Technology is at the centre of everything we do today. Armed with our smartphones, we can hail a taxi with the press of a button and arrive at our destination without ever having to open our wallets. Most will agree this is preferable to having to make a phone call to order a taxi, then pay the fare with a $20 note and receive a bunch of coins in return. Which unless you aggregate enough of them together won’t actually allow you to buy much these days. But is it possible to get rid of cash all together? Advances in payment technology are edging us towards a cashless society, but what are the pros and cons of a future without cash?
Let’s start with the pros. Proponents of a fully cashless society will argue that the removal of cash will reduce crime. The World Bank estimates that about a third of the cash in most countries circulates underground, in black markets and illegal employment. The most thorough recent attempt to measure a country’s underground economy was in 2011 by U.S. economists Richard Cebula and Edgar L. Feige. Their study concluded that 18 – 19 percent of the total reportable income in the US is either not reported or not properly reported. The researchers estimated that unpaid tax amounted to half a trillion dollars in 2008. The anonymity of cash is the key reason for its use in underground trade, so there is certainly a valid argument that illegal trade should reduce if the anonymity provided by cash is removed. After all, it becomes difficult to physically rob a bank or mug someone if they’re not carrying cash, and it also becomes harder to buy and sell stolen goods in the absence of anonymous cash to facilitate dodgy transactions.
As a nation on track to becoming one of the first nations to go cashless, Sweden is starting to exhibit reduced crime rates consistent with this theory. In 2010, 40 percent of retail transactions in Sweden were made using cash, and by 2014 that amount had fallen to 20 percent. And the impact on crime? The Swedish National Crime council recorded 23 bank robberies in 2014, down 70 percent from a decade earlier, with muggings down 10 percent over the same period. These positive trends may also be attributable to factors beyond reduced cash usage, however the statistics do tend to support the theory of less cash equals less crime. In line with this theory, the Indian government recently announced the removal of its 1,000 and 500 rupee notes in order to combat illegal trade encouraged by the higher denomination bank notes, removing 86 percent of the country’s total cash by value (15.3 trillion rupees). Aside from the impact on criminal activity, governments will also view the idea of cashless societies in a positive light due to the enhanced tax base resulting from the traceability of electronic transactions. In fact, India has stated intentions to go fully cashless, a truly ambitious task for such as cash based economy.
Going cashless is not a straightforward process. It requires significant consideration as to the impact on all parts of society, and requires advanced infrastructure accessible by the entire population at a reasonable cost. As India found out immediately following the announcement to remove its high denomination bank notes, chaos ensued with long lines of people outside banks waiting to exchange their soon to be worthless currency. People had until 30 December 2016 to exchange the outgoing bank notes or deposit them into their bank accounts, but therein lies the problem. About 600 million Indians out of a total population of 1.3 billion do not have a bank account according to central bank data. Which begs the question: when so much of the population is reliant on cash, is going cashless even possible?
China presents a good case study where advanced infrastructure is readily available to a large percentage of the population via smartphones and an advanced financial technology (fintech) landscape, making the idea of a cashless society a viable proposition. China is now the undisputed global leader in fintech innovation and adoption with payment solutions such as Alipay and WeChat’s payment service allowing consumers to jump directly from cash to mobile payments, skipping the use of credit and debit cards which dominate the electronic payment rails of the Western world. Of China’s 710 million internet users, around 58 percent use their smartphones to pay for goods and services through fintech solutions such as Alipay and WeChat, even though one in five Chinese do not have a bank account. The recipe for a cashless society therefore appears to be strong internet and smartphone penetration combined with a thriving fintech environment.
Although our local fintech environment has quite some way to go to match the fintech playground of China, New Zealand is seeing increased use of mobile payment solutions with the introduction of Apple Pay and Android Pay. When combined with the fact that around 80 percent of adults in New Zealand owned a smartphone in 2015 (expected to reach 92 percent in 2016) according to a nationwide survey by Horizon Research, a cashless New Zealand seems plausible in the not so distant future. In order to speed the process up and provide New Zealand consumers with the innovative fintech solutions like those available to Chinese citizens, a government directive and supportive regulation is required to facilitate innovation whilst protecting consumers.
Singapore’s approach to fintech innovation has seen their central bank commit to investing S$225 million (NZ$220 million) in fintech projects over the next five years. They have also stated that they will only regulate fintech companies when they reach a sufficient size to present a risk to the financial system or consumers. Singapore’s fintech policy strikes a healthy balance between encouraging innovation and ensuring adequate consumer protection. This has enabled Singapore to create a thriving fintech ecosystem, attracting significant investment to the benefit of not only the economy but its consumers. Although New Zealand recently overtook Singapore as the best country in the world to do business according to the World Bank, we would be wise to follow their lead when it comes to fintech policy. With clear rules and regulation, we have the opportunity to create our own thriving fintech ecosystem. And given how naturally geared Kiwis are towards innovation, we may be able to ditch our plastic cards and embrace a cashless economy sooner than we think.