Are There Any Benefits to a Cashless Economy? (2024)

Author: Sam Gazeley

Consumers are showing a growing preference for contactless payments, which is pushing many regions toward a cashless economy. For example, Pew Research Center notes that 4 in 10 Americans (41%) have stopped using physical cash for weekly purchases, which is nearly double the number in 2015. Not only would a cash-free society make everyday transactions a lot easier for consumers, but it is also bound to reshape the banking and financial services space. As confirmation that the world is migrating to digital-first payments, consider that the global mobile wallet installed base will increase by 2 billion in just 5 years—climbing to a total installed base of 5.6 billion by 2027, according to ABI Research.

In this article, you’ll read about:

  • How the COVID-19 pandemic influenced contactless payments.
  • The primary benefits of a cashless world.
  • Why proximity mobile payment usage is on the rise.
  • What market players should do to capitalize on frictionless transactions.

Nothing epitomizes the march toward a cashless economy than the rapid growth in the global mobile wallet installed base, which the chart below highlights.

Are There Any Benefits to a Cashless Economy? (1)

COVID-19 May Have Changed Transactions Forever

Over the last 10 years, contactless payments had already been ascending steadily to the top of the market. Indeed, consumer appetite has only grown for cashless payment, opting for alternative payment solutions like biometrics, wearables, and cryptocurrency. Around the world, this trend was compounded during the COVID-19 pandemic, giving rise to an enormous increase in contactless payments, notably mobile wallets.

Digital-first payments have taken precedence and there’s no sign this trend is going anywhere. According to a 2021 survey from Visa, 74% of consumers indicated that they preferred contactless payments even with vaccinations being readily available. This changing consumer attitude is the preface of a cashless world and will produce huge ripple effects across the entire payments market, affecting merchants, banks, smart card vendors, and mobile wallet providers.

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The Pivotal Role of Mobile Wallets in a Cashless World

Benefits of a Cashless Economy

The most obvious benefit of a cashless economy is convenience. Customers no longer have to worry about losing physical cash or running to the Automated Teller Machine (ATM) in order to purchase goods. Digital payments make a perfect marriage with stores as 63% of consumers say convenience is influential in choosing which store to shop at. Making the checkout process as easy as possible is just good business, making mobile payments and other frictionless methods paramount to business health.

Besides convenience, a cashless society will also experience less fraud and other security issues. And the consumer market is in full agreement as a survey from Onbe found that 65% of consumers think digital payments are more secure than other forms of payment. First, the removal of physical money makes it more difficult for robbers to steal from someone. Second, the data within mobile payment solutions are typically encrypted; for example, the online vendor that a customer purchases from will not have access to payment details. Plus, Multi-Factor Authentication (MFA) and biometrics make it impossible for anyone but the correct individual to use the mobile wallet. So, in the event that a smartphone or wearable device is lost or stolen, no one else can make a transaction.

The third, and perhaps the most striking benefit of a cashless economy, is just how inclusive it is. In regions where there’s not a sizable brick-and-mortar bank presence, there is, however, swift uptake in smartphone adoption. Digital payments, notably mobile wallets, allow local citizens to access financial services in a non-hassle and cheap way. In the Middle East & Africa, there’s been developments with mobile money, a form of Pay-as-You-Go (PAYG) that entails money-enabled Subscriber Identity Module (SIM) devices like M-Pesa and Orange Money. Moreover, mobile money, with the help of a Mobile Network Operator (MNO) or a banking network partner, enables underbanked populations to use cashless payments without needing a bank account. These customers don’t have to worry about prohibitive upfront costs and onboarding processes. Ultimately, a cashless society will help a developing economy grow because more transactions can be made within the country and financial services would be available to more people.

What’s Pushing Growth in Proximity Mobile Payment Usage?

The growth in proximity mobile payment usage is primarily driven by convenience for customers and business value for merchants/retailers. Proximity mobile payments enable customers to pay for goods via communication between their smartphone and a Point of Sale (POS) terminal. The customer’s mobile device and the POS terminal need to be within 4 Centimeters (cm) of each other and both devices must support a communication technology like Near Field Communication (NFC), Quick Response (QR), or Bluetooth. However, as seen in contactless ticketing and other contactless payment methods, NFC is the dominant enabling technology.

For merchants and small business owners that can’t afford new POS infrastructure, a phone or tablet can serve as the POS terminal. Alternatively, it can serve as a backup option when the primary POS system is inoperable. That’s why tap-on-phone transactions and cashless economies are so inviting to many small businesses. In a world where, according to Blackhawk Network, 54% of shoppers spend more money at retailers offering digital payments, proximity mobile payment usage lets the “little guy” get in on the cashless trend without hassle. ABI Research expects proximity mobile payment to experience the greatest growth of all sub-categories in the broader mobile payments ecosystem. Proximity mobile payment will find its greatest prominence in use cases where convenience takes precedence, such as parking, transit, and vending machine transactions.

OEMs, Banks, and Financial Apps Look to Capitalize on Cashless Economies

Inevitably, the digital payments market will be broken up into smaller chunks, enabling transactions across myriad platforms and services at the same time, and with a large number of white-label solutions available. As societies shift away from cash, the demand for digitized solutions will amplify. Original Equipment Manufacturers (OEMs) like Apple Pay, Google Pay, and Samsung Pay are experiencing stiff pressure from companies such as Revolut, Monzo, and Curve. At the same time, payment companies like PayPal and Venmo are also major influences in the digital payments space. Besides winning on the User Experience (UX) front, solution providers must recognize that a cashless economy requires wider support for cards, tickets, IDs, passes, and other applications. Companies should also explore partnership opportunities with cryptocurrency providers to store digital assets, while still allowing users to make transactions with traditional currency. An example of this would be Mastercard’s Nexo card, which comes with Apple Pay and Google Pay integration and is accepted by 92 million merchants worldwide.

The most rapid growth for cash-free transactions comes from underdeveloped regions like the Middle East & Africa and Latin America. As previously alluded to in this article, mobile payments are inclusive because they remove a number of previously prohibitive factors. Additionally, the uptake of smartphones continues to increase in underdeveloped regions, whereas more developed regions already have a high level of smartphone adoption and existing banking infrastructure. Countries like Ghana, Nigeria, and Tanzania are all working on digitizing their economies, while mobile money is gaining traction in places like Mozambique, Egypt, and Afghanistan.

To learn more about how to prepare for a cashless world, check out ourAn Inside Look at the Global Mobile Wallet Market as 2022 ConcludesResearch Highlight. All you need to do to gain access is register an account with us.

Are There Any Benefits to a Cashless Economy? (2024)

FAQs

What are the benefits of a cashless economy? ›

Cashless society: advantages

When people are handling less cash, bank robberies, burglaries and corruption drop. Because cash is essentially untraceable, it's a useful tool for criminals, where digital currency is less easy to exploit, and can be shut down quickly if it falls into the wrong hands.

Why is it beneficial to live in a cashless society? ›

The advantages to cashless societies might include reduced physical crime (since there's no tangible money to steal), lower transaction costs, and the convenience of not needing to carry cash.

What are the benefits of consumers going cashless? ›

With advanced technology and payment systems at our disposal, going cashless is as good as having cash. You can use your money in several different ways, and often almost instantaneously. So purchase air tickets, pay off your home loan EMI, or buy a life insurance policy without having to arrange for cash.

How would going cashless affect the economy? ›

A cashless society could make the economy more efficient by reducing the need for cash handling and storage. This could save businesses and individuals time and money. Additionally, a cashless society would make it easier for businesses to track their sales and profits.

Is cashless society good or bad? ›

A cashless society would rely on a complex network of digital systems, which would be vulnerable to cyberattacks. If these systems were hacked, it could have a devastating impact on the economy. Privacy is the third challenge raised. Cash can be exchanged anonymously, leaving no digital trail.

Is a cashless economy a blessing or a curse? ›

A cashless economy has the advantages of cashless transactions from preventing money laundering, deterring the shadow economy, increasing the tax base and compliance, and convenience for customers. People are aware of the benefits of a cashless economy. Electronic transactions are much easier and more transparent.

What are the 5 pros and cons of the cashless economy? ›

Answers from top 5 papers. Benefits of a cashless economy include curbing black money, reducing counterfeit currency, improving transparency, and reducing cash-related crimes. Drawbacks include cyber fraud, high illiteracy rate, and lack of efficiency in digital payment systems.

Is cashless economy success or failure? ›

This study found that forming a cashless society is a solution to efforts to grow the economy and speed of transactions in society. Another benefit is preventing corruption, levies, and fraud where electronic payments made on record have suppressed crime.

How does a cashless society affect the poor? ›

Crucially, this substitution has significant consequences for social inequality: while people with higher incomes typically benefit from cashless payments through easy and frictionless payments and access to short-term credit, people with lower incomes become increasingly dependent on financial services for which they ...

Is going cashless safer? ›

Reduced risk of theft: When you carry cash, you are at risk of being mugged or pickpocketed. With cashless payments, there is no physical cash for someone to steal. With cashless payments, you don't have to worry about losing physical currency, and your money is stored in a secure digital wallet.

Are we going cashless? ›

The concept of a cashless society has been around for decades. But with 80% of payments in the US being made digitally in 2022, and four in ten of us ditching change altogether, research suggests that the transition from physical currency could take place sooner than we once thought.

Why are so many places going cashless? ›

Save Time. Going cashless may not only save time at checkout, but it can bring more efficiency to other business operations. Some bookkeeping tasks can happen automatically. You or your employees won't have to count the cash, balance register drawers, or physically deposit money into a bank.

Why do people still use cash? ›

Some people still prefer to use cash, perhaps because they like the tactile nature of physical currency or because it provides confidentiality in transactions. But digital payments, made with the swipe of a card or a few taps on a cellphone, are fast becoming the norm.

Is the world ready for cashless currency? ›

Nonetheless, with global digital payment platforms being launched, updated and made more accessible all the time and most regulators seemingly favouring more digitalisation through innovations such as central bank digital currencies (CBDCs), a cashless world seems unavoidable in the end.

Is China cashless? ›

China is one of the top countries for using cashless payment systems, but penetration is not 100%,” says Sara Hsu, an associate professor at the University of Tennessee, specialising in supply chain management. “Elderly Chinese still often prefer to pay with cash and some struggle with using mobile payments.”

What are the benefits and consequences of a cashless society? ›

This move towards a cashless society has many advantages: convenience and efficiency, reduction of fraud, improvement in cross-border transactions, among others. A cashless economy also has its disadvantages: identity theft, social exclusion, and the undermining of privacy and anonymity is undermined, among others.

How would a cashless society reduce crime? ›

Reduced Crime: Cashless transactions make it harder to exchange stolen goods for cash and improve transparency, potentially leading to lower crime rates. Higher Transaction Speed: Digital payments allow businesses to track payments and complete transactions faster compared to cash.

Why should we get rid of cash? ›

Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.

What are the benefits of a cashless society World economic Forum? ›

A cashless society – along with the transformation of the last mile of money transfers, payments and banking services – will help to close the financial inclusion gap. Cashless technologies could be some of our greatest assets in the fight against corruption and organised crime, too.

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