Cashless transactions are hot. There’s no shortage of articles about the benefits of going cashless and new players seem to be entering the space daily. With 10 per cent of Britons saying they are living a ‘cashless’ life (one or fewer cash transactions per month) and the number of cashless transactions reaching 7.4 billion in 2018, it seems an unstoppable trend.
However, there are barriers to adoption that need to be considered if cashless transactions are to continue to grow.
One obstacle can be entrenched cultural norms. For instance, Japan has a long tradition of using cash and it is not uncommon for people to carry large amounts of cash and keep stockpiles of notes at home. Despite industry and government efforts, cashless transactions still account for only about 20 per cent of transactions. Older Japanese are particularly reluctant to make the change, citing security concerns and saying it’s easier to control spending when they can see how much cash they have in their wallet.
Another barrier, according to Yukio Kawano, chairman of the Japan Supermarkets Association, is that many small shops use their cash takings to run their daily operations. Having to wait to receive payments from processors limits flexibility. While Kawano was specifically discussing the Japanese market, this can be a problem for small businesses in many markets.
NCR Corporation – formerly National Cash Register, a supplier of self-service kiosks, POS systems and ATMs – identifies five challenges that result in users resisting a cashless approach:
1. Security and privacy concerns: Cyberattacks are a growing threat and users may be reluctant to put all their eggs in one hackable basket. Furthermore, the digital footprint that comes with cashless transactions can be a concern.
2. Resilience: Users won’t go cashless if the system is not reliable and robust. If you want proof, just ask a customer service rep for a credit card company how frustrated clients get when payment systems go down during the holiday rush. Infrastructure must be near-bulletproof.
3. Tracking spending: Keeping track of how much you’re spending is easier with cash in hand. Contactless payments can add up quickly, especially if fees are being charged to users.
4. Unwilling consumers: Even if a merchant wants to go cashless, there will be users who want to use cash. No cash option means sending them to a competitor that offers cash transactions.
5. Loss of control: Customers may feel they don’t have the same level of control over their finances if they must use contactless.
Finally, there are social issues that must be considered when looking at going cashless. Millions of people do not have bank accounts or credit cards. Many more have limited access. People with low incomes can find transaction fees eating into already scarce funds. Cashless payments can leave these people behind. Other groups that may suffer in a cashless economy include the elderly, immigrants, those with physical or mental health issues and those in an abusive relationship who could lose financial agency if they cannot use cash.
A recent study found 17 per cent of UK residents – more than eight million adults – would struggle in a cashless society. Even Sweden, where four out of five payments are cashless, has seen the Riksbank, the country’s central bank, move to ensure cash remains viable for those who need or prefer to use it. Riksbank also expressed concerns that the move to cashless is concentrating the payments infrastructure in a limited number of companies.
There really are benefits to cashless transactions, as the growing adoption rate in many jurisdictions shows. But both payment providers and merchants have more work to do. Being aware of the barriers and working to overcome them will help ensure maximum uptake and a net benefit to society.