By Albert Robinson
The idea of a cashless society sounds very clean and tidy – paying by credit card, an app or even a microchip inserted into our hands. And in some countries, with Sweden being the prime example, the move to cashlessness has gone very far indeed.
In Sweden, 20% of its 10 million-strong population do not use ATMs. Meanwhile, more than 4,000 Swedes have implanted microchips in their hands, allowing them to pay for rail travel and food, or enter keyless offices, with a wave. Restaurants, buses, parking lots and even pay toilets depend on clicks rather than cash.
But is a cashless economy good for everyone – what are the implications for various sectors of the population and who benefits the most? Cash is being squeezed out of Sweden's economy so swiftly that it is predicted that half the country’s retailers will stop accepting bills before 2025. Under the law, retailers can simply stick up a sign in the entrance of their businesses to say they do not accept cash.
But even Sweden is having, if not second thoughts, then certainly a reevaluation of the implications. The financial authorities are asking banks to keep using notes and coins until solutions can be found, particularly for older people – who often do not feel comfortable with new technology – and certain groups such as immigrants who may not have bank accounts, and the disabled who rely on the banks' customer service representatives. And what happens to online payments and bank accounts if a power grid fails or servers are thwarted by power failures, hackers or even war. Even most worryingly, a cashless society could remove the vital role of the state as a guarantor of financial affairs. If cash disappears, commercial banks would wield greater control over our finances.
The move to a cashless economy is taking place – mostly among urban consumers – worldwide via apps and plastic. In China and in other Asian countries rife with young smartphone users, mobile payments have become standard. In Europe, about 20% of people say they rarely carry money, with debit and credit card use reaching record highs in Belgium, Denmark and Norway.
But it is, again, Sweden – especially the young – which leads the charge to cashlessness. Among 18-to-24-year-olds, around 95% of their purchases are with a debit card or a smartphone app called Swish, a payment system set up by Sweden’s biggest banks. About half of Sweden’s 1,400 bank branches no longer accept cash deposits, according to a New York Times report.
Bills and coins represent just 1% of the economy, compared with 10% in Europe overall, and 8% in the United States. In 2019, just 10% of consumers paid for items with cash this year, down from 40% in 2010. Although the majority of Swedish businesses still accept notes and coins, their numbers are rapidly declining.
Furniture giant Ikea – a favorite for younger buyers – carried out an interesting experiment last month at one of its stores in Sweden. The company realized that while fewer than 1% of its customers were using cash, Ikea employees were spending about 15% of their time handling, counting and storing money. That persuaded management to go temporarily cashless which served to release employees to work on the sales floor.
Meanwhile, it's not difficult to understand why the banks are pushing for a cashless revolution and are encouraging consumers and retailers to use debit and credit cards. Banks and credit card companies rake in handsome fees and profits for electronic work which requires relatively few staff compared with the numbers needed to deal with physical cash.
India recently marked the third anniversary of its hurriedly-introduced demonetization campaign. Even after three years, the pros and cons are still being endlessly debated. One of its stated objectives was the transformation of India into a cashless economy to counter its huge black money market. With close to 95% of transactions in India still cash-reliant, "Cashless India" is still a far-off dream.
The need for physical infrastructure, such as high-speed internet and wide mobile network coverage, is obvious, for the creation of a digital transactions ecosystem, and India, a vast country with a still largely rural population is very far from achieving that.
In China, there were more than $15 trillion in mobile payments in 2019, far outstripping the US. But promoting a cashless society may also be promoting one which is riven with fault lines and resentment as technology watcher Rui Zhong, of the Wilson Center’s Kissinger Institute on China and the United States, warned: “Mobile payments are carving out lines between young and old, and between the prosperous urban middle class and those left behind by the boom times. Mismanaged moves to mobile payments by municipalities could also lock the elderly and the poor out of the consumption economy—just when the Chinese government needs as many spenders as possible.”
In the United States, in an effort to cut costs and reduce waiting times, some retailers have stopped accepting cash. Credit card giant VISA showed its future intentions clearly when it awarded $10,000 to each of 50 businesses that produced videos explaining how moving to cashless operations would benefit them.
Still, there's no doubt that some businesses appear to be cut out for an age of cashless operations. Indochino, a custom men’s clothing chain that began online, says that as a company created in the digital age, it promotes payment methods other than cash. Since most of its customers are aged 25 to 44 and average orders are worth hundreds of dollars, they are not likely to want pay with cash.
Only about a quarter of Americans made all or most of their retail purchases with cash in 2016, down from 36% five years earlier, according to a Gallup poll. Not surprisingly, Millennials are especially reluctant to pay with cash. Only 21% of people in the 23 to 34 age group surveyed said they make most or all of their purchases with cash, down from a figure of 39% just five years before.
It took the onset of the digital payment age to make us understand how problematic cash is. Holding up a line of customers at a restaurant or food takeaway business during lunch rush hour due to cash exchanges, for example. Then, there's the cost of holding cash: counting bills and making change, ensuring cash registers have enough change, running cash to the bank, bank fees, armored cars, the risk of employee theft and robberies.
On the other hand, cashless businesses may hurt lower-income Americans who don’t have bank accounts or credit cards because they can’t maintain a minimum balance, don’t have photo IDs or other reasons. Last year, 6.5% of U.S. households were unbanked, with no members having a checking or savings account. Meanwhile, 20% had not used mainstream credit methods such as a credit card or mortgage during the previous 12 months.
And in New York, there has been something of a backlash against cashless restaurants, with a proposed law that would force restaurants and other retail establishments to accept cash – not just credit cards and electronic payments such as Apple Pay. “Restaurants that do not accept cash can pose a lot of challenges to low-income people, and communities of color that may have difficulty accessing traditional banking options and access to credit cards,” said City Councilman Ritchie Torres. “This is a matter of equity and economic justice.”