The introduction of the credit card in the 1950s sparked a vision that seemed impossible at the time: a world without physical currency. Today, that vision is rapidly becoming a reality as digital payment methods surge in popularity, reshaping how transactions are conducted across the globe. Still, challenges remain and blockchain could prove to be the key that unlocks a cashless future.
An Evolving Cashless Payment System
Cashless payments encompass a wide range of digital transactions, from traditional bank transfers and card payments to cutting-edge blockchain solutions for finance like Central Bank Digital Currencies (CBDCs). Any time you swipe or tap your debit card, credit card, or use a mobile wallet to make a purchase you are participating in some small way in that cashless economy.
While the move away from physical cash has gained steam since the maturation of the internet, a number of other supporting trends have helped propel digital payment methods into the mainstream. The emergence of smartphones and electronic payment systems have played a big part in the growth of mobile payments and digital wallets. Apps like PayPal, AliPay and Google Pay have also helped facilitate cashless P2P payments and bring people without traditional bank accounts into the cashless economy.
But perhaps no recent event was more critical in propelling digital payments forward than the pandemic. Touchless payments and fears of potentially contaminated cash led to a sharp increase in the share of digital payment methods in total GDP across the globe. According to a Mastercard survey, 82% of consumers viewed contactless as the cleaner way to pay and 74% said they would continue to use a contactless payment method post-pandemic.
Today, more than two-thirds of adults worldwide make and receive cashless payments. While consumers in Latin America are forgoing cash in favor of digital payments, Japan is phasing out cash altogether. This trend is mirrored in Sweden, where demand for cash has declined more than 50% in 10 years. Businesses, cities and central banks are all taking note and embracing the power of a digital payment transaction.
Pros and Cons of Cashless Payments
Cashless payment methods offer numerous advantages for businesses. They eliminate headaches like counting cash, orchestrating cash pickups and transfers, and enlisting physical security to counter loss and theft. At the same time, a fast and easy digital payment transaction can enhance customer satisfaction, especially across younger demographics.
Streamlined operations, reduced risk and happier customers all contribute to an improved bottom line. Yet, despite these advantages, digital transactions still face hurdles that allow cash transactions to persist.
Economic and social realities — like the roughly 2.6 billion people who remain unconnected to the internet, and the 1.4 billion people globally who are unbanked — limit the adoption of digital payments. Cashless payment proponents must account for ways to respectfully and effectively bring low-income and tech-averse communities into the fold.
Even amongst eager adopters, issues like power, internet or wifi outages all present real-world challenges. And while removing cash eliminates a physical security concern, it can compound the digital one. Layered on top of that are fundamental issues around privacy and how to protect consumer data.
To become truly ubiquitous and seamless, cashless transactions also need greater buy-in and support from the financial regulators and authorities that oversee them. For example, at a basic level, many regulators and merchants around the world still bristle at what they see as inflated interchange fees from credit and debit card providers. Greater education and assurances are needed before cash can be completely eliminated.
The Role of Blockchain
The emergence of blockchain technology presents an opportunity to address many of these challenges head-on. Its decentralized nature and inherent advantages have already proven its ability to make cross-border payments faster, cheaper and more transparent than traditional digital options.
Now, a number of industries and innovators are using blockchain to eliminate cash altogether. In fact, global finance leaders celebrate payments as a top use case for crypto and blockchain technology. This has been readily apparent in retail and commerce as more businesses increasingly accept digital currencies and stablecoins as a payment option, including luxury brands like TAG Heuer, Gucci and even Ferrari.
Governments and central banks around the world are also getting on board, with many evaluating digital currencies as more efficient, inclusive and sustainable alternatives to cash. The pandemic and its troubled rollout of US stimulus checks offered one clear use case for these digital distribution methods. But they are also exploring the use of digital currency to undermine illegal activities that thrive on anonymous cash transactions, operate as a more useful policy tool, streamline operations and improve financial inclusion by linking access to cellphones and other more widely used digital devices.
The Future Payment System is Cashless
Looking ahead, new advancements in technology will only further the evolution of cashless payments. Convenience-driven consumers will have more payment options tailored to their preferences, while artificial intelligence and machine learning promise to simplify and streamline data and security measures for providers. We’ve already seen evidence of this in fraud detection efforts.
From public transportation to ticketing, cashless payment potential offers unparalleled convenience and efficiency when integrated into everyday life. But progressive policy frameworks are needed for that potential to be realized—especially when it comes to data privacy and security.
As the world moves toward a cashless society, blockchain and digital currencies are critical components. From revolutionizing cross-border payments to empowering underserved communities, blockchain holds the key to unlocking a more inclusive and efficient financial system.
