Introduction

The following article is a good 15 to 20 minute read, so if you don’t have time to go through it, then here is a summary of the key points. The top 4 ingredients to going cashless are:

  1. Culture and Adoption: A look at how and why the general population is open to trying out cashless technology, and a comparison of the contrasting cultures of Sweden and Nigeria.
  2. Technology and Infrastructure: What are the underlying foundations needed to make a cashless society work? We look at the success seen in China and Sweden, countries who were pivotal in cash adoption, and how they are implementing the rails for a future without money.
  3. Government Support and Trust: The importance of the roles played by Central Banks and Government in supporting a cashless ecosystem and developing an environment of trust for consumers. We also look at the underlying benefits that are incentivizing governments to move towards a cashless society.
  4. Usability and Ubiquity: Looking into the efforts going into make cashless solutions easy and frictionless to use. The adoption of ubiquitous hardware, P2P providers and digital wallets in driving the economy and making non-cash payments the defacto behavior for consumers.

Social Media is brimming these days with predictions of what the new normal will look like after the pandemic subsides, and chief amongst the debates is a topic of whether a cashless society is now a genuine prospect in the short term. The WHO released a statement in early March suggesting that people should opt to use cashless transactions instead of cash, in a bid to stem the propagation of COVID-19 on contaminated cash notes. Some large retailers took note, for instance in the U.S. some Chick-fil-A stores have shunned cash in favor of their mobile app. Significantly more consumers led out of necessity, have migrated their purchasing preferences to the likes of Amazon, Uber Eats and Walmart.com. The death of a millennia old process, often thought to be inconceivable, now seems to be a possible reality. The instinctual transfer of notes from our hands in return for goods or services, covered in who knows what, and forcing people to interact in less than 6 feet is now a danger to our familiar way of life. For many Fintechs and online payment firms like Paypal, Venmo and Square, the pandemic has presented an opportunity long awaited for, as merchants look to digital payments as a solution to shoppers recoiling from paper money. According to Venmo’s CEO Dan Schulman the growth of new customers setting up accounts each day is basically doubling from before the Coronavirus became a ‘thing’.

Many will argue that a cashless society is now the new normal, but before we exaggerate the death of cash, its important to look back at our history, and consider all the necessary factors needed to make a cashless society – more permanent.

The first identifiable coins or currency (Cowry shells) were created in China more than 3,000 years ago and were used during the Neolithic period. It was not until Qin Shi Huang, the first emperor of China around 210 BC, eradicated all other forms of local currency and established what we are all familiar with today – a regular copper coin. Paper-based value was only developed in China in the 9th century, but the foundation component of currency continued to be the copper coin. Things stayed that way in China until the introduction of the yuan in the late 19th century. If you were to go to China today, however, you would be hard pressed not to see people buying their goods and services using biometric authentication, and in particular facial recognition on their phones. It is a radical shift in behavior over a relatively short period of time, but it’s just the beginning of the cashless revolution that is growing around the globe, and now being accelerated by the COVID 19 pandemic.

01
Culture & Adoption

First and foremost, there needs to be a cultural shift and adoption amongst the general population for digital ‘value’ transfer to displace cash entirely. Case in point, when looking at the contrasting cultural factors of the Swedes and the Nigerians we can begin to understand the role culture plays on cashless adoption.

A cashless society is defined as one where the use of paper or coin transactions are so significantly diminished that the majority of purchases made by the population are through mobile wallets, virtual/credit/recharge cards, cheques or direct remit from one account to another through digital channels etc.

Nigeria on one hand has extensive access to such computer technology and financial expertise (which should in theory promote a cashless society), however an inherent fear of security breaches, corruption and a traditional attachment to cash has culminated in a strong resistance to implementing a cashless society.

On the other hand, we look at Sweden, which is widely expected to become the first cashless society by 2023. As is similar to China’s behavior, Sweden went from being the first in adopting banknotes in Europe in 1661, to introducing its own digital currency in 2021. Money is no longer king in Sweden, and an estimated 80 per cent of Swedes use a card or mobile wallet to pay for purchases. Such digital payments are so widely adopted that it is unusual for Swedes to carry cash. Taking it a step further, even children are fully comfortable paying for things with debit cards. As someone who is married to a Swede and a regular visitor to the country, the culture is difficult to explain unless you live and feel it every day. Mobile-first, emerging technologies and a mainstream acceptance for trying new innovation comes naturally to most Swedes. Equally it should be noted that much of this comes from the inherent trust that they have in the ‘system’.

To be fair, it is not all plain sailing for ‘cashless’ in Sweden, and there is an enthusiasm gap emerging, mostly from the older population in the north of the country, who rely less on technology, and have some resentment of the economic power of Stockholm and Gothenburg. The National Pensioners Organization has been instrumental in the “Cash Uprising” coalition now campaigning to continue cash usage at banks for deposits and payments.

02
Technology & Infrastructure

To deliver on the promise of payment nirvana and go all out cashless, the foundations need to be carefully planned and the technology infrastructural enablers must be implemented well and provide thorough reliability. In 2012, the big-six banks in Sweden jointly collaborated to develop a real-time mobile payment platform to support customers and make digital payments easy. The solution, called Swish, was embraced and used by a major proportion of the population in Sweden.

The result is that today it is near impossible to find a merchant where they only accept cash, and often you will be frowned upon if you are not ready to pay by card or by the mobile application Swish. My first personal experience of this was in 2014 when getting on a bus after arriving at Stockholm airport, only to be confronted by a bewildered driver who would not accept cash for a ticket.

In certain parts of China the same trends stand true, and explains the phenomenal growth of digital finance firms like AliPay and WeChat. As China seeks to become the digital superpower by 2030, there are four major factors that are accelerating them to this milestone:

  • They are generating huge amounts of clean data
  • They have an ambitious entrepreneurial culture facilitated by new technologies
  • They have a growing digital talent pool and are investing heavily on educating more
  • The Chinese government is offering unparalleled support and investment in the payment technology and infrastructure within the country

Undoubtedly China’s biggest advantage is the volume of data it is producing and more importantly – it’s quality. Whilst WeChat’s billion monthly active users make payments and eCommerce transactions, China is also witnessing an explosion of O2O (online-to-offline) startups in which non-financial data is developing an ‘intelligence layer’ never seen before in the West. In the United States, consumer data is ring fenced and isolated across areas like payments, transportation and government transactions, but in China the technology giants have enabled a unified online ecosystem that centralizes data into a structured and accessible location. What this means is that Chinese FinTechs (and in particular mobile payment providers) have clean data on everything

from your noodles purchase from a market cart to your recent contribution towards a pandemic relief fund. Such infrastructure is an imperative towards driving a cashless agenda.

03
Government Support & Trust

The Swede’s high-tech culture and digital consumer habits have certainly helped in propagating a cashless environment, however, it should be noted that this has only been made possible through the government and central bank playing key facilitatory roles. At the root of the cultural acceptance for cashless transactions is the inherent trust Swedes have in their system, government and financial institutions. Bengt Nilervall of the Swedish Trade Federation explained,

“In terms of the cashless society, I think Sweden is ahead compared with other countries because in Sweden there is – in general – a trust in the government, the system, the banks and the authorities.”

Recent evidence of this is seen in the alternative approach Sweden has taken to responding to the Covid-19 pandemic.

For governments the incentives for a cashless economy are obvious and include less crime (apparently, it’s easier to steal money), there is less money laundering, better control over fiscal policy, cheaper cash management of bills and coins, and FX transactions are streamlined. In an ever more developing world, there are many cities like Dubai, Seoul, Bucharest and Madrid that have pioneered smart-city initiatives, leveraging digital to improve everyday life. Digital-payments technology is a core component of that equation, and in particular Small and Medium Enterprises (SMEs) benefit from being able to make mobile payments for things like rent, purchasing, and getting paid more efficiently. Even the Gig economy requires an effective digital payments ecosystem to thrive. For central banks, and commercial banks, electronic payments empower better oversight and monitoring, and ultimately acts as a catalyst in the credit decisioning process.

04
Usability & Ubiquity

A key ingredient for any disruptive change, particularly when technology is involved is usability and familiarity. How easy and frictionless a technology works often defines whether it is successful or not.

In the early days of NFC contactless POS devices, adoption often failed, not because consumers had issues or because acquirers did not invest in NFC POS terminals, but simply because merchants did not know how to advise customers on how to use the NFC capability. Merchants were used to magstripe swiping and had little incentive to change their behavior to a new process which was less usable. After usability improvements in NFC readers, mainstream acceptance of mobile wallets, and a continuous education drive in the industry the adoption has now flourished with contactless being a familiar transaction.

Numerous examples around the world have demonstrated how easy cashless payments can drive economic development. Bangladesh’s mobile P2P solution called ‘bKash’ has stimulated economic progress and vastly improved financial inclusion in the country. The key benefits come not from increasing spend, but rather a simplification of the process of sending and receiving payments, which in turns spurs new innovation. This is also particularly evident in the U.S. where instant P2P payment providers like Venmo and Zelle have facilitated instant value transfer and enabled things like splitting a bill amongst friends to be easy and ‘cool’. The evolution of cryptocurrencies over the past 10 years also adds further impetus in making a cashless society a reality, however risk, volatility and regulatory hurdles need to be overcome before we see their widespread use.

The ubiquity of cashless payment technology is the final ingredient in improving usability and creating a populist embrace of digital payments. Ubiquity is highly dependent on market dominance of a few key players in money transmission that charge very low acceptance fees to vendors/merchants. This is certainly evident in China with the supremacy of WeChat and Alipay, and M-Pesa in Kenya, which operates through a network of local shops that convert mobile money to cash and vice versa. Similar innovative services in other countries include PayIT in Dubai, Paytm in India, and Bankgirot in Sweden.

Thanks to the ubiquity of these payment systems, it is becoming increasingly easy nowadays to live an everyday life without a visit to the ATM and instead the familiar sound of approving beeps initiated through a multitude of wearable hardware devices like mobile phones, rings, bracelets, watches, gloves and keychains.

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