By Dee and Emily Karawadra
Ten year ago the notion of having a cashless society seemed like an idea from a science fiction movie. Today, we are well on our way there. With contactless payments and the spread of mobile technology to payment facilitators, we can see the progression toward a cashless POS, as new products continue to hit the market and compete with established solutions like Apple Pay and PayPal.
It seems there are several influencers moving us toward a cash-free society. From government agencies and large corporations to financial institutions, enterprises are favoring doing away with cash. There are advantages and disadvantages to making this shift.
Advantages of going cash free include the following:
Potential disadvantages to a cashless society include the following:
Several nations have already begun to eliminate cash. In Sweden it is common to see signs at merchant locations that say, "No cash accepted." Sweden is leading the way in the shift away from cash and toward digital payments. Research shows that 85 percent of transactions in Sweden are done by card, online or a payment app. Cash use has been falling so fast that the Deputy Governor of the Central Bank of Sweden predicted the country will become cashless within the next five years.
The United States has historically been late to adopt new payment trends and technology. For example, EMV was up and running in Europe years before the U.S. payments community began EMV implementation.
It is evident from various studies that younger generations are more inclined to adopt new means of payments other than cash. So as new generations come and older generations go, the share of cash in the payments mix will decline.
The University of Pennsylvania predicted cash will increasingly be used for smaller purchases in situations where cash is still convenient. For instance, small retail shops, marketplaces, bars and restaurants may not see a decrease in cash sales. However, researchers see the logistics changing some. People will get cash from shops, and typical banking services will be provided by machines in retail stores. This will make cash more efficient and will allow people to get access to cash even in areas where banks and ATMs are not available.
A recent report from the Access to Cash Review firm warned that going cashless too soon could mean millions of people will be financially excluded and at risk of being exploited. This emphasizes the need for banks, governments and fintech companies to work together to ensure those at a disadvantage – the elderly and unbanked, for example – are protected when this transition occurs.
For those of us working in credit card processing, it is indeed encouraging news that card-related transactions will continue to grow. In addition, other technologies will soon be mainstream. Blockchain technology, for one, is commonly associated with Bitcoin and other cryptocurrencies.
In a Feb. 11, 2009, Digital Trends article "What is a blockchain" by Jon Martindale, blockchain technology is defined as "a database that's validated by a wider community, rather than a central authority. It's a collection of records that a crowd oversees and maintains, rather than relying on a single entity, like a bank or government, which most likely hosts data on a particular server. A physical database kept on paper could never be managed by tens of thousands of peers, but that's where computers, and the internet, come in.
"Each 'block' represents a number of transactional records, and the 'chain' component links them all together with a hash function. As records are created, they are confirmed by a distributed network of computers and paired up with the previous entry in the chain, thereby creating a chain of blocks, or a blockchain."
For those who want a better sense of what a hash function (also known as a hashing algorithm or message digest function) is, Techopedia explains it well: "A hash function takes a group of characters (called a key) and maps it to a value of a certain. Length (called a hash value or hash). The hash value is representative of the original string of characters, but is normally smaller than the original. Hashing is done for indexing and locating items in databases because it is easier to find the shorter hash value than the longer string. Hashing is also used in encryption."
This type of technology offers the ability for groups and businesses to create their own digital currencies and systems of finance through cryptocurrency, and blockchain technology unlocks the potential for cashless payments to move away from paper money currency.
A cashless society sounds like a win-win to some, but to others it appears complicated and capable of taking the personal touch out of face-to-face transactions. Moving away from cash will definitely bring new products and services to the table. But some worry it may decrease the need for ISOs, merchant level salespeople and payment processors to some degree.
It's too soon to tell how this evolution will shape the merchant services industry. We will all be watching as we move more toward a cashless society. If history has taught us anything, it's safe to say that the United States won't be on the cusp of going cashless in the near future.
Dee Karawadra is president and CEO of Impact PaySystem, and Emily Karawadra is the company's chief financial officer. Since 2001, Impact PaySystem has been a leading provider of payment processing technologies and services to merchants throughout the United States. Through alliances with payments industry leaders such as Chase Paymentech, First Data, Buypass, Sage and more, Impact PaySystem offers tailored solutions to meet the unique needs of each merchant. Dee and Emily will welcome your questions and comments at firstname.lastname@example.org and email@example.com, respectively.
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