The Pros and Cons of being Cashless
Electronic payments, rather than physical cash, are becoming increasingly popular. The Coronavirus urged people to avoid unnecessary physical transactions and is expected to drive the shift toward a cashless world. A cashless society has numerous advantages, including a lower risk of violent crime, lower transaction costs, and fewer tax evasion concerns. However, there are fears that a shift to a cashless society may result in privacy issues as well as problems for individuals with low incomes and poor credit records.
Cash helps to slow the growing information asymmetries between customers and businesses, as well as individuals and government agencies, by ensuring a high level of anonymity in payments. Privacy is essential for individuals to safeguard their standing while dealing with organisations which are more powerful than a single individual as knowledge about your counterparty is power.
To keep up with COVID-19 shifts, many vendors and businesses had to make a switch and revaluated their operating models. Online shopping also surged. A study from Fundera found that 80% prefer card payments over cash and only 10% of consumers make all of their purchases with cash.
In this article, we will dive into the arguments for both sides of this debate and what the potential implications for FinTech in the future regarding the hesitation of ‘cashlessness’.
The Advantages of a Cashless Society 👍
- Less tax evasion.
- Hygiene and virus transmission.
- Quicker transactions.
- Harder for organised crime.
The Disadvantages of a Cashless Society 👎
- Difficult for those without bank account.
- Cash helps ration spending.
Pros of being cashless
Less tax evasion
The issue of tax evasion is a big challenge for governments globally. An example is that trade workers can request to be paid in cash and thereby report less income than they earned. The government loses income tax money because of this. It would be easier for the government to combat tax evasion in a cashless society.
Hygiene and virus transmission
Many businesses have either prohibited cash payments or heavily encouraged e-payments since the spread of COVID-19. It’s thought that the virus can survive for up to two days on paper money and coins, making them a potential source of infection transmission. Using a credit card to pay decreases the danger of transmission. This is something that was not considered until 2020, but this could be relevant for a long time.
Using cash to pay for an item wastes time and lengthens the process. This is a serious concern for time-sensitive businesses. For example, if everyone paid cash for a bus ticket and the driver was compelled to count change, the journey duration would increase, and traffic congestion would increase. On the bus, everyone would waste time. This quickly adds up to a significant financial burden, therefore it’s no wonder that many travel companies refuse to accept cash payments. The transaction takes longer when people pay in cash.
Harder for organised crime
Cash transactions are important to organised crime because they allow them to bypass government security and screenings. Criminals would face problems if businesses stopped accepting cash since they would have to declare cash or find another channel. Crime would be less profitable in a cashless world.
Cons of being cashless
Difficult for those without bank account
In the US, 22% of US households (63 million) are either unbanked or underbanked. It is difficult for those without bank cards to pay if shops exclusively take cashless payments. Many low-income households are strongly reliant on cash and may be left behind if certain goods and services are not available in cash. Some individuals with a bad credit history may be unable to obtain a credit card. Cash has the advantage of not discriminating based on factors such as credit history. According to a survey on a cashless world, 17% of adults, or 8 million people, would struggle in a cashless society.
China is leading the way with a move towards a cashless society. In 2020, 74% of the population used mobile payments every day. The government is currently experimenting with a digital currency. The goal is for the government to have access to all information on individuals, pressure groups, businesses, and organisations. It provides the government enormous power over its citizens and raises concerns about a techno-dystopian future. With the ability to monitor all economic activity, a political dictatorship will have more power to suppress criticism. Even in the West, some people may object to companies being able to follow their spending habits and send customised marketing to them. Electronic money privacy issues are a major source of worry for civil rights.
Cash helps ration spending
People who have a tendency towards debt may choose to cut up their credit cards and restrict their payments to cash. The reason for this is that using a credit card makes it easy to spend money without feeling guilty. Buying on plastic presents little psychological difficulty. When you pay in cash, you have a stronger emotional relationship to your money and are more aware of your expenditures. Having to pay cash can assist you avoid making impulsive purchases.
The cons of a cashless society are clear but so are the benefits. Realistically, the future is already here and the steadily increasing use of cashless payment methods means that one day cash may become obsolete. Meanwhile, greater security and enhanced technology will help support the ongoing growth of cashless payment approaches. When it comes to how we manage our money, technology has changed the way we live. Instead of being worried about a cashless society, consider embracing the benefits instead. There’s much to be gained by using technology to effectively manage your money. And chances are, cash will always be around for those who need it.
Not every country is ready to make the whole transition to a cashless society. Many developing countries lack the infrastructure essential to facilitate the transition to a cashless society. Advanced countries such as Singapore, Finland, and others may have it, but many developing countries do not. Cash is still widely utilised as the primary mode of transaction in many regions of these countries.
Storm2 believe in the power of technology and in its future potential to make transactions easier for everyone in the world. Technology facilitates free and accessible access to information. The slide toward a cashless or mostly cashless society is unlikely to stop.
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