Are you ready for a cashless society?

Disruptive innovations certainly have the power to attract a lot of attention enlisting entire generations of fascinated followers, however there is a sombre side; they consign previously prosperous industries to oblivion and disuse. Dragging down with them numerous companies and people who did not see the change in the wind, an endless spiral of scorn and abandon.

Thus, in a whirlwind of innovation, the past centuries’ industrial revolutions have caused the demise of traditional craft as well as primary industries, leaving no traces of these know-hows apart from some remote museum in the countryside.

Sometimes the link between cause and effect is not always apparent. It may surprise you to hear that the advent of the car, post WW2, was the main culprit behind the decline of the millinery industry, which had once been so flamboyant. These days we travel with roofs over our heads, sheltered from bad weather, therefore we have no need for cumbersome hats.

The distinguished Austrian economist Joseph Schumpeter coined the term « innovation clusters » and in the 20th century had already defined the notion of « creative destruction » as a necessary evil for our economy’s continuous natural regeneration.  To quote the controversial literary genius, Louis Ferdinand Céline, in this « Century of Speed » almost every industrial sector has suffered creative destruction. This phenomenon has considerably accelerated with the emergence of digitalisation, the internet and the mobile era.

 

However, there is still one ancient custom which has stood the test of time and remains, to this day, very popular. A custom that is fundamental to all exchanges! Of course we are talking about Cash: Coins and notes. But for how much longer will cash be king?

For a while now, alternatives such as bank cards and transfers or even checks, have been widely available, however they have never managed to eradicate cash, although they have gained ground and even replaced cash in some segments of the payment ecosystem. Despite this, in many respects cash has been able to maintain its usefulness, still highly appreciated and used across the world, especially when it comes to small exchanges.

 

 

For several years now it has not been possible to buy public transport tickets with cash in Stockholm. Indeed, mobile payments have significantly accelerated the process. Even Swedish churches allow their congregation to give their donations through mobile payments!

Is cash fundamentally timeless?

Is there an inherently superior quality about cash that makes it eternally impervious to the incessant pressures of modernity? It is difficult to say, however, what can be said, is that in recent years a new player has entered the field; electronic and mobile payments. Mobile payments are tackling cash head on, offering services tailored to small shop payments, IOU’s and transfers between friends, until now these were privileged to cash.

This being said, there is still a long way to go before societies give up on cash. Nevertheless, the notion of a 100% cashless society is already a mid-term plan for a growing number of governments, and Northern European regions are leading the way.

Along with its Danish, Norwegian and Finish neighbours, Sweden is one of the most proactive countries when it comes to the concept of a cashless society. The figures confirm this trend too, according the Swedish bank, Riksbank, less than 2% of all payments were made in cash in 2015. The bank also predicts this will dip to 0.5 % in 2020.

In shops, only 20% of transactions were cash in 2015 compared to 40 % in 2010. In comparison, on a global scale, this figure is estimated at 75%. This clearly demonstrates the breadth of disparities across the world when it comes to cash. These disparities are equally present in more developed economies. Over the years, cultural distinctions have shaped the payment habits of each country as shown in the the chart below.

Cash remains king for the Germans and the Austrians, where over 80% of transactions are made in this way. The French and the Americans are in an intermediary stage, very fond of their credit cards, tending to only use cash for informal exchanges and small purchases.

So far, the impact of mobile payments remains moderate on longstanding developed economies. The existing solutions are still highly relevant and societies composed of a predominantly ageing population do not seem so eager to change their ways and adopt new electronic solutions. As illustrated by the relatively low adoption rate (estimated at an average of 20% in developed countries) of these solutions compared to the level of technological maturity.


 

Sub-Saharan Africa, the land of milk and honey for mobile payments.

Rather paradoxically, it is in less economically advanced regions where the evolution is catching on faster. The case of Sub-Saharan Africa has got to be one of the most prominent. This region which is considered as one of the poorest in the world rapidly converting to mobile payments. The population is largely underbanked, however, the availability of broadband and low cost smartphones is rapidly progressing. It is no coincidence that mobile payments have become a legitimate alternative to cash in so little time. Kenya is a perfect example, according to a study by Mackinsey, 70% of transactions are now processed with mobile devices. A world record! Therefore, the reign of cash, omnipresent until recently, is seeing a rapid decline.

Could it disappear from this region altogether? Certainly not. Informalities are deeply anchored into the local culture and cash money is their best ambassador!

 

So, could a large scale abolition of cash in favour of new more modern solutions be a unanimous decision? Nothing is less certain. Conservatives dread the disappearance of the informal nature of cash exchanges. Liberals will feel their individual rights have been compromised as well as their right to untraceable expenses. Humanists will deem this example of ultra-digitalisation damaging to social cohesion which leads to sedentary lifestyles. The mafia and other criminals will have to find new ways to deal in tainted money. And what of fiscal exiles?

Mobile payments do boast a number of advantages. They improve interactions and abolish certain boundaries, they also democratise and reduce transactions costs. Furthermore, they offer a better level of traceability for crime and tax evasion. This should suffice to allow them to live in perfect harmony with other payment methods including cash money.

We reckon cash will once again survive this disruptive innovation, finding itself new uses. Local exchanges, community solidarity, short economic circuits are among a number of movements which rely on the use of physical money. Who knows, maybe we will even see a comeback for local currencies.

Leather merchants can rest assured, coin purses and wallets still have a few good days ahead!

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Matthieu Crance

Matthieu Crance

Matthieu has gained significant experience in start-up entrepreneurship, business & strategy innovation. At Koosmik, he is the overseer of operations and resident philosopher.

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