Going cashless is a luxury of convenience that could be out of the reach of many people

These are the unbanked, who are condemned to use cash as they have no alternative

Let’s think for a moment about what the term cashlessness means.

Do you use cash a lot? Do you always like having cash on you? How would you feel about a cashless world?

Globally, we still use cash for most of our payments. Some 85 per cent of purchases and payments are still made in physical cash around the world, but in some countries this has been reduced significantly, by half in a few notable cases.

Of course, cashless transactions were in use a long time before the digital solutions that are now part of our lives. Millenia in fact – the barter system goes back 6,000 years, introduced by the Phoenicians in Mesopotamia when one form of goods was exchanged for another at an agreed “exchange rate”.

But cashlessness – meaning being able to make purchases and payment without needing physical cash – has some very interesting features and implications which are of increasing relevance to the world we live in today.

One is security. Despite the fact that the quality of life we have is generally improving, in terms of standard of living, life expectancy and general availability of health care, not to mention the technology we have that makes everything so much easier and more efficient, safety and security is still a major global issue. The fact that payments can be made in cash that are not traceable is a real threat to security. While privacy is often used as an argument in favour of cash payments, there is little doubt that anonymous cash helps to keep the organisations behind the attacks we have been seeing, in the UK and elsewhere in the past few weeks, in business.

Another feature of cashlessness is that the more we move into the era of credit cards, debit cards and payment systems by such companies such as Apple, Samsung, Mastercard and Visa, the more we exclude the millions and millions of people who do not have access to such things. These are the unbanked, who are condemned to use cash as they have no alternative. We have over a million of these people in the UAE alone.

Cash is also useful in many countries as a means of avoiding paying taxes, as the transaction goes unrecorded. Of course, income tax is not levied in the UAE but VAT will soon be, so this argument is also soon to resonate here.

Mastercard has done a lot of work in helping to introduce cashless systems around the world. In its global study issued in 2016 it noted that “the persistence of cash is surprising given the inconveniences and the risk of carrying it around. Electronic payments, by contrast, are proven to boost economic growth while advancing financial inclusion. For those reasons, countries are working to make payment systems less dependent on cash. By several measures, they are making progress.” So, for example, Singapore, Netherlands, France and Sweden have achieved a level of around 60 per cent of their consumer payment transactions using non-cash methods. Interestingly, Italy, Greece and Mexico lag behind at or below 6 per cent, and the UAE is at 8 per cent.

In fact, cashlessness has some very definite upsides. As Mastercard points out, the less physical cash is used in transactions the more efficient an economy becomes. One of the ways this works is as I have mentioned to make sure that all transactions are recorded. But another key benefit is to the financial system itself. Cash is a burden on banks as it needs people, security, machines and suppliers to keep it flowing. It is also a burden on shops who then have to secure and deposit it.

This is one of the reasons why 16 of the UAE’s leading local banks are behind the Emirates Digital Wallet, which aims (when it is launched at the end of the year) to pave the way for cashless spending, transfer and storage of money for everyone living and working in the UAE. They see the argument in favour of reducing and ultimately minimising its use.

So what are we still using cash for? Mostly it is when someone won’t or can’t accept anything else. This goes for taxis, small shops, hairdressers, pocket money for the kids, and buying small items at larger shops. But what if the corner shop wants payment in a way that enables them to pay their suppliers, their staff, and their utility companies without the hassle or risk of cash? What if the staff who receive their salaries want it in a way that they can use everywhere else, without cash?

Receiving cash is not so much the ideal situation for the shop owner or taxi driver, the hairdresser or the pizza delivery guy, but the only one for now that is free, easy and dependable. But it is not the solution that gets their money safely into a bank account, that allows them to use the money received to make immediate payments to people they are not planning to meet anytime soon, or provides them with a built-in record of payments received. With VAT on the horizon, this latter feature is going to be an absolute priority for them.