What is the Future of Money and Are We Ready For It?

Cashless Wallets: What is the Future of Money and Are We Ready For It?

Perhaps it is not too far fetched a thought that not so far from today, money as we know it — banknotes and coins that we carry with us — will be considered outdated or even collecঞ ble? “We’re living through an incredible global social experiment that is forcing governments, businesses, and consumers to rethink their operating models and norms for social interacࢼ ons,” said Morten Jorgensen, director of RBR, a consulting firm based in London, which specializes in banking technology, cards, and payments. “We have a world in which there is less contact. People’s habits are changing as we speak.“ Before the coronavirus pandemic, cash was used for as much as 80 percent of the transacঞ ons in Europe. However, the fear of handling paper money that may be contaminated with Covid-19, as well as an immense growth of e-commerce, has accelerated the trend towards a cashless society. As a result, Visa reported that ATM use is already down by 32 percent, and 63 percent of consumers say they’re using less cash. At the same ঞ me, the number of acঞ ve Visa cards being used for e-commerce jumped by 30 percent. Brian Cole, head of North America products and soluঞ ons for Visa noted that “It's just been like 3 years of digital commerce growth being pulled forward into 3 months. People are making purchases that they would have made in person, but they’re making them online now.“ The fear of using banknotes and coins due to the coronavirus pandemic was so real that some countries — like South Korea — went even further: banknotes have been disinfected and placed in quaranঞ ne, basically leaving no other soluঞ on rather than use cashless payment methods. However, as people believe that contactless payments can help promote social distancing during the pandemic and save from geম ng bacteria, there are a few disadvantages of a cashfree world to keep in mind. For starters, electronic payments are not as private as cash payments: the more informaঞ on you have fl oaঞ ng around online, the more likely it is to get in bad hands. In a cashless society, everyone is more exposed to hackers. Also, various technical problems could leave you without the ability to pay for things and services when you need it the most. What is more, the

poor and unbanked people will have a really hard ঞ me integraঞ ng into the cashless society. And there’s one more thing: when all money is electronic, negaঞ ve interest rates could become a real problem for consumers, as they would feel a direct effect on them. Denmark, Japan, Switzerland, and other countries have already experimented with negaঞ ve interest rates, and the results were not that promising. According to the Internaঞ onal Monetary Fund, negaঞ ve interest rates reduce bank profitability, and banks could be tempted to hike fees on customers to make up that defi cit. In 2020, banks are limited in their ability to pass on those costs because customers can simply withdraw their cash from the bank if they don’t like the fees. But in the future, if customers can’t withdraw cash from the bank, they may have to accept any addiঞ onal fees and not be able to do anything about it. The case of Japan, which we just menঞ oned, is actually an interesঞ ng one. Once it was a pioneer in cashless transactions: back in 1990, the Japanese company Denso Wave developed the fi rst QR codes that are now frequently used in cashless payments, and Sony has introduced a chip, which was used on public transport and for payments since the 2000s. But today, as the world’s biggest economies increasingly embrace electronic payments, Japan’s aging population prefers physical money, and 4 out of 5 purchases here are sঞ ll made in cash. To compare, in South Korea as much as 96 percent of transacঞ ons are digital today, and Sweden aims to become a cashless society by early 2023. Yuki Fukumoto, an analyst at the NLI Research Insঞ tute, noted that “With Japan becoming the fi rst super-aged society with more than 28 percent of people 65 or over, it is harder to persuade consumers to take up new technology. The challenge from now on is how to moࢼ vate people to change their habits.“ Having in mind that most small shops in Japan will only take cash to avoid high transacঞ on costs, this becomes a diffi cult challenge. One other reason why Japan seems to be sluggish in adopঞ ng cashless transactions today is the fact that people here simply trust in cash. The crime rate is low here, and people feel safe carrying it in their pockets. And although large retail stores and retailers accept cashless payment tools that come with reward points, many customers sঞ ll pay in cash. Despite the current situaঞ on, Tokyo sঞ ll wants more consumers to get into the habit of using cards and engage in cashless transacঞ ons, and the government aims to double the raঞ o of cashless se‚ lements to 40 percent by 2025, and to 80 percent eventually to spur labor producঞ vity. Experts note that country’s transiঞ on to digital transacঞ ons would help Japan cope with a shrinking populaঞ on and a ঞ ght labor market. What is more, cashless payments would also allow stores to automate sales esঞ mates and banks to cut back on costly automated teller machine networks. Satoshi Kumagai, senior vice president in charge of fi nancial services and digital business at convenience store chain operator Lawson Inc, noted that “It would be ideal to see all the transactions go cashless given labor shortages and the need to boost convenience for our customers. On the other hand, we’ll need to fi nd a way to help those elderly who may fi nd it hard to go shopping without cash.” To compare, in China, where the trust in cash is low and costly, smartphones have been a popular payment tool for quite some ঞ me now. Such mobile pla orms like Alipay and WeChat Pay have been dominaঞ ng the market. To be more specifi c, China is already the world’s largest mobile payment market and is also a leader in peer-topeer payments, in which people can pay each other by text. According to GlobalData, a leading data and analyঞ cs company that has forecasted which countries will most likely be the leaders in moving towards a truly cashless society, “one area where China has seen extreme developments is the rapid adoption of mobile payments. Here, one of the most popular ways to pay by phone is QR code scanning, and this method has been successfully adopted by mainstream society. One proof that China is rapidly moving towards a cashless society is its undisputed leading posiࢼ on in e-commerce. As of 2019, China recorded an esࢼ mated 80 billion cash transacࢼ ons.“ Right behind China, according to the GlobalData, ranks South Korea, followed by the UK. Then there’s Sweden, Finland, and Australia. Speaking about the cashless future, according to the global management consulঞ ng fi rm Kearney, which analyzed data from close to 100 banks across Europe, over the next few years, 1 in 10 banks will no longer be in business due to customers using digital banking services like Starling, Monzo or Revolut. This trend, it says, will drive the shi[ to a cashless society at pace resulঞ ng in a signifi cant change in the fi nancial sector.