A cashless society: what are the pros and cons?
The move towards electronic and contactless payments has gained momentum for some years but increased rapidly during the pandemic to minimize unnecessary physical transactions. As a result, many assume we are inevitably becoming a cashless society, but is this true — or a good thing?
Cashless society: advantages
One major advantage of going cashless is a significant crime reduction.
When people handle less cash, bank robberies, burglaries, and corruption drop.
As cash is essentially untraceable, it’s a useful tool for criminals. In contrast, digital currency is less easy to exploit and can be shut down quickly if it falls into the wrong hands.
Advances such as biometrics — where individual physical and behavioral characteristics are measured and analyzed — make copying and fraud increasingly difficult.
Innovations such as embedded microchips, NFC (Near Field Communication) technology, AVS (Address Verification Service), digital wallets, geolocation, and artificial intelligence payment systems will all continue to strengthen the security around cashless transactions.
Supporters of cashless transactions also point to greater ease in everyday money management for individuals and businesses. The need to store, protect, withdraw, and deposit physical money disappears.
International travel would also be more convenient without the exchange of paper currencies.
The reason cashless payments increased significantly during the pandemic is also a legitimate advantage in the longer term.
Less physical contact in the everyday economy minimizes the potential for future pandemics to gain traction.
Cashless society: disadvantages
A cashless society would not be good for everyone.
To participate in a cashless society, you need access to some type of bank account. However, according to a Federal Deposit Insurance Corp survey, 6.5% of U.S. households are unbanked, meaning they don’t have these necessary accounts. In addition, 18.7% more households are underbanked, meaning they have a checking or savings account but also use financial products and services outside the banking system. This results in approximately 25% of all Americans would be unable to participate in a cashless system.
Elderly people may be less comfortable with tech and less able to switch from physical currency.
Rural communities could also be left vulnerable because of poor internet connectivity. People with low income or debt tend to find cash easier to manage too.
Another potential disadvantage concerns security. Although abandoning cash helps to reduce theft and fraud, for many consumers, data and cybersecurity issues are a worry — with justification.
Threats from organized cyber-criminals are very real, and they frequently find new ways of breaching established security systems. For example, during the pandemic, many more of us made online and mobile purchases, and data breaches increased to match.
A concern closely linked to security is privacy. Identity theft and compromised personal information are potential dangers in a cashless economy, but privacy might also be compromised in other ways.
When you pay digitally, you always leave a digital footprint, and financial institutions easily monitor this footprint. So understandably, consumers are uneasy about their data being harvested or tracked by big businesses.
Many people also feel that cashless spending is more difficult to control. It’s simply too easy to overspend when you’re not looking at a finite, physical sum of money in your wallet or purse, so careful budgeting becomes important.
Beyond individual consumers, the cashless society could also prove costly for small businesses.
Most credit card and mobile payments attract a processing charge, quickly eating into small profit margins, making it hard for independent shops and small-scale specialist outlets.
In an unpredictable world, there is always a concern about system vulnerability. How resilient is the technology that supports a cashless society?
Natural disasters or large-scale cyber attacks could render entire financial systems useless, preventing people from accessing their money or buying what they need. In this scenario, the old-fashioned, physical quality of cash seems reassuring.
What about cash production?
The production of physical money is a long-established, large-scale industry in its own right.
The Bureau of Engraving and Printing produces all paper currency in the United States. For the financial year 2022, print orders range from 6.9 billion notes to 9.7 billion notes.
Currency paper comprises 75 percent cotton and 25 percent linen, with sophisticated technologies to protect bills from being counterfeited. However, due to its popularity, the $100 bill is one of the most counterfeited currencies and the most difficult to fake.
So although the use of cash is clearly in decline, the sheer scale of production shows that it is still deeply rooted in our economy and culture.
Is the cashless society really coming?
Despite the rapid development of convenient, seamless digital payment methods, a 100 percent cashless society remains a distant prospect.
Cash is a trusted, reliable, and essentially secure way to spend, and it still adds up when it comes to straightforward everyday budgeting.
Rather than cashless becoming the only option, it is perhaps more likely that we’ll see a convergence between ATM-driven cash use and mobile payments — a balance between the digital and the physical that provides freedom of choice.
Cash matters to people on lower incomes and the older age group, so ensuring that a no-compromise cashless economy does not lock them out is important.
Choice is key. Everyone has the right to spend and bank on their own terms. The technology is ready if that means facial recognition, apps, and biometric authentication. But cash-preferred customers who seek physical interaction matter too.
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Andrew is the Chief Technology Officer at Unbiased.com.
Andrew is the CTO at Unbiased.com. He has over 25 years of experience leading technology teams in growing start-ups/SMEs and large corporates.