Will The World Go Cashless?

Benefits and barriers to a society built on ‘cashlessness.’

 
 

It only took 27 centuries, but we’ve realized our lives are better without physical currency.

Yesterday, Visa and Roubini Thoughtlab held an event in Washington DC to release the results of a study examining the economic impact of increasing the use of digital payments in 100 cities across 80 countries. “Cashless Cities: Realizing the Benefits of Digital Payments” quantifies the benefits consumers, businesses, and governments can experience by becoming more cashless.

To start, each of the 100 cities was placed into one of five buckets according to its level of digital payment adoption. Cities are either Cash Centric, Digitally Transitioning, Digitally Maturing, Digitally Advanced, or Digital Leader. (The five US cities in the study — Austin, Chicago, New York, San Francisco, and Washington DC, all ranked as Digitally Advanced).

Then, says Ellen Richey, vice chairman for risk and public policy at Visa, the study analyzed the costs and benefits of both digital and physically payments across each city, before quantifying the potential net benefits experienced by cities which move to an “achievable level of ‘cashlessness’”— defined as the entire population of a city moving to digital payment usage equal to the top 10% of users in that city today.

By reducing reliance on cash, the study estimates significant yearly financial benefits for these 100 cities. Findings include:

  • $27.8 billion in consumer benefits
  • $312.3 billion in business benefits
  • $129.7 billion in government benefits
  • 45,000 new jobs per city by 2032
  • 0.16% bump in annual wage growth rate per city by 2032
  • 19 basis point bunp in annual GDP growth rate per city by 2032
  • 0.14% bump in annual productivity growth rate per city by 2032

And while those numbers may look and feel persuasive, there are significant barriers to ‘cashlessness,’ including limited access to digital payment products, inadequate digital infrastructure, misperception of digital costs, security and privacy concerns, and a cultural and habitual attachment to cash.

 

 

Where there is a barrier, though, you’ll find leaders working to knock it down.

As part of the event, Visa held a panel discussion with several leaders in the cashless field, including Pramod Saxena the chairman of Oxigen Services India, the subcontinent’s first fintech company to digitize cash.

India is home to 1.3 billion people, and two years ago 94% of all transactions took place in cash. The economy was in cash.

Over the last two years, Saxena says, there has been a push by the central government to deregulate and create a digital infrastructure for moving cash. India created one of the world’s largest databases for digital IDs — fueled by biometric signatures, not unique numbers — and allowed its residents to open bank accounts using this ID, without requiring paperwork. Since then, more than 600 million new bank accounts have been opened. And these bank accounts allow India’s residents to send money person-to-person.

“For people who weren’t connected to the system, now they are,” he says.

That’s just one success story, though digitization has yet to reach 100%.

And full adoption is the goal, says panel member David Block-Schachter, chief technology officer at the Massachusetts Bay Transit Authority (MTBA). Without it, the benefits of a cashless society will remain limited. From his perspective, transportation runs on a schedule. Fare payment systems, even those that support digital payments, that process cash will add time to trips. 10-15 seconds here or there may not sound significant, but any wasted time introduces inefficiency to a system that is meant to be free of it.

But how can we encourage cashless populations?

Education on its benefits is a good place to start. Because it is physical and carries little in the way of security, cash makes holders vulnerable to petty (or grand) theft. As paper, it also requires environmental investment to produce. Still, cash is an easy form of payment for many. The societies that have seen success in cashless have encourage digital adoption through incentive.

In Norway, says panelist Leif Trana, minister counsellor for economic and artic affairs at the Embassy of Norway, the shift has been gradual. As part of labor contracts, banks promise workers that if they no longer received payments in cash — but deposited it electronically — they would never charge them withdrawal fees. In addition, the federal government required citizens to open digital mailboxes for communication purposes. The government no longer sends any paper communications.

As for security concerns, those are real and more than a little scary. Consider a full move to digital: what if the electrical grid went out? What if the processing platforms went down? People would lose access to their money. And while part of this security risk can be addressed by creating redundant systems in the case of failure, there is still the challenge of personal information floating around the digital space.

In India, Saxena says, digital IDs require residents to disclose no personal information. All they need is their fingerprint or other biometric authentication — there no account number, no password. So the network is secure as long as the digital database is secure, he says.

“There hasn’t been a serious challenge yet,” he says. “Though that doesn’t mean there won’t be.”

 

Oct. 12, 2017


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