A cash-free world might be on its way sooner than you think. According to the Federal Reserve Bank of San Francisco's May 2021 "Diary of Consumer Payment Choice" study, cash use accounted for only 28% of all non-bill payments. That was down seven percentage points from 2019.
There's little doubt that the COVID-19 had a meaningful impact on the number of cash-less transactions, as retailers, merchants and restaurants increasingly encouraged the use of 'touchless' credit and debit cards. Whether that behavior will continue as the pandemic eases is unknown. But the direction is pretty clear.
The increasing popularity of cashless payments has led to alternative digital payment methods, such as PayPal, Zelle, Venmo, and many others. For this reason, a cashless society is now a question of 'when' not 'if.'
What Does 'Cashless' Mean?
Cashless is a term used to describe a system where people rely entirely on electronic payments rather than paper money. Processing such transactions usually occur through channels, such as:
- Point of Sale systems (POS)
- Internet banking
- Mobile banking
- Credit and credit card systems
The Benefits of Going Cashless
Ditching cash payments for electronic payments comes with lots of benefits for both individuals and businesses. They include:
Reduction of Illegal Transactions
Electronic payments always leave behind a trail, unlike cash payments. For this reason, it's easy for law enforcement agencies to identify individuals behind illegal transactions by simply following the trail.
Most black market trades, such as selling recreational drugs and unlicensed weapons, complete transactions using cash. Therefore, getting rid of cash payments could significantly reduce such deals.
Additionally, white-collar crimes, such as money laundering, will be challenging to pull off because electronic payments always leave behind a digital paper trail.
Easier International Payments and Transfers
Exchanging foreign currency at a forex bureau can be pretty challenging, especially if you aren't familiar with the exchange rates. But if all countries adopt electronic money and digitized payments, there will be no need to visit a forex bureau to exchange money received from or sent to another country.
No Cash Management Costs
Physical paper is costly to print, store, protect, and transfer in large amounts. In addition, hard printing cash requires many resources and minerals, such as paper, copper, zinc, cotton, linen, etc. But such expenses won't be necessary when the world goes cashless.
Reduced Operating Expenses
Employees who deal with physical money in banks, grocery stores, and other industries must be trained to handle cash registers and account for the money at the end of every shift. But on the other hand, electronic transactions are easier to account for, significantly reducing such operational expenses.
More Secure Than Hard Cash
According to FBI data, banks lost approximately $482 million due to robberies in 2019 alone. However, it would be possible to reduce this significantly if businesses, individuals included, did not keep any cash on hand.
Better Customer Experience
Businesses that only accept cash payments from customers often experience long queues during peak times. Typically, cash exchanges take longer to process, thanks to the calculations involved.
Going cashless would tremendously increase a business's efficiency and improve customer experience. Cashless transactions don't require complex human calculations that often lead to impatient clients' frustration and workers' exhaustion.
Electronic Payments Improves Budgeting
Unlike cash payments, electronic payments leave a trail, making it easy for individuals to track their spending habits and budget their money accordingly. For example, some banks have mobile applications displaying data about their customers' spending habits by day, week, month, year, among other parameters.
Significantly Reduces 'Lost Cash'
Lost cash or small change loss is solid cash lost due to individual errors, such as unknowingly dumping it in a trash can at home, at the gas station, or anywhere else.
If you've experienced a 'lost cash' moment in your life, you probably know how frustrating it can be. But, unfortunately, the worst thing about this kind of loss is it happens even to the most careful person.
But with cashless transactions, you may misplace your wallet and not your money, just as long as no one else has your PIN. But if they do, you can log into your online account and block future transactions.
Where to Begin: How to Go Cashless as an Individual or Business
You can take concrete steps to move to a mobile wallet and digital transactions only as an individual. Here are tips to get you started.
- Use a bank that has a robust mobile app.
- Link one or more debit and credit cards to your bank account.
- Consider using an online-only bank that has an online bill pay portal.
- Download payment apps, such as Venmo and Paypal.
- Set up a direct deposit for your paychecks.
- Convert all payments to electronic payments.
- Be aware that some stores and vendors are cash only.
As a businessYou can play a significant role in transitioning from paper to cashless payment. Here are some great tips on how to begin:
- If you run a business, provide multiple payment options, such as CashApp, Venmo, Zelle, Square, PayPal, etc.
- Partner with customer rewards programs that encourage electronic payments for specific products or services.
- Prioritize financial security to build trust between customers and businesses and also discourage illegal practices.
- Prevent 'lost cash' incidents by securing your money electronically through banks, credit unions, etc.
The Bottom Line
There's no doubt that the world will soon go completely cashless, thanks to the popularity and benefits of electronic payments. However, the transition to electronic payment requires collective effort both at the individual and corporate levels. And, whether you're transacting and cash, cards, mobile payments, or a digital platform, there are risks. So, as with money, it's essential to protect and manage your finances wisely.