by Jim Pratt
Around the world, the use of cash is shrinking. Consumers and businesses are choosing to make virtual payments because it’s faster, easier and safer. And some governments have decided that moving their citizens away from cash benefits all.
Cash was used in 60% of transactions in 2008. Ten years later, it dropped to 30% with estimates that it could go as low as 10% in another ten, according to the U.K.’s Access to Cash Review.
In the U.S., the Federal Reserve Bank’s 2017 Diary of Consumer Payment Choice had similar findings. It estimates that consumer payments were 30% cash, 26% debit cards, 21% credit cards, and the remaining 23% are other types of payments, such as checks and electronic transfer.
The Pew Research Center found the number of U.S. adults who don’t use any cash for weekly purchases increased from 24% in 2015 to 29% in 2018. In 2015, 60% of the people they surveyed carried some emergency cash. Their recent findings put that number at 53% today.
Mobile payments are driving the move to being cashless. According to the GSMA Mobile Economy Report 2018, mobile subscribers will reach 5.9 billion by 2025. That means 71% of the world’s population will be able to take advantage of digital payments. China already has one billion people who use mobile wallets, and PwC’s Global Consumer Insight Survey 2019 reports 86% of China’s population will make mobile payments in 2019, the highest penetration rate of any country.
Benefits of virtual payments
The rise in going cashless isn’t surprising. There are benefits for B2C and B2B transactions. Retail businesses look to virtual, or digital, payments to improve efficiency, which includes reducing wait time for retail customers. Their employees also benefit from working in a safer environment with a reduced risk of theft.
In an article titled The Pros and Cons of Moving to a Cashless Society, author Justin Pritchard explains, “It’s easy to steal money, whether the amount is large or small. Also, illegal transactions typically take place with cash so that there’s no record of the transaction.”
When businesses use cash, they need to safely store the money, make a trip to the bank when they run low, and then reconcile their till at the end of the day. In a cashless scenario, managers and owners can better manage their time and worry less about handling and protecting cash.
Those who go cashless also see benefits when traveling or doing business in another country. Visitors don’t need to acquire foreign currency or figure out exchange rates. It can all be taken care of with a mobile device.
Businesses that use WEX virtual payments save money on international payments by avoiding exchange rates mark-ups and cross-currency fees, and they reduce risk with single-use card numbers. We can pay suppliers in 150 currencies.
Realities of going cashless
Businesses, cities, and countries that have seen the benefits of a virtual payment world and moved to create a cashless environment have often needed to make adjustments.
In Sweden, which is often seen as a model for a cashless society, legislators have debated the risks—hackers and power grid failures. Even small-scale issues like an app glitch or a dead battery can create problems with transactions.
There is also concern about low-income and elderly residents who may not have access to mobile devices. Access to Cash Review notes 17% of the Swedish population would have difficulty moving to a completely cashless society.
Some U.S. cities and states are looking at mandating the ability to use cash because of similar concerns, especially about marginalizing the “unbanked” and those who work in the informal “under the table” economy. Philadelphia passed a bill requiring retailers to accept cash and New Jersey banned cashless stores.
Privacy will likely be an important concern for those looking to go cashless. Data breaches are big news. For affected consumers and businesses, they’re inconvenient at best and destructive at worst. Cash is anonymous.
Getting to a cashless future
In the Harvard Business Review, Shelle Santana wrote earlier this year, “an entirely cashless society is unlikely any time soon–especially when 70% of Americans still report using cash on a weekly basis. But 50%, 60%, or 70% cashless is certainly conceivable, and we are already there in a number of markets around the country.”
As younger generations become business leaders, it’s expected that they will move the needle further along by bringing their personal habits into their workplaces. For now, it’s important that companies implement payment options that benefit both their business and their specific customers.
At the Nikkei’s Global Digital Summit 2019 held in Tokyo, Charles Hoskinson, the founder of Input Output Hong Kong, concluded, “A necessary step toward a cashless society is having an open conversation about the future of money.” With the global reach of virtual payments and going cashless, this may be a good place to start.
Download 5 Reasons Why Travel Suppliers Love Virtual Payments to learn more about the benefits behind cashless payments.
To speak to a WEX Corporate Payments representative, email WEXCorporatePayments@wexinc.com, or call 877.557.6415.