Let’s think for a moment about what the term cashless economy means. Do you use physical cash a lot? Do you always like to have cash on you? How would you feel about not needing it?
Globally, we still use cash for most of our payments. Some 85% of purchases and payments are still made in physical cash, but in some countries, this has been reduced significantly, by half in a few notable cases.
Of course, cashless transactions were in use a long time before the digital revolution that has changed our lives. It is millennia in fact – the barter system goes back 6,000 years, being introduced by the Phoenicians in Mesopotamia when one form of goods was exchanged for another at an agreed “exchange rate”.
But cashlessness – meaning being able to make purchases and payment without needing physical cash – has some very interesting features and implications which challenge the world we live in today.
One is security. Despite the fact that the quality of life we have is generally improving, measured in terms of standard of living as well as life expectancy and general availability of healthcare, and makes everything so much easier and more efficient, safety and security is still a major global issue. The fact that payments can be made in cash that are not traceable is a real threat to security. While privacy is often used as an argument in favour of cash payments, there is little doubt that anonymous cash helps to keep the organisations behind the attacks we see on a regular basis around the world in business.
Security is also defined as reliability. For any system to replace cash it has to be available, constantly. There have been far too many instances of banking and other online systems crashing for people to feel completely comfortable with the concept of an absolute alternative to cash in their pockets.
Another feature of cashlessness is that the more we move into the era of credit cards, debit cards, and payment systems by such companies as Apple, Samsung, Mastercard and Visa, the more we exclude the millions and millions of people who do not have access to banking services that all such payments depend on. These are the unbanked, who are condemned to use cash as they have no alternative. We have almost 1.5 million of these in the UAE alone, and there are 10 million of them in the US.
Cash is also useful in many countries as a means of avoiding paying taxes, as the transaction goes unrecorded. Of course, income tax is not levied in the UAE, but VAT is so this argument also resonates here.
Mastercard has done a lot of work in helping to introduce cashless systems around the world. In their global study issued in 2016 they noted that “the persistence of cash is surprising given the inconveniences and the risk of carrying it around. Electronic payments, by contrast, are proven to boost economic growth while advancing financial inclusion. For those reasons, countries are working to make payment systems less dependent on cash. By several measures, they are making progress.”
So for example Singapore, Netherlands, France and Sweden have achieved a level of around 60% of their consumer payment transactions by quantity using non-cash methods. By value, they reach much higher levels, with Sweden at the top with 94%. Interestingly, again by quantity of payments, Italy, Greece and Mexico lag behind at or below 6%, and the UAE is at around 8%.
In fact, cashlessness has some very definite upsides. As Mastercard point out, the less physical cash is used in transactions the more efficient an economy becomes. One of the ways this works is to make sure that all transactions are recorded. But another key benefit is to the financial system itself. Cash is a cost and operational burden on banks as it needs people, security, machines and suppliers to keep it flowing. It is also a hassle for shops who then have to secure and deposit it.
This is one of the reasons why 15 of the UAE’s leading local banks are stakeholders in Emirates Digital Wallet, which aims to pave the way for cashless spending with klip, as well as enable transfer and storage of money for everyone living and working in the UAE. They see the argument in favour of reducing and ultimately minimising its use.
So what are we still using cash for? Mostly it is when someone won’t or can’t accept anything else. This goes for taxis, small shops, hairdressers, pocket money for the kids, and often buying small items at larger shops. But what if the corner shop wants payment in a way that enables them to pay their suppliers, their staff, and their utility companies without the hassle or risk of cash? What if the staff who receive their salaries want it in a way that they can use everywhere else, without cash?
Receiving cash is not so much the ideal alternative for the shop owner or taxi driver, the hairdresser or the pizza delivery guy, but the only one for now that is free, easy and dependable. But it is not the solution that gets their money safely into a bank account, that allows them to use the money received to make immediate payments to people they are not planning to meet anytime soon, or provides them with a built-in record of payments received. With VAT now a fact of life in the UAE, this feature in particular is going to be an absolute priority for them.
Maki Vekinis is the CEO of Emirates Digital Wallet LLC, which owns and operates klip