A cashless society: what are the pros and cons?

The move towards electronic and contactless payments has been gaining momentum for some years, but increased rapidly during the pandemic, to minimise unnecessary physical transactions.

Many assume we are inevitably becoming a cashless society, but is this true — or a good thing?  

Here we explore the pros and cons, impacts and effects of a cashless society and look to a future where traditional currency may eventually be history. 

Cashless society: advantages

One major advantage of going cashless is a significant reduction in crime.

When people are handling less cash, bank robberies, burglaries and corruption drop.

Because cash is essentially untraceable, it’s a useful tool for criminals, where 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 behavioural characteristics are measured and analysed — 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 security around cashless transactions.  

Supporters of cashless transactions also point to greater ease in the everyday management of money, 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 minimises the potential for future pandemics to gain traction.  

Cashless society: disadvantages

A cashless society would not be good for everyone. According to the Access to Cash report, published before the pandemic in 2019, up to one in five British citizens could be left behind by a transition to digital-only transactions. 

Elderly people may be less comfortable with tech and less able to make the switch from physical currency.

Rural communities could also be left vulnerable, because of poor broadband and mobile 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. 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 be compromised in other ways too.

When you pay digitally, you always leave a digital footprint, and this footprint is easily monitored by financial institutions. 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 up to three per cent processing charge, which will quickly eat 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 even 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.

In the UK, the Royal Mint is responsible for producing all coin currency: an extraordinary 2 billion pound coins are still struck every year, and there are an estimated 28 billion pieces in circulation.

The Royal Mint also produces coins for 60 other countries, and commemorative coins for the collectors market, created from a range of precious metals. 

In 2021, over 4.5 billion bank notes were produced for the Bank of England by De La Rue in Debden, Essex.

All current notes are now made from durable polymer in £5, £10, £20 and £50 denominations, with intricate and complex graphic designs that are very hard to copy. 

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, the 100 per cent cashless society remains a distant prospect.

Cash is a trusted, reliable and essentially secure way to spend, and 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 also the older age group, so it’s important to ensure that they’re not locked out by a no-compromise cashless economy.

Choice is key. Everyone has the right to spend and bank on their own terms. If that means facial recognition, apps and biometric authentication then the technology is ready. But cash-preferred customers who seek physical interaction matter too.  

It seems that the UK Government is listening. They recently held a consultation on Access to Cash, to ensure that they take steps that protect the UK’s cash infrastructure, for the long term. 

Check out our articles for more insights on current and emerging trends in the financial world – like our Bitcoin advice and why a cashless UK may come too soon.  

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