Cashless society — a dream or a reality?

Faruk Ahmed | Published: February 04, 2019 21:54:19 | Updated: February 07, 2019 21:35:34

Picture used for illustrative purpose only — Collected

People around the world want to drum cash with mobile phones or credit cards and walk on the road to a cashless society. The benefits are enormous: less chance of fraud and robbery, no cash handling fees, no trips to the bank, shorter queues, quicker transactions. Countries like Denmark, Sweden, and Thailand have passed laws that allow businesses to ban cash payments, and in some cases require payments by mobile applications or credit cards.

Around the world, the use of cash has been steadily declining, and some experts predict that cash payments will fall by as much as fifty per cent over the next ten years. By 2020, most people in the UK will have embraced and fully adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards, according to Pew Research Centre. The world is moving toward a cashless society while Asian countries are on the road to less cash. This shift means better, cheaper and faster access to money for people across Asia.

And this journey is moving ahead with extraordinary speed across the world thanks to real-time payments using mobile devices, rising smartphone penetration, entrance of new payment service providers outside of traditional banking, the rise of e-commerce, and favourable government policy and regulation. Today, electronic cards have made it possible for consumers to go online and buy almost anything, from gadgets to groceries. Technologies like NFC (near field communications) are already allowing shoppers to make even small purchases using ubiquitous smartphones and other portable devices.

With the introduction of new technologies, businesses of all sorts - from a neighborhood smoothie stand to a nearby farmer's market - can adapt to the cashless society. POS software and hardware providers are critical proponents of the push towards cashless businesses of all shapes and sizes to not only accept plastic, but also mobile, digital and other contactless devices that continue to grow in popularity. And more recently, a new technology QR Code has added a new wave in mobile financial services (MFS) as it allows consumers to pay for anyone from a street vendor to a restaurant to a retail store and more. MFS operators globally process over a billion dollar a day, representing vital and life-sustaining transactions of over 690 million mobile money accounts.

There's a lot of evidence that demonstrates how almost all markets across the globe are moving towards a cashless society. Bangladesh is not far away from this journey. More people here are now avoiding cash and using mobile phones in their payments thanks to rapid growth of mobile financial service (MFS) industry led by bKash, the second largest MFS player in the world with more than 30 million users across the country, and increasing use of debit and credit cards thanks to impressive performance of commercial banks. Industry experts say Bangladesh has a bright opportunity to leverage the advantages of cashless society regime with MFS industry which is growing day by day and experienced an astronomical 120 per cent growth a year since 2011.

Despite all the benefits, however, the reality of a completely cashless society is still more of a pipe dream. A lot of issues are there in the way of the road, which have generated serious concern among experts regarding a cashless society. For example, some fear that a lot of things would stay uncut and a cashless society would create problems for those in debt-- who would find it more difficult to budget, and those living in remote villages. And it would hit the unbanked people who do not have bank account, and older citizens and disadvantaged people.  For countries like Bangladesh, many people fear that the dream for a cashless society might get faded as the regulatory bar on MFS transactions remains a big barrier on the road.

So, the crucial the questions: Is the cashless society a reality or a dream? How Bangladesh can leverage benefits from the cashless society?

Why people are moving to cashless transactions? There are clear benefits of this trend: better customer experiences, higher operational efficiency for businesses, financial inclusion of previously un-and underbanked people, and higher transparency and accountability.

A cashless society is one that has moved beyond cash, by storing and exchanging currency in digital form. And the argument for such a society lies on the concept of money. People have reinvented the exchange modes for goods and services several times over the past millennia, moving from bartering to using coins and paper money and recently to digital payments. New innovations have changed to the form of money - some failed or disappeared, but several continue to influence our world.

The other arguments are: physical cash can be anonymous and untraceable, allowing it to play a large role in crime, including bribery, tax evasion, money, counterfeiting, corruption and terrorist financing. There are billions of untaxed shekels, according to our estimates, and the public is missing out on use of these funds. Digital money is truly the most portable, secure, and convenient currency so far. With technologies such as voice and face-recognition, transactions also have the potential to become more secure than ever before, while payments can also be protected by end-to-end encryption and fraud-preventing technology.

Banning cash saves employee time and payroll costs by eliminating cash registers and visits to the bank. There is no need of guards for armored cars. Recent data from the Higg Index from nearly 3,000 factories across 58 countries, representing 85 brands and retailer supply chains shows that 67 per cent of the factories pay workers digitally through bank accounts. The rest still use cash or check distribution - which is not safe for workers or businesses.

Across the globe, the study shows factories that pay workers digitally are five times more likely to follow exemplary social and labour practices than those that pay in cash or through cheques. There are also significant discrepancies between the countries. For example, 95 per cent of factories in India pay workers digitally compared to 25 per cent in Bangladesh. So, Bangladesh should speed up its journey towards a less-cash society.  

The cost of using cash handling is one of the main reasons that stimulates the journey in Europe and most developing countries to drum cash in digital wallets. The cost of an electronic transaction is one-fourth that of human-delivered services while the cost of using cash to consumers, business and governments is about $200 billion a year in everything from ATM fees to theft to lost tax revenue. For the average American family, that's more than $1,700 a year, according to study of Tufts University.

Retail Banking Research (RBR) estimates that the process of managing cash costs each individual in Europe €130 per year. For UK consumers, a cashless society would result in savings of up to £110 a year. Internal Wincor Nixdorf research has shown that retailers spend up to 7 pence in every pound on cash handling. It is considerably cheaper to process card payments than to handle and manage cash. A recent study shows more than 31 per cent Americans want to use digital money as bank branches fail to meet their demands.

During economic downturns, governments face challenges to stimulate the economy by lowering interest rates, since people are likely to hoard their cash instead. With digital payments and no cash, people are unable to withdraw money from the financial system and governments and banks can leverage greater control of the economy stimulating more lending from banks and increased investment by businesses, as well as encouraging people to invest, lend and spend instead of amassing money.

The writer is a senior journalist and Chairman of BJFCI.


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