Rich countries are racing to dematerialise payments.They need to do more to prepare for the side-effects
For the past 3,000 years, when people thought of money they thought of cash. From buying food to settling bar tabs, day-today dealings involved creased paper or clinking bits of metal.
Over the past decade, however, digital payments have taken off— tapping your plastic on a terminal or swiping a smartphone has become normal.
Now this revolution is about to turn cash into an endangered species in some rich economies. That will make the economy more efficient—but it also poses new problems that could hold the transition hostage.
Countries are eliminating cash at varying speeds. But the direction of travel is clear, and in somecases the journey is nearly complete. In Sweden the number of retail cash transactions perperson has fallen by 80% in the past ten years. Cash accounts for just 6% of purchases byvalue in Norway.
Britain is probably four or six years behind the Nordic countries. America is perhaps a decade behind. Outside the rich world, cash is still king. But even there its dominance is being eroded. In China digital payments rose from 4% of all payments in 2012to 34% in 2017.
Cash is dying out because of two forces. One is demand— younger consumers want payment systems that plug seamlessly into their digital lives.
But equally important is that suppliers such as banks and tech firms (in developed markets) and telecoms companies (in emerging ones)are developing fast, easy-to-use payment technologies from which they can pull data and pocket fees.
There is a high cost to running the infrastructure behind the cash economy—atms,vans carrying notes, tellers who accept coins. Most financial firms are keen to abandon it, or deter old-fashioned customers with hefty fees.
In the main the prospect of a cashless economy is excellent news. Cash is inefficient. In rich countries, minting, sorting, storing and distributing it is estimated to cost about 0.5% of GDP.
But that does not begin to capture the gains. When payments dematerialise, people and shops are less vulnerable to theft.
Governments can keep closer tabs on fraud or tax evasion.Digitalisation vastly expands the playground of small businesses and sole traders by enabling them to sell beyond their borders. It also creates a credit history, helping consumers borrow.
Yet set against these benefits are a bundle of worries. Electronic payment systems may be vulnerable to technical failures, power blackouts and cyber-attacks—this week Capital One, an American bank, became the latest firm to be hacked. In a cashless economy the poor, theelderly and country folk may be left behind.
And eradicating cash, an anonymous paymentmethod, for a digital system could let governments snoop on people’s shopping habits and private titans exploit their personal data.