As cash transactions continue to decline around the world, the use of physical currency may soon become a thing of the past. This could mean that Kin
As cash transactions continue to decline around the world, the use of physical currency may soon become a thing of the past. This could mean that King Charles III, whose portrait will be launched on British banknotes in 2024, could be the last monarch to feature on a banknote that is ever actually used. In this article, we explore the factors driving the shift towards digital payments and the potential consequences for society.
The decline of cash
According to financial services firm FIS, the value of global cash transactions fell from $11.6 trillion to $7.7 trillion between 2018 and 2022, a drop of a third. Last year, cash accounted for just 16% of transactions worldwide. By 2026, FIS has forecasted that global cash transactions will be worth only $6 trillion, making up just one in 10 payments. In the UK, cash already accounted for only a tenth of point of sale transactions last year.
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The future of cash payments
According to UK Finance, the lender trade body, cash payments will slump by another 52% in the 10 years to 2031, while debit card payments, already the dominant method for settling up, will have surged by nearly a quarter in that time. “We are going to have to start preparing for a very, very low cash society,” says John Howells, chief executive of Link, the UK’s cash machine network. “Cash will be a store for safety, but as a means of payment it is already dropping fast, and that is going to continue. I think in 15 or 20 years’ time that could have virtually disappeared.”
Risks and challenges
The shift towards digital payments brings new vulnerabilities, such as those resulting from a heavy reliance on mobile and broadband networks. Policymakers need to create a roadmap for the decline of cash – improving infrastructure including coordination with broadband and mobile phone networks.
Leading the charge
Scandinavia is leading the charge towards digital payments. Norway uses the least cash in Europe, covering just 4% of the country’s point-of-sale transactions. “Electronic payments are everywhere. If I go skiing in the forest and go to a lonely cafe to eat a waffle 20 km away from civilisation, I will not carry cash except for my mobile or a credit card. I literally have not touched cash in five years in this country,” says Martin Schmalz, professor of finance and economics at the University of Oxford’s Saïd Business School, who lives in Norway.
Digital payments in emerging economies
In most African countries, digital payments offer a vital system of security. For example, Kenya’s M-Pesa money transfer service, launched in 2007, offered a way for smallholder farmers to send money virtually to avoid being robbed on their way home from market. In the Asia Pacific region, digital wallets are taking over.
Consequences for society
The shift towards digital payments erodes black markets and opportunities for tax evasion, but brings additional concerns about privacy. It could also lead to a widening divide between those with access to digital payments and those without. The decline of cash is a blow for the five million people in the UK who are dependent on it, particularly those living on lower incomes.
Conclusion
As cash transactions continue to decline around the world, digital payments are becoming the new normal. While the shift towards digital payments brings benefits such as increased convenience, it also brings new challenges such as a heavy reliance on mobile and broadband networks. Policymakers need to create a roadmap for the decline of cash, while ensuring that vulnerable groups are not left behind in the transition.
COMMENTS
The decline of cash is obvious and it’s clear we need to see how to patch up potential vulnerabilities of digital payments. And also, we need to consider the people living on lower incomes who will still want/need to use cash. How do we help them?
I didn’t know that in Norway, only 4% of the country’s point-of-sale transactions are done with cash. This is almost nothing!
I was shocked to hear about how M-Pesa helps farmers to avoid being robbed! I’m glad it helps them, but had no idea this money transfer service could help in such a way. Cash is probably going to be used in 5% of the cases worldwide, after another 10-15 years.