is coming, but perhaps not as quickly as the fintech industry would have us believe. Those of us working in payments need to be better at showing rather than telling the benefits of cashless to consumers. And until cashless is an option that suits everyone, not just the privileged few, then cash will always need to be an option for consumers.

Ken Paetzold, Senior Manager at Applause

Much of how we pay for goods and services has been fundamentally unchanged since the 1950s.

Despite widespread technological innovation in other spheres of modern life, ‘cash only’ is still common on high streets the world over. There may be an awful lot of hype around fintech, but our love of cash runs deep.

This belies the hype surrounding the ‘cashless society’ – the peak goal of a society where technology is king. In a cashless society, the vast majority of payments are digital transactions, where consumers use mobile or contactless to carry out purchases. 59% of UK citizens believe that the UK will be a cashless society soon. Sweden ispredicted to go cashless by 2023. But the truth is: there are still some serious hurdles to surmount before cashless can be fully implemented.

The state of play

The benefits of a cashless economy are huge. An independent study conducted by RoubiniThoughtLab and commissioned by Visa estimated that “relying more on electronic payments, such as cards and mobile payments, could yield a net benefit of up to U.S. $470 billion per year across the 100 cities studied – roughly the equivalent to 3% of the average GDP for these cities.”

In Europe, however, cash payments still account for 79% of all retail transactions. In Germany, cash is still the most popular form of payment, with an astonishing 74% of payments settled using cash in 2017, according to a study by Deutsche Bundesbank. In Italy, that number jumps even higher to 88%.

Even countries on their way to cashless are facing a backlash, and are having to deal with a growing number of people who are either unwilling or unable to make the permanent move to digital when it comes to payments. Some fear being left with piles of physical cash that they don’t know what to do with. There’s a serious concern that moving completely cashless as a society ostracises the low income population even more than they are already.

In order to transition to a truly cashless society where everyone can and will purchase easily without cash, there are a few points – and some serious obstacles – for countries and their financial institutions to consider.

A cultural shift

Driving the cultural change to a cashless society is going to be long and complex. What we’ve seen so far is ad hoc functionality introduced by financial services companies or technology companies, often with little adoption outside of city dwellers – the archetypal ‘early-adopters’. Even mobile wallets, that great breakthrough in mobile payment technology, has seen “underwhelming [adoption] to date by nearly every objective standard” in the US, according to Goldman Sachs analysts quoted by Business Insider last year: only 8% of eligible iPhone users use Apple Pay every week, according to First Annapolis statistics.

Aside from the technology evangelists who are adopting cashless in swathes, there are people who are either too reluctant, too suspicious, or both, to make the move to 100% cashless an inevitability. Real change will come when we can convince sceptics that it doesn’t make sense not to make the switch. We need to provide a real incentive and demonstrate that going cashless has significant benefits over and above current methods of payment or conducting business.

Take mobile. Mobile adoption wasn’t driven by any particular campaign. Rather, people adopted mobile technology because it solved a problem that other communication at the time couldn’t. Stranded at the side of the road in a broken-down car? With no mobile phone, you have to walk to the closest store or hope that someone drives by. Mobile was the natural answer to societal communication problems and was widely adopted accordingly.

When it comes to cashless, however, people don’t yet consider that the problem it claims to solve is compelling enough for them to make the switch. Cash is glitch free, readily available and has been established for millennia. What’s going to drive the change to encourage consumers to let it go?

Making steps

First of all, it needs to come from ground level. We need to start by acknowledging that different consumers want to pay in different ways and at different times. Buying a pack of gum in the corner shop, purchasing an outfit online, doing a weekly grocery shop, putting down a mortgage on a house: customers will pay for all of these in different ways, either on a whim or purposefully taking money out of the ATM. This means that retailers and other businesses need to provide the payment instrument that the individual wants to use at that time, whether that’s cash, card or mobile.

Secondly, the technology companies building the payments services themselves need to make sure that they are innovating in a way that provides the best service to the consumer. Whilst innovation is happening, it’s happening in a fragmented way, meaning that it’s taking a little longer to seep through the ecosystem. Interoperability is a key word here: every innovation needs to be able to interact with each other, whether it’s a mobile wallet, Apple or Android Pay, or the hardware itself. Tech companies also need to cooperate to tackle concerns surrounding data security and privacy, major concerns for those whose trust in cash remains higher than in alternative payments.

Nudges from above can create an environment that both encourages consumers towards cash and nurtures innovation among technology companies. In January 2018, PSD2, or Open Banking, brought in a host of encouraging benefits for European businesses and consumers alike, forcing banks open up their APIs to third party providers and making it illegal for businesses to charge extra for using a debit card. And in the US, Visa and Mastercard are due to pay a $6.5bn settlement to consumer-facing US retailers who are charged every time a customer uses a credit card.

Cashless is coming, but perhaps not as quickly as the fintech industry would have us believe. Those of us working in payments need to be better at showing rather than telling the benefits of cashless to consumers. And until cashless is an option that suits everyone, not just the privileged few, then cash will always need to be an option for consumers.