Global Banking and Finance Review: Are we running out of cash? Societies turn to electronic payments
Christoph Tutsch, CEO and Founder of ONPEX, at Global Banking and Finance Review on: Increasing Significance on Electronic Payments.
Recently there has been a lot of talk about cash being phased out in favour of electronic payments. John Cryan, CEO of Deutsche Bank, has predicted that cash will disappear within a decade. Yet, when looking at the spending habits of Germany, Europe’s largest economy, this doesn’t appear to be the case.
Germans conduct 80% of their financial transactions using cash and only 33% own a credit card (Phillips, 2014). Germany’s reluctance to let go of cash could be attributable to their unique values and customs, though. The nation prides itself on frugality, paying its bills on time and avoiding debt, which explains why the German word for debt, Schuld, also means guilt.
In addition, they are cautious of technology, protect their privacy with some of the most stringent privacy laws in the world, and quite often doubt the ability of public and private organisations to handle electronic financial records.
In contrast to Germany, other major European countries have embraced electronic payments and are moving away from cash. Many of them are even capping cash transactions. Italy and Portugal have already imposed a limit of €1000, in Spain it is €2500 and in France €3000 (ECCF, 2014). Meanwhile, Germany is considering introducing a €5000 limit (CNBC, 2016).
It is estimated that non-cash transactions will continue to grow in the European market and that by 2020, the number of cashless payments will increase to 177 billion (Statista, 2016).
In particular in the UK, electronic payments are flourishing, in part due to innovations such as contactless payments and frictionless payment processes. Commuters in London have been swiping their Oyster cards for many years. When contactless payment cards were introduced to pay for their travel, it was a smooth transition. Nearly a million Londoners choose to do this every day (TFL, 2015), as it saves them money and the need to purchase tickets daily. It won’t come as a surprise that contactless transactions in the UK have increased by 250% year on year (Campbell, 2015).
Sweden, Finland and Denmark are also on their way to becoming cashless societies. The Danish government is already allowing shops to not accept cash (Finextra, 2015; The Guardian, 2015). In 1657, Sweden was the first country in Europe to introduce bank notes (Cavendish, 2011) and may well be the first to phase them out. Currently, there are just around 80 billion Swedish crowns (about €8bn) in circulation with only half of that in regular circulation (Geere, 2015).
Swedish consumers have a tradition of welcoming electronic payment systems. Among other factors, Sweden’s move towards a cashless society has been spurred on by the prevalent use of Swish, a direct payment app that can be used for transactions between individuals in real-time.
But why are we seeing this push towards having a cashless society and what benefits will it bring?
Cash costs money to process, to provide security for and to be replaced as notes gets worn out. Prior to accepting contactless payments, London’s public transport provider spent over £30m a year processing cash (UK Business Forums, 2015).
In addition, if many people hoard small amounts of cash, it results in large sums being removed from circulation. This reduces the control that governments and central banks have over monetary policy, depriving them of the ability to influence the wider economy in a positive way. A move away from cash towards electronic payments will also benefit the global marketplace by making cross-border transactions easier, faster and cheaper.
The shift towards cashless societies has been boosted by governments seeking to crack down on criminal activities, such as drug trafficking and tax evasion. Five years ago, Sweden’s banks were suffering a spate of bank robberies and therefore decided to move away from cash. After this, not only did Sweden’s financial sector become more efficient, but armed robberies hit a 30-year low. However, whilst armed robberies will be more difficult in cashless societies, there is an increasing risk of online fraud, which has more than doubled in the last decade (The Guardian, 2014).
Continuous innovation efforts in payments security are countering those attacks and ensure that the industry is now better equipped to deal with and, potentially, eliminate online fraud. Tokenisation eliminates the need to enter personal card details repeatedly and allows for safe ‘one-click’ ordering.
Societies’ payment habits will continue to evolve at different rates due to their own values and customs. The shift towards a cashless economy could occur, which is why tech companies will have to provide a range of solutions for this transition.
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Notes to Editor
About Christoph Tutsch
Christoph is the founder and CEO of ONPEX. He started the company in 2013 with the goal to provide businesses with an ideal solution for online payments and digital transactions. An accomplished payments expert, he saw the need for a solution to manage all financial processes in one single platform. Christoph oversees the strategic positioning of ONPEX and the development of its solutions.