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Digitalisation, or the process of moving towards digital business, is becoming increasingly entrenched in our conception of the modern world. Expanding its reach into our personal and professional lives, progress on the digital front will continue to make sweeping transformations to our societies in the coming years. One of the changes unrolling presently as a result of this phenomenon is the replacement of physical currency with non-cash alternatives: the start of the transition towards a ‘cashless society.’ What emerged as a seemingly futuristic vision around the 1950s is, in fact, slowly beginning to materialise.
A cashless society is not one in which banknotes and coins disappear entirely. Rather, in such an arrangement, these payment types become obsolete and eventually disappear from everyday life. Even today, we are seeing debit and credit cards replace cash in-store, and online shopping is stealing more and more market share. There are, however, numerous emerging technologies growing in popularity around the world to support non-cash transactions. While some of these technologies are operated on mobile devices – including mobile wallets, peer to peer (P2P) mobile payment apps, and QR codes - non-mobile instruments such as cheques, prepaid cards or clearing and settlement services are also available.
To better understand a cashless system in practice, academics and researchers often turn to the Swedish example. Described as the most cashless society on the planet, Sweden began its de-cashing journey earlier than most other nations. Enabled by the economic prosperity of the post-World War II period, the Swedish central Riksbank undertook several projects to modernise its operations as early as the 1960s. Investing in the development of automated systems, devising a system for firms to pay their employees electronically, and subsequently introducing tax incentives to encourage take-up, Sweden set the groundwork for a steady decline in cash usage.
In the last decades, Sweden has experienced notable developments to its payment culture. With the upsurge of e-commerce and the 2012 launch of their foremost electronic payment app, Swish, Sweden’s strides in technological capability have enabled the realisation of their de-cashing objectives. Moreover, a shift in public opinion on the safety of physical currency, spurred by a sudden uptick in robberies of banks and merchants in the 2000s, including a famous 2009 helicopter raid on a Stockholm cash depot, has further influenced the decline of cash usage. As a consequence of these currents, Swedes overwhelmingly opt for digital payment alternatives. As early as 2017, barely 1% of the value of all payments were made using cash.
Without taking away duly earned credit, Sweden’s success can be largely attributed to the combination of its unique economic, demographic, and cultural characteristics. Given its low population density, with roughly 10.1 million spread out over about 450,000 sq. km, it would be costly to provide quality cash handling services to all residents. This critical motive, combined with high-grade digital infrastructure, a relatively tech-savvy citizen base, and a reported 100% of individuals with a bank account (compared to a 69% world average in 2017) can help to explain why Sweden’s cashless revolution started so early, as well as why it worked so well.
Ultimately, Sweden is an exception; on average, the world has been slower to move away from cash. As reported by the G4S ‘World Cash Report 2018’, global demand for physical currency is rising along with a growing population, evidenced by an increasing global average in currency in circulation vs. GDP and value of ATM withdrawals. In other words, despite progress in some countries, many others struggle or are unready to initiate a comprehensive transition to digital payment methods; they simply may not yet have the conditions in place to support a cashless system.
Firstly, the process of de-cashing is economically complicated. Unlike physical currency, electronic money is treated as a special case of transferable deposit. On the one hand, a rise in deposits may be able to increase lending potential; on the other, the central bank would have to adjust appropriately to this restructuring, may incur budgetary costs, and face unexpected macroeconomic changes to consumption, private investment, balance of payments, or the national fiscal balance. Furthermore, technological capacity is an undeniable determinant of the structure and logistics of de-cashing. The quality of digital infrastructure, as well as factors like internet access or mobile phone usage, play a key role in defining the course which digitalisation of payments can or can not take. Finally, unique cultural attributes, including financial literacy and trust, must be taken into account.
There are other warning factors to consider; despite its apparent advantages, a cashless revolution is likely to impose risk on society’s most vulnerable members if forcefully undertaken. Due to a lack of financial proficiency or adoption ability, the elderly, physically or mentally ill, and poor are more likely to struggle in a society dominated by digital payment methods. Without adequate, freely accessible support offered to these groups, an endeavour undertaken to further prosperity and broaden financial inclusion may actually backfire. Cashless services should be popularised to serve as a benefit to the people; it is crucial that all de-cashing efforts prioritise this goal.
In summary, while a cashless economy may seem to be a logical target for the modern, digitalised world, its achievement is not straightforward. The digital transition will require a long trial-and-error process, one that has taken decades in the case of Sweden. Thus, before rushing to copy the Swedish model, each country must formulate a sustainable plan tailored to its specific, local needs. The reality of a global cashless society may appear to be quickly approaching, but it is still far on the horizon.
