How close are we to a cashless society?
Cashless payments have risen rapidly in recent years, as consumers have embraced fintech solutions.
The number of non-cash transactions globally is forecast to reach 876 billion by 20211 , reinforcing the huge growth potential for digital payment innovations.
While we do not think that cash will ever completely disappear, we believe there is a strong growth trajectory towards the cashless society.
In 2018, Chinese mobile payment providers Alipay and WeChat each processed more payments in a single month than PayPal’s $451 billion for the whole of 20172 .
This is a prime example of fintech’s coming of age, and goes a long way in illustrating how the emergence and development of digital technology has transformed the way that consumers pay for goods and services. In an ever-changing world where electronic payments are becoming commonplace, consumers increasingly expect quick, easy and secure alternatives to cash that they can access at their convenience.
The introduction of contactless technology in 2007 has already gone a long way to satisfying consumer demand: over the past decade, we have seen a variety of contactless-enabled payment innovations emerge, from mobile phones to smart watches, fitness trackers, wristbands, fobs and stickers.
With widespread adoption of digital payment methods in recent years, how close are we to a cashless society?
- Capgemini Financial Services Analysis, 2018; ECB Statistical Data Warehouse, 2016 figures released October 2017; BIS Red Book, 2016 figures released December 2017; Countries’ central bank annual reports, 2017.
- Analysys, as at 30 September 2018
A long (but worthwhile) journey towards cashless adoption
It is clear that countries active in the adoption of digital payment methods have benefited as a result: for consumers, paying for goods and services has become a much simpler and efficient process, while businesses have a more streamlined way of processing transactions. Banks also benefit from lower costs associated with the printing, storage and transportation of cash in circulation. As technology becomes more advanced, financial institutions, as well as traditional businesses, will need to adapt to the demands of the digital age.
Sweden leads the charge towards a cashless society
Much of Sweden’s success in going cashless has come down to having trust in the fact that digital payments can be made anywhere – so much so that cash researchers Niklas Arvidsson and Jonas Hedman of the Copenhagen School of Economics estimate that cash will no longer be used in Sweden by March 2023.3
In the 10 years dating back to the start of 2009, the amount of cash in circulation in Sweden has fallen by almost 40%4 . The Swedish legal framework has been partly responsible for the country’s high adoption of cashless payment methods: contract laws take higher precedence than banking and payment laws, allowing storeowners to stipulate a ‘no cash’ policy. Furthering this trend has been the launch of mobile payment app, Swish, by six large Swedish banks in 2012, in cooperation with the Riksbank. Many people believe that cashless payment methods have created a safer environment.
Legacy issues mean the US is playing catch-up
As a significantly larger, older and more complex market than somewhere like Sweden, the US is playing catch-up on the adoption of cashless infrastructure. While US banks were able to issue contactless-enabled cards by late 2016, they opted to save roughly 35 cents on the cost of manufacturing each card by issuing traditional debit cards instead.5
However, US banks are finally starting to adapt to the changing technology and, with it, consumer sentiment is improving around digital payments. For example, JPMorgan announced its plans to roll out contactless technology on its payment cards by the end of 20196 . Visa expects more than 100 million of its contactless cards to be issued in the US by this time7 . Furthermore, the US central bank is now looking at ways to speed up all transactions through the implementation of real-time payment systems.
Rapid expansion of mobile payments in China
Having taken a different approach to the US, China finds itself miles ahead in its trajectory towards a cashless world and, perhaps, emphasises the need to take a more aggressive approach in adopting cashless technology. Aside from rapid urbanisation, the Chinese government has recognised the need to build world-class infrastructure and fully commit to electronic payments over physical cash.
- Going Cashless: What Can We Learn from Sweden’s Experience’, Knowledge @ Wharton
- Riksbank, as at 31 December 2018
- Nixon, George, ‘Countries with highest contactless spending limits revealed’, This is Money, 25 January 2019
- Armstrong, Robert, ‘At last, US banks are introducing contactless cards’, Financial Times, 7 January 2019
- ‘Tapping to pay is about to be even easier for U.S. consumers’, VISA, 14 November 2018
The emergence of mobile payments technology has seen innovative apps, such as Alipay (created by Alibaba in 2004) and WeChat Pay (Tencent Holdings), come to the fore. The influence of such apps on consumers has been significant: collectively, they account for around 93% of the country’s mobile payments market8 . Moreover, QR codes are used throughout the country and go even further in illustrating the appreciation by businesses and consumers alike by providing a quicker, easier service.
The potential reach of fintech
Sweden, China and the US are just three examples of how far the adoption of digital payment methods has come. Globally, however, the cashless story varies widely across regions, with different countries at different stages of adoption.
So, while a cashless society may feel like the future of convenience in many developed markets, this transition also has the potential to more significantly disrupt and improve people’s lives in developing markets, and among demographics which currently have less access to traditional banking services – it is estimated that more than a third of the world’s adult population make little or no use of formal financial services9 .
Some involvement from authorities is likely to be needed to support this ongoing transition, to create and maintain the necessary financial infrastructure. Overall, we see a strong growth trajectory ahead for digital payments, supported by shifting consumer attitudes, infrastructure investment and increasing political will.
- Analysys, as at 30 September 2018
- Billion Reasons to Bank Inclusively, Accenture, 2015