Interviews, insight & analysis on digital media & marketing

The future of cashless societies: navigating the shift to digital payments

By Jon Horddal, Group Chief Product Officer at emerchantpay

The concept of a cashless society – an economy where physical currency is no longer used or accepted as a form of payment, instead relying on alternative payment methods (APMs) and credit or debit cards – was once considered a distant possibility. However, the idea is now gaining more traction as digital payment methods become increasingly prevalent and convenient. There is real opportunity for businesses to leverage this shift to add value and enhance customer satisfaction, but those who fail to adapt, risk falling behind and losing customers and revenue as a result. 

Embracing methods such as Open Banking, QR code payments and eWallets which can offer more seamless financial services and greater control over personal finances, is key to staying competitive in this evolving landscape. By integrating these innovative technologies, businesses can not only cater to consumer demand for new ways to pay but also enhance consumer experiences by improving the user and payment journey. This can help foster innovation within the financial ecosystem, ultimately paving the way for a more efficient and interconnected global economy.

The compelling case for a cashless society 

In the UK, the decline in cash usage is continuing, with research demonstrating that the nation could potentially transition into a cashless society by 2043. In fact, a staggering 93% of all in-store transactions up to £100 were made using contactless payment methods in 2023. Elsewhere, other countries are also making moves towards becoming cashless. Norway and Sweden are  leading the charge, with the number of cash transactions in the countries standing at just 4% and 8% respectively in 2023. Canada is also embracing this change, as the use of cash decreased by 59% between 2017 and 2022. In fact, 49% of consumers believe it is likely that Canadian stores will go completely cashless within the next 10 years.

As countries like the UK, Norway, Sweden and Canada continue to reduce their reliance on physical currency, the benefits of cashless payments for both consumers and merchants have become increasingly apparent. 

For individuals, it eliminates the need to withdraw and carry physical cash. In fact, nearly one in three consumers claim to have a greater sense of security when cashless. Additionally, paying by card or another digital payment method speeds up the checkout experience, both online and in-store. Especially for open banking transactions, consumers can easily authorise their transactions through their online banking platform and monitor their account balances in real time. This can help simplify control of personal finances for consumers. 

For merchants, focusing on cashless payments enables them to streamline their operations, reducing the time and resources dedicated to handling and managing physical cash. Offering convenient and secure cashless payment options also creates a seamless shopping experience, enhancing customer satisfaction and repeat custom which, in turn, can drive additional revenue.  

Bridging the digital payment gap

Although there are clear benefits of a completely cashless society, there are also implications for economies, financial inclusion and payment infrastructure systems. 

Firstly, the transition to an entirely cashless society is imbalanced across different regions of the world. About one-third of the global population do not have access to the internet and approximately 2% of the population in the UK alone remains unbanked. Brazil represents an interesting example of advancement to a more digital and inclusive economy. The country’s digital progress is the result of a combination of an overhaul in its payments regulatory framework, use of technology, entrepreneurship and a focus on creating customer-centric products which cater to Brazilian consumers’ needs. 

India’s UPI is another exciting example of a nation’s digitisation. UPI allows instant money transfers between bank accounts through mobile devices for consumers in India. This system has transformed the local financial landscape by making digital transactions accessible and efficient for millions.  In June 2023, nearly 9.3 billion transactions were carried out through the UPI network in India. This is remarkable considering that the volume of UPI transactions was just around 300 million transactions in August 2018.

Furthermore, generational differences are another reason many are against going cashless. On one side, older customers may prefer human interaction and using cash for transactions, whereas Millennial and Gen Z consumers are more likely to embrace the convenience of contactless digital payments. In fact, nearly a third of elderly people feel uncomfortable about the idea of online banking due to a fear of fraud, lack of trust and a lack of IT skills. 

Additionally, it’s worth mentioning that the COVID-19 pandemic accelerated the shift towards digital payments, proving how quickly people can adapt under certain circumstances. In the US, cash accounted for 15% of POS transactions in 2019, falling to 12% in 2023, and it’s projected to plummet to 8% by 2027. The shift away from cash has shown lasting effects as consumers have embraced the convenience and value of digital payments, with many now preferring contactless methods over traditional ones like cash.

All of this ultimately accentuates the need for innovative and adaptable solutions that address diverse financial circumstances and technological capabilities. Innovative solutions like PIX, UPI and Open Banking will be pivotal and this technology is set to transform the financial landscape, by enabling more seamless financial services, minimised risk for merchants and greater control over personal finances. Merchants and financial institutions, including banks, should be committed to improving digital literacy through educational initiatives, so that new initiatives and payment methods become more accessible, and can help achieve a more interconnected and efficient global economy.

Navigating the path to a cashless society 

The transition towards a cashless society is well underway, driven by the increasing prevalence and convenience of digital payment methods. This shift offers significant benefits in terms of efficiency, security and transparency, presenting exciting opportunities for the future of financial transactions.

While there are challenges to address, such as ensuring accessibility and adapting to diverse technological capabilities, drawing inspiration from economies that are leading the charge in digital transformation, embracing innovation and the use of financial technology can help navigate these complexities. By doing so, we can create a more efficient, secure, and interconnected financial landscape on a global scale.