Who pays in the cashless society?

A seemingly relentless march toward electronic money transfers across the globe means a significant decrease in transactions involving real cash. What is behind this move, especially when using cash is free and universally understood? What does it mean for banks?

Understanding what happens behind a cash transaction provides insight into some of the drivers for traditional banks. Processing cash transactions is expensive, complex, open to fraud and mostly covered by banking organizations as an obligation to the public. However, this gives the digital-first challenger banks a huge advantage; they can process electronic transactions only and leave the traditional banks to foot the bill for cash and the associated ATM infrastructure.

Should this continue? Should all banks share the costs of cash transactions, or should traditional banks stop handling cash altogether? Are traditional banks disadvantaged in comparison to the challengers, and will this leave them and, in turn, our society at risk of a potentially unstable financial future by further fragmenting the banking value chain.

There are potential pitfalls for consumers in a cashless society, and the current impact varies by country. Consider, for example, the U.S. where estimates show that a quarter of the population is “unbanked” and without access to this new cashless world. In Sweden and the Netherlands, retailers can choose their preferred payment method, with no obligation to accept cash, so activities like buying a bus ticket prove difficult for tourists or the young when using cash is not an option. In addition, what happens in terms of electronic transactions when there are power cuts or your device battery runs out?

This is in contrast to the UK, where the government has suggested that shops should be required to accept cash, and the banks must process it accordingly.

There also are global providers, such as Facebook’s Libra, ready and willing to provide the unbanked with digital payment alternatives. If the national banks and financial institutions do not move quickly on alternative solutions, neither the government nor nationally controlled banking associations are likely to control the future direction of electronic versus cash transactions.

There are a lot of unanswered questions and uncertainties, but what is clear is that there is no common approach, and banks, governments and society as a whole should engage in a conversation on the future of a cashless society at a global level.

CGI is collaborating with banks and governments around the world to address issues like this. For further discussion, please feel free to reach out to me.