Why the future of our wallets is digital

Even five years before the pandemic, the ‘death of cash’ had long been predicted –due to the growing use of credit and debit cards.

Post-Covid, and the global consumer finance ecosystem is being further catapulted along that path.

The acceleration towards a cashless society has been fuelled by the pandemic shift that we saw in online retail.

Cashless society is becoming viral:

Consumers were actively encouraged not to use cash to prevent the spread of the virus and trust in digital banking products has soared.

Even if most consumers in the UK and US still use cash to pay for at least ssome of their purchases, according to new YouGov research, the generational writing is on the wall.

The YouGov figures show that 42% of over-55s in the UK say they like to use cash when purchasing, while only 31% of 18 to 34-year-olds prefer to do the same.

In 2020, Mastercard reported a 40% increase in contactless payment transactions globally. That trend looks set to continue as providers and consumers overcome privacy and security issues. Eventually it looks likely that central banks will play a bigger role in closing the gap, too, through the development of central bank digital currencies (CBDCs).

And it is clearly in the interest of governments to facilitate the switch to cashless. Non-cash transactions get registered in banks, improving transparency and helping in lowering tax evasion and money laundering, in a way that cannot be done with the same degree of accuracy as with ‘grey’ paper cash.

Cash is no longer king:

Contactless cards, mobile phone payment systems and advances in biometric identification also point to the fact that the convenience and appeal of ‘real money’ will wane.

Not all societies are moving at the same speed however.

In Japan most people still like to use cash. In China, though, almost all payments have gone digital via China’s dominant digital payment apps, Alipay and WeChat.

China’s quick response (QR) code payment service has also taken off. In order to pay, the buyer scans a code from the seller, shows them a confirmation on their smartphone screen, and payment is made.

In the UK and US, apps such as Apple Wallet, Samsung Pay and Google Pay are increasingly gathering ground. All major credit cards work with them – and even airline tickets do too.

Moving to a fully cashless society for any country is dependent on its level of technology penetration and security advancement – and of course, the great cashless enabler of internet penetration.

Many developing countries are proving to be slower in cashless adoption, mostly because they have lower technology penetration and weaker financial inclusion and literacy.

Smart technology powering cashless societies:

Those countries that are moving faster towards wholesale digital payments, however, all have these:

• Solid digital infrastructure through mobile phone and smartphone adoption
• Wide and scalable use of e-commerce
• Strong retail offering of point-of-sale (POS) devices
• Solid online banking and financial services

The advantages are obvious when the necessary technology and security is in place. Our smartphones are fast becoming our digital wallets because they are easy to use, safe and a welcome extension to our lives.

They can safely store our personal information for different payment methods such as our debit and credit cards with no painful passwords to remember.

Plus, they can keep safe our identity information – such as our driver license, passport or national tax number – and even our boarding passes, film tickets, and gift card coupons.

Before they can become universal, however, digital wallets will need to be adopted across all industry niches.

The demise of the cash till:

But those businesses that see instant payment propositions as a building block to the future will be already (or soon planning to) leverage mobile payments and digital wallets.

This will become even more of a prerogative if cash usage continues to fall.

Sweden is expected to become the world’s first cashless society by March 2023. A study of 750 retailers there found that if cash transactions fell below 7% of the total, the cost of handling the physical money would become higher than profit made on cash sales.

For businesses, (digital) money speaks. Cashless is the way forward. And those retailers that don’t recognise this truth may soon become as obsolete as their wallets.