Human civilizations have endured multiple evolutions over thousands of years, empires were built and crumbled along the way, but the presence of trade existed in one form or another. Bartering, the very fundamental of trade which brought about development and prosperity to mankind was cashless, as goods were exchanged and not bought.
Fast forward today, bartering takes on a different form where goods were paid for with money, a universal medium of financial exchange. As we moved from traditional bartering to precious metals than to banknotes and now towards digital payments, our medium of financial exchange is evolving to facilitate the shift in our environment and the advancement of technology.
The pursuit of a cashless society has been ongoing for several years, with technology companies introducing cutting age devices which allow for digital payment with the attempt of replacing money, financial institutions going digital and government initiatives to encourage citizens to adopt digital payments as part of a holistic movement towards a cashless society. One may wonder, what defines a cashless society and what impact it’ll have to our society?
In today’s term, a cashless society is described as an economic state whereby financial transactions are not conducted with money in physical form (banknotes or coins) but rather through the transfer of digital information. Advocates saw the potential in digital transactions as it allows for quicker transactions regardless of location and not limited by time which empowers individuals with access to financial services. This prompted small businesses and basic trades to occur in developing areas where banking infrastructures and robust regulations were lacking. Digital payments allow for full traceability of transactions, pointing tax regulators in the right direction to crackdown on tax evasion, security forces to track terrorism funding, money laundering, corruption, and many other financial crimes(although there are ways around it through the dark web, and cryptocurrencies-Monero). Going cashless also helps in reducing cost towards maintaining the circulation of paper currency and allowing the government to have better control over the flow of money when in times of crisis intervening to implement damage control initiatives.
The macro benefits of a cashless society are obvious, however does going cashless on a micro level truly benefit end users?
Evaluating the process required to complete a transaction on a micro level, cash seems to have a slight advantage over e-payments given that it is not susceptible to the risk of “going offline” and the effort required to pay with cash is similar to current e-payment services (Apple Pay, Andriod Pay). In the current segmented eWallet and e-payment environment, with multiple platforms and standards providing similar services, consumers are unable to enjoy a seamless experience. This gives rise to multiple friction points throughout the process. Creating an account with an eWallet vendor, going through the authentication process (uploading your ID and other documents), linking it up with your credit card, then transferring credits from your credit card to your eWallet, which you’ll then use it to pay for something and repeats the process when the vendor uses another e-payment system, when you could just pay by cash.
Similarly, vendors would have to manage multiple cashless Point of Sale System (POS) each with a different UI (User Interface), contracting terms and customer experience brings about major headaches to vendors. Not to mention that each of these e-payment services charges a transaction fee on vendors, which brings about an unnecessary intermediary to the process, introducing an additional layer of tax to an already well thought out process. This is inefficient and extracting value out of the society.
Overtime when the technology matures and e-payment services consolidate, users will enjoy a more unified experience. However, the argument that e-payment is a more convenient option remains controversial, as one may question what value it brings to users as existing methods are not far off from digital alternatives in terms of payment time and security. The diminishing value on improved convenience brings about a whole new dimension of debate if we are pursuing cashless in the right direction.
It appears to be a chicken and egg situation, where macro benefits of cashless will only be realized if mass adoption of digital payments is achieved. However, on a micro-level several obstacles are present which hinders mass adoption. Only with economies of scale that these technologies would have significant value to its stakeholders (security forces, tax regulators, financial institutions, etc).
Scanning QR codes to pay for meals or completing a transaction on Apple Pay isn’t the type of cashless society that we should be heading to. It fundamentally has no additional benefit to users as discussed above. An analogy best describes the point above would be: wireless charging of mobile phones. Induction charging is the current industry benchmark, where your phone is charged when placed on an induction charger, it doesn’t bring any additional value or eliminates any obvious pain points that a charging cable could not provide. In fact, it reduces your already limited 1metre+ movement from your charging cable to 0 with induction charging. Similarly, for eWallets and e-payments, it brings no noticeable value to the process or eliminate any obvious pain points that consumers are facing.
As we look across the globe for models of a cashless society, one particular case study stood out in helping us to understand how a cashless society would function. Kenya, one of the fastest growing economy in Africa with a population of 48million, and a 96% adoption rate of mobile banking service, M-Pesa enabling Kenyans to transfer money electronically to vendors, friends, and families. It brings about enormous benefits to the society as millions of Kenyans gain access to basic banking services, transforming people’s lives and created a startup ecosystem in Kenya that cemented M-Pesa’s reputation. Kenya provides an ideal testbed for mobile banking services as a large portion of its population remains unbanked, and the lack of proper infrastructure, financial regulation to foster a vibrant banking environment, M-Pesa came in to fill the gap perfectly. Providing banking services through telecommunication technology, enabling millions to transfer money electronically, bypassing traditional banking services, moving towards a cashless society. This is feasible because the community is not burdened by the legacy banking infrastructure which is acts as a huge inertia for the community to adopt cashless alternatives. While M-Pesa provides 10x value to the unbanked, which also creates a valuable network effect with the huge amount of active users on its platform, thereby providing additional incentives for vendors and other organizations to move to the platform, which reinforces the value of M-Pesa. However, it is to note that Kenya with such high penetration rate for mobile/digital payments, but yet failed to realize some of the value that proponents of cashless societies have been advocating. The country is still consistently ranked in the lower third of the global corruption index. Therefore it presents some real questions towards the need for a society to adopt digital payments and the opportunity costs that a society is taking while pursuing for mass adoption of digital payment solutions.
The demographics in Kenya differs greatly from developed countries, where infrastructures, regulations and financial services are well developed, this creates an existing inertia for users to move away from current services to adopt an untested alternative(digital payments). The value provided by digital payments diminishes as these societies are enjoying a suite of well-executed services, and have no incentive to change their behavior. Therefore, the bar is set at a significantly higher benchmark for governments, entrepreneurs and financial institutions to develop services and products that are game changers, and worthy of a behavioral change for consumers in developed countries.
But not all is doom, signs of true cashless are witnessed in some of the most innovative companies, testing out new technologies and revolutionizing our fundamental behavior. Amazon opening their first grocery store, without a checkout section. Computer vision and sensors were used to detect the items that were taken and charged it to your Amazon account, eliminating the need to check out. It effectively eliminates the behavioral action of paying, which brings about true value for end-users as one action less is require when they do their groceries. This innovative approach remains untested yet, however it sets the direction towards a cashless society where a significant impact is made, with consumers enjoying the additional convenience and could potentially induce a mass behavioral change within society.
The recent buzzwords around e-payments and digital wallets came about with the renewed initiative of driving current society towards a cashless environment. However, my belief is that a cashless society will require innovations of various forms across multiple industries and technologies, and not just on fin-tech. Money has been deeply rooted in our society that forms inter-dependencies stretching across a wide area of our lives. We need to rethink the system from the ground up on what a cashless society means. Linear innovation on fin-tech alone would not be suffice to solve the underlying problems or improve adoption rate within the society towards digital payments. The mass public relies heavily on legacy technology across multiple parts of their lives to go about their daily activities. This creates huge resistance to change, as practical solutions for a seamless cashless experience is absent. Despite the drive to consolidate digital payments options, a multifaceted innovation on deeper technologies could be game changing for the initiative. These technologies brings a shift to fundamental humans behaviour, and it would form the core drivers for mass adoption as it makes transiting to a cashless society less laborious.
The key to unlocking a cashless society is where deep technology innovations allows for automation of certain behavioural actions which eliminates the need of such actions. Along with a healthy ecosystem of fin-tech solutions and sound regulations, will create a vibrant cashless society. E.g. The use of neural sensors to capture thoughts of customers whom are purchasing items, or computer vision charge customers for the items they takeaway from the store. These technologies will drive behavioural change throughout the communities, and stakeholders can leverage on them to deliver greater value to end-users. With the government implementing sound policies and financial institutions introducing reliable fin-tech solutions the eco-system will mature over time thereby allowing the society as a whole to achieve a cashless experience. It is common knowledge that to induce behavioural change (customers switching to your product from existing incumbents) the new product has to deliver 10x value relative over existing solutions. Therefore in a developed country with well-regulated financial services and infrastructure supporting existing payment methods, to achieve a breakthrough in mass adoption will require significant innovation to existing methods.
