As technology continues to advance, the way that many of us pay for everyday items is also keeping pace. The transition to chip-based credit card processing is well underway in the United States, only after it was introduced in Europe more than 20 years ago. In Europe and other parts of the world, EMV (Europay, MasterCard® and Visa®) chip technology has been the standard for years, and increasingly, more and more European countries are moving away from paying with cash and using alternative forms of payment, such as mobile wallets.
How are cashless payments changing the way that business is done in Europe?
In this Scandinavian country, where the first European bank notes were issued in 1661, four out of five purchases are now paid for electronically. The public transit system for the capital city of Stockholm banned the use of cash several years ago after bus drivers were being attacked to steal their fares.
Sweden has gone so far in its cashless initiative that five of Sweden’s major banks now operate almost entirely cash-free. This resulted in a robber attempting to rob a bank leaving empty-handed because the branch that he held up did not have any cash.
“We’re leading the world in cashless trading,” said Bengt Nilervall with the Swedish Federation of Trade. “It’s safer this way and it saves us money, as handling money and transporting cash is costly.”
The Danish government recently suggested that businesses be given the option to go cash-free. If this proposal receives parliamentary approval, it could take effect beginning January 2016. Only essential services, including hospitals, pharmacies, and post offices, would still be required by law to accept cash.
Danes have eagerly embraced technology when it comes to making payments. Roughly 40 percent of the population already pay with their smartphone by using MobilePay, a mobile money transfer system provided by Danske Bank. Denmark’s largest supermarket chain is even working closely with the bank to allow for cash-free grocery shopping.
“Customers will be able to swipe their smartphone; scan their food; tap ‘accept’ when they’re done and then just leave,” commented Danske Bank's Mark Wraa-Hansen.
The use of cash in the UK is steadily decreasing, making up 48 percent of all payments in 2014, down from 52 percent in 2013. The proportion of payments made in cash is expected to drop further to 34 percent by 2024.
A recent survey found that young Brits typically carry less than a few dollars in cash at any given time, preferring to use cards. With the rollout of Apple Pay on the horizon for the UK next month, this will likely continue to drive the switch from paying with cash.
However, the British are not as quick to adopt cashless payments as their Nordic neighbors.
“Cash usage is decreasing but this is a slow, ongoing trend rather than a wholesale move away from cash,” opined Mark Bowerman, a spokesperson for the UK Payments Council.
What other countries are going cashless?
This East African country is the birthplace of M-Pesa, the mobile money solution created by Kenyan service provider Safaricom. M-Pesa has become so popular that Safaricom’s parent company, Vodafone, has rolled out the service in nine other countries in Africa, Europe, and Asia Pacific.
Recent numbers released by the Reserve Bank of India revealed that for the first time, the number of cashless transactions using ATMs, debit and credit cards, online banking, and digital wallets surpassed those of traditional, paper-based transactions.
In order to maintain this momentum toward going fully cashless, the Indian government is now offering tax incentives to both merchants and consumers to make the switch to electronic payments instead of using cash.
What are the key benefits for countries going cash-free?
Lower Crime Rates
In Sweden, electronic payment advocates claim there has been less crime reported due to there being no cash to steal with armed robberies at banks at 30-year lows. Some also believe that cash was the primary cause of crime and that the underground economy is cash-driven.
Danish merchants also attribute security risks associated with crime to cash, which led to the government proposal to make accepting cash optional.
“Carrying cash opens you up to attack and even though we have relatively low levels of violent crime in Denmark, this is something business owners and employees tell us they worry about,” said Sofie Findling Andersen of the Danish Chamber of Commerce.
Businesses stand to gain from going cashless, saving money by eliminating the need for transporting cash from their establishments, either by armored car or using night deposits. Norway’s central bank reported that cash transactions in that country cost nearly double that of card payments.
Banks can also benefit from savings. By eliminating the cost of manual processing of cash and reduced spending on security, the Swedish financial sector has reportedly become more cost-efficient as a result.
“Using cash is expensive, because it takes time for salaried employees to handle, and it’s also a security concern,” Findling Andersen added.
Strangulate the grey economy
Governments can benefit from a cashless economy by putting a definitive end to the cash-driven “grey economy.” When all payments are made electronically, there is automatically a means of recording and tracking all transactions, including the payer and recipient.
The ability to easily audit all financial transactions would be a great deterrent to money launderers and tax evaders. The anonymity that was once associated with cash and previously enjoyed by criminals would be removed.
What concerns need to be dealt with before people go completely cashless?
Lack of Access
The less tech-savvy elderly may feel marginalized due to lack of access to goods and services because of difficulty finding merchants accepting cash. Only 50 percent of Swedish pensioners were reported to use card payments everywhere, and seniors’ advocacy groups are urging the government to allow more time for transition.
However, this concern is not shared in all countries. Danish pensioners have more fully embraced the change to going cashless. Denmark has one of the highest rates of citizens over the age of 60 that shop online, and its oldest MobilePay user is 104.
Lack of Privacy
While supporters of cashless payments point out that paying by card provides consumers with the ability to budget and manage their finances by tracking their spending, critics raise the issue of personal privacy. When people use cards to pay for their purchases, financial institutions will also be able to track where they shop and how much they spend.
“Do we really want everything we buy to be registered?” asked Jarl Dahlfors, President and CEO of Loomis.
Dealing with Fraud and Corruption
Although traditional crime is reduced when economies go cashless, the risk of fraud online still looms large. Security is still a concern for many; electronic fraud in Sweden has more than doubled in the last decade. Throughout the European Union as a whole, the most recent figures from 2012 peg the total cost of card fraud at $1.5 billion, much of it stemming from Internet scams and data breaches.
Clearly, more needs to be done to address the growing problem of fraud, especially as smartphones become the payment method of choice for consumers. Criminals will increasingly move away from conventional forms of crime to cybercrime because of lower risk and significantly higher returns.
“As barriers to mobile adoption continue to fall and mobile payments of all kinds surge, a green field is emerging for fraudsters,” said Steven Casco, CEO of CardNotPresent.com.
Mobile payment fraud is now the costliest of all types of fraud, costing merchants $334 for every $100 of fraud incurred. Most businesses have yet to catch up with cybercriminals due to a lack of awareness and ability to combat mobile fraud.
In addition to fraud, money laundering must also be prevented, as anti-money laundering (AML) and know your customer (KYC) regulations equally apply to cashless transactions.
“Electronic payments still have to be AML/KYC compliant,” commented Stephen Ufford, Founder and CEO of Trulioo. “Implementing proper customer due diligence ensures that you know who is sending and receiving the money, making it more difficult for criminals to move millions through the system.”
Having a cashless global economy seems more a question of “when” rather than “if” it will come to pass, especially when we look at how mobile money is gaining popularity in emerging markets such as Africa. However, in many developed countries, there is still a great attachment to cash, where many regard it as part of the national identity. In such cases, it may take longer for those countries to stop using cash completely until the first generation of Internet users grows older and the concept of cashless payments becomes ingrained in the public psyche.
What do you think needs to happen before the world goes cashless? Do you prefer paying with cash, mobile or a credit/debit card? Are you ready to go cashless today or tomorrow, if not, will you ever?