The future is cashless

Signals and Trends

In 2018, experts predicted that a cashless future was two to three generations away. Two years later, the world experienced the COVID–19 pandemic, which appears to have accelerated  the move towards a cashless society. The fear of transmission coupled with lockdowns and other restrictions led to a boom in online shopping and cashless payments globally. As consumers continue to embrace the legacy of the pandemic and a surge in finance technologies, cash payments are expected to continue to decline in the coming years.

The shift towards a cashless society has been gaining ground for some time now. Sweden, the first European country to introduce banknotes in 1661, became the world’s first cashless society on 24 March 2023. Finland and the UK are top–ranked to become cashless societies as well. Poland, on the other hand, has scrapped plans to limit cash payments to ensure freedom of choice.

In the Asia–Pacific region, Australia, China, Hong Kong, India, Japan, Korea and Singapore are identified as frontrunners in digital payments. Card payments made up the bulk of consumer payments in Australia in 2022 whilst cash payments decreased to 13 per cent from 69 per cent in 2007. Already, some banks have scrapped over-the-counter cash transactions in some branches.

Globally, there has been a rise in the development of alternative payments solutions such as digital wallets, prepaid cards and cryptocurrencies. Central Banks like the Reserve Bank of Australia and the European Central Bank are also actively researching digital currencies as a complement to cash.

Public discourse

A cashless society offers a range of benefits such as convenience, transparency and stability. However, there are concerns about financial exclusion , privacy and security. It has been suggested that disadvantaged groups are most likely to be disproportionately affected by the transition away from cash. This includes people with disabilities, undocumented workers, refugees, victims of abuse and those who live in remote and regional areas.

Given digital payments rely on infrastructure, there are additional concerns about disruptions triggered by cyberattacks, power outages, natural disasters and software upgrades. Across Australia, there have been numerous outages by businesses offering internet and mobile services, including  Commonwealth Bank, NAB , Optus and Square. In 2022, Tasmania suffered a six–hour internet outage after two of the three cables connecting the state to the mainland were taken offline. All these outages affected electronic payment services with lost sale opportunities as businesses reportedly required customers to pay with cash.

In a bid to protect citizens’ access to the marketplace, some cities in the U.S. (Philadelphia, San Francisco, New Jersey and New York) have banned cashless stores.

Governments are also modernising regulatory frameworks to address the risks posed by new digital payment services, improve consumer protection and promote competition. The European Commission has proposed a revised Payment Services Directive and new Payment Services Regulation to bring payments and the wider financial sector into the digital age.

In Australia, the government is updating the Payment Systems (Regulation) Act 1998 (Cth) to address risks posed by new digital payment services, protect consumers, promote competition and spur innovation. The proposed amendments will subject new and emerging payments systems such as digital wallets service providers like Apple Pay and Google Pay to the same oversight as traditional credit and debit cards.

Queensland perspective

In April 2023, the Queensland Government launched a new Digital Economy Strategy and Action Plan with three core focus areas — digital market, digital customer and digital government. As part of the strategy, the government will invest $200 million to grow the state’s digital economy and improve digital connectivity throughout Queensland. This includes providing better digital infrastructure in regional communities and improving access to digital technology.

The government is also rolling out Smart Ticketing on public transport to allow customers pay for travel with contactless debit or credit cards, including those linked to digital wallets.

Despite these developments, Queensland’s susceptibility to natural disasters would suggest a cautionary approach to any transition to a cashless society. Disruptions to financial services during the 2019–20 Black Summer, for instance, emphasised the importance of having cash on hand as EFTPOS machines and ATMs were down.

The Queensland 2021/22 State Disaster Risk Report notes that disruption to financial services such as ATMs/EFTPOS during natural disasters can significantly impact consumers’ ability to access basic goods and services.

In addition, there has been a spate of rural and regional bank closures across Australia, with 21 banks in regional Queensland closed or threatened with closure between September 2022 and May 2023. While banks cite a combination of declining foot traffic, a reduction in in–store transactions and increased demand for online banking services as the reason for the closures, community leaders have expressed concern about the impact of such closures on cash–reliant businesses, community organisations, socially disadvantaged people and elderly residents who are wary of online banking.

Although some banks have committed to suspending bank closures pending the outcome of a Parliamentary inquiry into bank closures in regional Australia, Commonwealth Bank has warned that managing cash transactions is becoming increasingly unsustainable as customer demand diminishes. This is supported by findings of the Regional Bank Taskforce that around 80 per cent of regional Australians generally used internet banking or mobile apps to pay bills as of June 2022.

Expert opinion

Angel Zhong, Associate Professor of Finance at RMIT University believes that the move to a cashless society in Australia is inevitable and well underway. She estimates that Australia will enter into a cashless society by 2030, slightly later than Commonwealth Bank’s prediction of 2026, and argues for government regulation of digital payment services to help navigate the transition.

The influential independent UK Access to Cash Review warns against the ‘dangers of sleepwalking into a cashless society’ and advocates for governments to ensure access to cash for those who rely on it, radically change cash infrastructure to address ‘cash deserts’, and make digital inclusion a priority.

Digital Policy Futures view

The emergence of new forms of electronic payment methods such as internet/phone banking, QR code payments and buy now, pay later services have led to a steady decline in cash usage. With the predicted transition to a cashless society, it will be important to address the risks posed by new digital payment services through regulation. This includes establishing minimum privacy and security requirements, and imposing reporting obligations in the event of fraud and cyber–attacks.

Digital inclusion should also be prioritised to ensure no one is left behind. This is especially so in rural and remote areas which have limited access to high–quality mobile and internet services. Public and private sector investment is necessary to ensure the deployment of adequate infrastructure and the provision of digital skills in rural and remote communities especially.

As some consumers have indicated a preference for cash and banks have expressed no intention to scrap cash entirely, it is unlikely that cash will become extinct for the foreseeable future. However, maintaining access to cash in a geographically dispersed state will become an increasing challenge as market forces place further pressure on regional banks.

As has been suggested in the UK, new models for cash infrastructure and distribution may be required to facilitate the transition and to ensure access to cash during emergencies and natural disaster events.

Closing thoughts

COVID–19, coupled with evolving consumer preferences and the decreasing availability of cash has expedited the shift towards a cashless society, possibly by 2030 or even earlier.

While cash use may remain an option, investment in digital infrastructure and literacy are needed to ensure financial access for digitally excluded populations, especially in rural and remote areas. Digital payment services must also be inclusive and accessible, with additional effort to support the digitally excluded.

Payment regulation which addresses risks posed by new digital payment services are also essential to give Australians confidence that their funds and personal information are safeguarded.

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