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A Cash-Free Future: how banks and governments can join forces to build a cashless society

Posted by KingEclient on 13 October, 2020

WHAT HAS CHANGED?

Over the last years, cash payments have dropped considerably and are now less common than contactless payments in many regions (According to Capgemini: World Payments Report 2019, global non-cash transaction volumes grew at 12%, being Norway the first in non-cash transactions per capita. Top growth: debit cards 17%, credit cards 12%, credit transfers 10%). But what are the reasons why we are moving at an accelerated pace into this context?

The increased acceptability of cards can be explained because it provides a more straightforward, faster, and smoother way to pay. It presents a helpful way to efficiently manage your budget, set spending limits, establish account alerts, and definitely, get up-to-date information on how much is in your account and how much you have spent. In parallel, the increased use of online shopping – the growth of e-commerce (E-commerce share of total global retail sales: 16% in 2020 and expected to reach 22% in 2023, according to Statista) – has opened the door for new digital payment solutions and new players on the payment market. Besides, young generations have led the race by adopting other quick methods such as the mobile wallets that allow pay in just a few clicks. Furthermore, biometrics is gaining more importance in terms of convenience, efficiency, and affordability when paying for goods and services.

The COVID-19 pandemic has also accelerated the change in how people live and work, consume, and pay their bills. Many banks and financial institutions have adapted their operational models and products to sidestep some barriers and bring more people to the cashless economy. Simultaneously, governments, organizations, and the private sector’s joint work to speed up digital adoption in health security have had a considerable impact.

 

A LONG ADAPTATION PROCESS FOR BUSINESSES AND PEOPLE

On the contrary, many businesses do not support electronic payment due to the commission reductions that do not allow the sale’s full collection. Like all technological advances, it presents an implementation phase as well as an adaptation process. It may even be related to a change in perception of the customer relationship.

As adoption increases, the businesses will have to consider adapting to the consumer’s preferences to deliver a unique and smooth experience. Consumers’ habits and preferences will predominate, and companies must be aware that user experience is crucial when deciding on one service or another.

This digital transformation is forcing the accelerated closure of branches, and consequently, ATMs. Such a fact does not imply that most consumers use a bank without a physical branch: a study conducted by WBR Insights evidences that 94% of consumers use a bank with physical branches despite their great attraction to digital channels. Some large transactions depend on person-to-person interactions for these consumers, as they think branches still have an essential value as a room to establish personal relationships and digital experiences.

Another reason why there is no complete abandonment of cash payments adoption is the appearance of some certain barriers like the increased consumer concern over privacy, the loss of faith in digital payments because of repeated systems failures, and significant obstacles like economic crises. Some people cannot choose to pay cash or not; sometimes, it is not a choice but a necessity.

Another barrier would be the legacy tech. A study carried out by Cornerstone stated that 70% of respondents believe that their current technology infrastructure was a barrier to digital transformation. Banking’s digital transformation is not likely to complete until a considerable percentage of institutions restore legacy core systems with cloud-based solutions. At that, the governments from different regions have a lot to say. They must be the main actor fighting to ensure all banks and institutions are entirely aware of what it supposes for the business and the society to evolve to an updated legacy system.

There is a clear example in Sweden (just one percent of Sweden’s GDP circulates as cash and is looking to create a digital currency) wherein 2012, the top six banks of the region collaborated conjointly to develop a real-time mobile platform to support customers and make digital transactions easier. Today it is unlikely to find a merchant where they only accept cash – and you can even feel strange being one of the few that pays in cash. The country has considered stopping the use of cash to be aligned with customers’ preferences and ride the retail wave, leading to an entirely cashless society.

BIG STEPS TOWARDS A CASHLESS SOCIETY

But how can the governments boost the digital culture inclusion that drives to a cashless dominance to move towards such direction? The first thing they should do is understand the complexity of digitalization and its real implications. Moreover:

  • Provide constant enhancements in digital infrastructure and payment technology.
  • Educate and invest in digital talent.
  • Invest in communication to change people’s perception of security. Reinforce the benefits of embracing such a lifestyle to build an enhanced city.
  • Establish a regulation to favor the adoption and reduce the small merchants’ costs in terms of commissions to make more affordable the implementation.

By adopting such actions, most payments would be traceable, thus reducing fraud. In parallel, this would reduce the black economy’s size and make it easier to collect taxes while decreasing the cost of cash creation and handling.

Beyond that, another buzz word that we must get used to is “Smart City” – a hot topic that refers to adopting the latest IT and technology innovations to improve the ease and quality of people’s lives. Smart cities start by embracing the end goal of most of Fintech that is none other than achieving the same outcome of any service but, in fewer steps, in less time, and in a cheaper way. An example is when banking, daily actions like payments and international transfers are transformed to broaden the city’s access to a global market. This type of changes will be essential in the upcoming years: in the future, new payment methods will be presented to help citizens speed up transactions, remove as much intermediary as possible, and allow the user to do it autonomously – for example, including micropayments system inside homes or cars.

In summary, we can affirm that the rapid transformation of the financial services industry goes along with the digital transformation. Still, there is only one road for success: all players must work together (Fintechs, banks, regulators, and technology companies) under a meticulous and accurate ecosystem strategy.

 

Written by Arnau Pujol
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