Cashless Society – Not Good For Everyone

What Are The Disadvantages of Cashless Economy?

Smart cities are a set up of technology and innovation brought together to address the real-world challenges faced on a daily basis. While improving the living standards, the cashless payment trend has become a significant component of the urban system. Governments and private organisations are working towards achieving 100% sustainable cashless system by developing secure digital infrastructures.

As smartphone users, we know the benefits of cashless transactions. It saves time and energy both. We don’t have to carry cash everywhere we go and worry about theft. Moreover, cashless payments reduce errors, money laundering, cash-related crime, and cost of labour involved in manually processing payments. It also saves money invested in producing more money. In fact, just a few months back we discussed how blockchain which is a crucial feature of the cashless system can help eradicate poverty.

Even if we go by research analysis, a study carried out in 100 cities by Visa revealed that the net benefit and revenue from digital transactions add an approximated 3% to a city’s individual GDP.

Sweden is leading the charge in being the first country to reduce cash use down to just 15% with most of the citizens paying via credit, debit and mobile banking solutions. Other countries like Canada are on the same road. And The People’s Bank of China has publicly admitted that paper money may become obsolete one day.  

So, altogether, going cashless is great for any economy. But, despite manifold advantages, there are some extreme downsides associated with it – or ‘threat’ may be a better word for it.

Risks of A Fully Cashless Society

What Are The Risks Associated With Cashless Economy?

A cashless society is good for those who own bank accounts and smartphones. But what about those people whose life is entirely or even partially dependant on cash – those that are unbanked. And therefore, there are people who are highly concerned about the underprivileged and the inequality that will rise due to a cashless economy.

Recently, FDIC (Federal Deposit Insurance Corporation) in the US conducted a study in 2017 which showed that 6.5% of households did not own bank accounts. These are families or adults who do not use any banking institutions or banks in any manner. Furthermore, statistics show that individuals with low-income are most likely to be unbanked and 70% of them use cash for daily purchases. Hence, in a society that completely depends on the digital payment system, millions of citizens in the US will have to struggle to buy what they need to survive.  

Imagine, if this is the case of a developed country like the US, what could be the consequences in the developing countries?

On the other side, some people argue that we are not ready for a cashless society until we are prepared – technologically. Now, this technological readiness also includes the security factor which is a priority. Hackers have gone smarter than smart transactions. For instance, if a cybercriminal manages to tap into your account information in a cashless economy, you might not have any other option to turn to. This is the reason, a number of banks are now serving their customers with advanced security features such as real-time notifications and the ability to instantly lock your account using your smartphone.

San Francisco’s Another Ban Against Digitisation  

Although San Francisco is known as the base of innovation, the city is wary of how technology is used or misused. This is the second time the smart city is standing against the improper use of technology.

Lately, San Francisco’s Board of Supervisors passed an ordinance banning permanent offline stores from stopping customers from paying in cash.

As per the 2017 survey conducted by the Federal Reserve Bank of San Francisco, Americans use cash for 30% of all transactions. In general, people use cash for most of the purchases that are less than $10 while also being the most common payment method for people earning less than $25,000 a year.

According to Supervisor Vallie Brown, sponsor of the ordinance, it is unfair that residents who depend on cash are deprived of participating in the city economy. The legislation will take necessary action to make sure all the citizens of San Francisco have equal access to the city’s economy.

Under the law, the businesses in the city will have to give an option to customers to pay in cash alongside credit, debit and mobile payment options. In addition, they will not be allowed to charge an extra fee on cash payments or place any other conditions.

Brown added, “I just felt it wasn’t fair that if someone wanted to buy a sandwich in a store, and they had cash, that they would be turned away. We also have a homeless population. They’re not banked.”

But, food vans, pop-up stores, and mobile services companies, like Uber and Lyft, will be free from the ban.

Philadelphia and New Jersey are two other cities in the US that have passed a similar ordinance.

Furthermore, in 2019, Amazon launched the 12th high-tech offline store in New York named ‘amazon go’ which will be the first one to accept payments in cash.  

The Condition In UK

‘Is Britain ready to go cashless?’ – the Access to Cash Review Interim report found that in spite of the growing use of digital payments, eight million people (17% of the UK population) admit that cash is still an economic necessity.

In that case, if a cashless society is not managed properly, millions of consumers across the country could be left behind.

Further, as per the warning issued by the report, the UK could be ‘sleepwalking’ into a cashless economy. And, the rapid shift to a cashless system could increase risks of threats to the rural inhabitants with weak broadband and mobile connectivity, financial exploitation, social isolation, an increase in debt and disgrace towards those who rely on cash.

The findings also reveal that the UK is divided in terms of belief that a cashless society will exist in their lifetime. Over 41% of the respondents agree that it will happen while 38% of them disagree.

Besides, the consumers showed some concerns related to a cashless system. Among them, 74% worry that the system would deprive them of the right to choose. 72% believe that the vulnerable people in society will more likely get scammed or cheated. 67% say that those with low income might have to struggle to support their household budget. 65% believe that people with mental issues may find it difficult to manage their money while 56% feel that rural communities could become less feasible.

The UK has witnessed a dramatic rise in technological developments and the subsequent adoption of cashless payment methods has rapidly increased. However, for those who cannot afford to pay digitally, cash comes as a necessity – not a choice. Hence, if proper planning is not implemented in the way to take care of the people who rely on cash, millions of people will be left behind. On one side where the use of cash is waning, on the other side, the country needs to safeguard the use of cash for those who require it. Simultaneously, efforts need to be made to ensure that all are involved in the digital economy – as expressed by Natalie Ceeney, Independent Chair of the Access to Cash Review.