Is the end of cash in sight? And if it is, should we be celebrating or fretting? And what do investor’s need to know?
Cashless society: why, why not, who will benefit?
These days spending a penny can be quite expensive. Back in the 19th century, coin operated public toilets cost a penny - of course we have had decimalisation since then, so strictly speaking we should be calling it spending 2.4 pennies. In reality, today, 30 pence is not uncommon - the value of money flushed away.
But there is a wider point, these days, with our wallets bulging with plastic, but often leaving a vacuum where once there was cash, having to lay our hands on different coins can be most inconvenient when seeking to use the conveniences.
And that’s advantage number one of a cashless society - no need to carry change with us to get chocolate from a vending machine, or pay for parking, or use the lav, we can wave our card instead, or smart phone.
And as human operated tills in supermarkets give way to automated tills, give way to sensors that don’t even need tills, they just know what we have bought and can debit our accounts accordingly, we lose one reason to have cash.
So, what else, what are the advantages and disadvantages of a cashless society?
- Less hassle, see point above.
- Good for the economy, money doesn’t grow on trees, (although trees are good for the economy) and cash costs money to print, administer and store. In 2013, McKinsey estimated that cash cost the US economy 0.47 per cent of GDP. But in other countries, where cash is more commonly used, it creates a bigger burden. McKinsey estimates that around 30 per cent of the productivity gap between US and Russian banking systems can be explained by the fact that cash is significantly more widely used in Russia.
- Linked to the above argument, cash makes it easier for a shadow economy to operate.
- If we have a cashless society, it will be much easier for central banks to impose negative interest rates if the need arises - the logic here is that in a cash-based economy, if rates go negative, people will stop putting cash in bank accounts, making significant negative rates impossible.
- Technology may make it easier to keep tabs on spending, an area where the likes of Monzo Bank, which is not listed on the stock exchange, more’s the pity, are excelling.
- Discriminates against people who are less comfortable with technology – this has turned out to be a problem in Sweden where the evolution of a cashless society using a system called swish, is more advanced.
- Privacy – if we have no choice but to leave our cash in a bank account, we lose privacy. Libertarians like this argument. I don’t totally understand it. What people who cite this argument are effectively saying is that cash makes it easier to disobey the law.
- If we have a cashless society, it will be much easier for central banks to impose negative interest rates if the need arises. Yes, I know that is the same argument as above, but some see this as a disadvantage, your view on this seems to depend on your regard for central banks and whether you trust them to act in our best interests.
- Some people find it easier to budget using cash - they can for example take out £200 on a Monday, with that being their budget for the week. See above, under advantages for the counter argument.
- Vulnerability to hackers, consider the recent VISA system failure.
Ron Whymark from the Bank of England has said that cash offers:
- Is helpful with budgeting.
- Is widely accepted.
- Provides free and easy settlement finality without the need for technology.
It is possible that cash, and thus the perception that there is no need to have a bank account, is one of the factors holding back emerging markets. It does seem, however, that a form of cashless society, thanks to technology in the shape of smart phones, is evolving. Throughout much of Africa data has become a means of exchange, with people conducting transactions by swapping data minutes on their phones, using their phone as the device for facilitating the transaction.
The biggest barrier to a cashless society lies with entrenched views. For as long as the baby boomer generation holds influence in the UK, a full blown cashless society won’t happen. It will gradually evolve, though.
But smartphones, wearable technologies, and who knows, beyond that, computer loaded tattoos, or chips inside our heads, will make spending money as easy as waving a hand, or just thinking it.
The dangers are clear. If spending money becomes that easy, if we lose the psychological barrier that cash imposes on us, will we become more reckless with our spending? Or can technology, supported by AI, impose discipline on us - a little computer voice: “Do you really need that handbag?”
Who to watch?
The end of cash is an opportunity for the companies that advance the tech, the likes of Apple and Samsung - no doubt Google will get its fingers into the pie. Retailers that can get technology for seamless payment right will be at an advantage, as ever, Amazon, with its experimental stores, is streaks ahead. Banks that can advance the technology will win, but it’s the fintechs, who have the biggest opportunity.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees