15 March 2022
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A cashless society describes an economic state whereby financial transactions are entirely conducted by the transfer of digital information rather than through the exchange of physical items that are assigned monetary worth, such as paper notes or metal coins. Over the last decade, fintech innovation has driven the adoption of digital payments. For instance, the trade association ‘UK finance’ reports that the use of cash payments in the UK declined from 56% (of total payments) in 2010 to 17% in 2020. While COVID-19 has certainly accelerated the move away from cash in 2020, with contactless payments being encouraged over cash to reduce virus transmission, the general trend towards cashless payments has been consistent throughout the decade.

So will the UK, or any other country, become a cashless society anytime soon, or will cash always remain a payment option?

Before attempting to answer this question, let’s first identify some of the main benefits and drawbacks associated with a cashless society, as well as establish whether any country is already, or at least close to becoming, completely cashless.

Benefits of a cashless society

Less risk and lower cost to business

Digitalising payments circumvents the financial risk of counterfeit money and the need for physical security to protect cash reserves. Furthermore, cashless systems make physical processes such as cash storage, transportation, counting and conversion redundant, which can significantly reduce the cost of many financial transactions, particularly when the transacting parties are based in different countries.

Traceability of all financial transactions

Since financial payments in a cashless society require for digital information to be exchanged, each transaction leaves a digital trail which can be used to determine whether the transaction is lawful. Accordingly, illegal acts, such as money laundering, tax evasion and funding criminal activities (e.g. terrorism, trafficking, etc.) can be traced and swiftly intercepted.

Reduced viral transmission

Numerous studies have shown that pathogens can survive on bank notes and coins. Although the impact of cash use on viral transmission is less clear, the public perception remains that cash is ‘dirty’, and many merchants have promoted the use of cashless payments (preferably contactless payments) during the Covid-19 pandemic. Were another virus or variant to develop, cashless systems are clearly more suitable for keeping people safe.

Drawbacks of a cashless society

Additional financial requirements for the public

A cashless society system relies on the whole population having a bank account, a means to transfer money from said bank account, e.g. via a credit/debit card or mobile device, and some technical familiarity with their payment system of choice. These requirements can be problematic for the poor, disabled, elderly, undocumented immigrants, and the youth. Therefore, without appropriate support, a cashless society could widen public inequality and lead to a greater number of impoverished people.

Lack of payment backups

Currently, UK consumers have the option of making payments using cash when a cashless payment terminal is unintentionally offline. In a cashless society, this would not be available. Therefore, communities that are entirely cashless are more susceptible to severe financial interruption in the case of technical issues, as well as also being more at risk from cyberattacks and fraud.

Traceability of all financial transactions (privacy loss)

On the flip side to disrupting illegal activity, traceable financial payments enable commercial organisations to build a personal profile on their customers, particularly with regards to their spending habits. As well as depriving people’s privacy, the mass storage of personal data may lead to banks being targeted by hackers.

The European countries in pole position to becoming entirely cashless

The Nordic countries (particularly, Norway, Sweden and Finland) appear to be leading the way in becoming the world’s first cashless society.

In Sweden, there are less than 30 ATMs per 100k people (for reference, there are about 99 ATMs in the UK per 100k people) and surveys have estimated that over 98% of Swedes own a debit card (3rd highest in the world). Additionally, Swedish law allows merchants to refuse cash payments, thereby forcing consumers to pay via alternative cashless methods instead. As time passes, the ability to pay with cash is becoming more and more difficult.

In Norway, the central bank has estimated that cash is used in less than 4% of all payments, while recent surveys estimate that 78% of Norwegians use Norway’s most popular mobile payment app (Vipps), and almost 80% of peer-to-peer transactions are completed through mobile payment apps.

In Finland, the central bank has predicted (at least in 2016) that Finland will be a cashless society by 2029. Other data sourced from the central bank of Finland indicates that the number of bank branches providing cash services have more than halved between 2010-2020.

There are several factors contributing to Nordic countries being some of the fastest adopters of cashless systems. Firstly, Nordic populations are generally very trusting of their respective government and large institutions, e.g. banks. Overall, the Nordic public believes that the government and banks are prioritising their interests, and the banks have the expertise to do a better job of keeping their money secure than they [the public] could do themselves. The Nordic people also have an openness to new digital technology, with computer literacy being higher than average, particularly for the elderly. Finally, Nordic banks are some of the most proactive in adapting their structure to accommodate and promote innovative digital technologies.

Will the UK become a cashless society?

Considering that the British public are generally not as trusting towards their government and institutions, nor are they as technology literate as their counterparts in the Nordic region, it is highly unlikely that the UK will become the world’s first cashless society.

Furthermore, in the author’s opinion, it is likely that the UK will not become completely cashless for many years to come. For instance, despite countries like Sweden and Norway being strongly suited to cashless payment systems, they are still experiencing public and governmental resistance towards going entirely cashless. In Sweden, the movement ‘Kontantupproret’ was set up to petition against cash being removed as a legal form of tender. The movement has grown considerably in size since conception and has been supported by several high-profile Swedish figures. In Norway, the finance ministry has instructed the financial supervisory authority to devise rules that obligate banks to ensure that cash remains accessible to the public and cash transactions will remain permissible, while surveys in Finland have indicated that the majority of people are against the concept of an entirely cashless society. Accordingly, it is highly unlikely that the UK government will ignore this public disapproval and remove cash from circulation anytime soon.

However, this should by no means disincentivise fintech companies from developing further cashless innovation. While not everyone is pro-cashless, there is no denying that the adoption of cashless technology has sky-rocketed over the last decade and will continue to do so as it becomes more accessible around the world.

Robert is a trainee patent attorney in our engineering team. He joined Mewburn Ellis LLP in 2019. Robert has an undergraduate MEng degree in Aeronautical Engineering, MRes degree in Advanced Composite Materials and a PhD in Nanocomposites, all from the University of Bristol. His undergraduate research focused on using laser-based optical methods for visualising aerodynamic flow near porous geometries. His doctoral research investigated the influence of vertically aligned carbon nanotube interleaves on the mechanical performance and fracture behaviour of advanced composite materials.
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