Cashless economy cuts costs, reduces risk and speeds payment

From barter to cash to checks to online banking, money is an evolving technology that has been part of human history for thousands of years, reflecting our persistent pursuit of making transactions more efficient.

As the debut of Apple Pay and the rise of bitcoin herald the arrival of a cashless society, an ongoing discussion has been sparked about whether the days of overstuffed wallets in our pocket or purse might soon come to an end.

Lowering costs

The biggest advantage of heading toward a cashless society is to cut down on transaction costs and further boost payment efficiency.

When a two-way toll collection arrangement was implemented at the Lantau Link Main Toll Plaza in August last year to prepare for the commissioning of the Hong Kong-Zhuhai-Macao Bridge, it led to a logjam of drivers lining up, paying the toll and waiting for change, all the while developing a headache from the traffic congestion. This represented a living embodiment of the need for reducing the use of cash.

Moreover, a cashless society could clamp down on illegal activities that arise from payment using banknotes and coins.

Hailed as the most cashless societies on the planet, in Sweden and Denmark cash is no longer king. “No cash accepted” signs have become an increasingly common sight in shops and eateries across Denmark since 2016. The central bank has stopped printing banknotes and minting new coins.

With barely 1 percent of the value of all payments made using cash in 2016, Sweden went the extra mile and had some 900 out of 1,600 banks across the country put an end to handling cash. The Nordic nation that is on pace to become effectively “cashless” in five years is far ahead of anyone else across the globe — so much so that a bank robber in the making ended up leaving empty-handed after trying to force bank personnel in central Stockholm to hand him money back in 2013. The branch simply did not deal with cash.

Complete and sophisticated construction of the digital payment infrastructure is the major building block for a cashless society. The Danish central bank created a single digital identity called EasyID in 2001, also known as NemID in Danish. With 4.8 million Danes connected and 1 million companies registered, this identity is said to make all government services, banking, healthcare and private sector activities accessible, and essentially lowers the risk of fraud and theft.

Apart from putting a wellestablished financial infrastructure in place, some governments are also looking to impose administrative measures to press ahead with the cashless society, in their quest to crack down on money laundering and the underground economy. The most common means is to demonetize large-denomination bills and limit the use of cash. A case in point is the European Central Bank, which will phase out the 500euro ($610) banknote toward the end of this year due to concerns it could facilitate “illicit activities” by criminals and militants.

Global trend

Countries like Germany and France have also placed an upper limit on cash transactions.

Overall, decreasing the use of cash is an irresistible trend the world over. However, such a process should move in line with local conditions and authorities should refrain from blindly marching toward a cashless society. The ultimate goal of financial technologies is to provide convenience for the public, which underscores that the role of digital payment should always be as an alternative, rather than as a complete replacement for the cash transaction.