Trade transactions between humans have taken place since the beginning of time; we started off with bartering and eventually moved to the use of money, something that has stuck with us. Now, as our lives have become more and more digitized, so have our financial systems; we are moving towards a cashless future where we can pay for things by simply scanning a QR code or waving our cards. From tangible monetary transactions, to intangible digital monetary transactions, this change has consequences; some positive and others negative.
Currently, we now live in the world of “FinTech”, which is the abbreviation for Financial Technology; this emerging industry is based around the delivery of digital financial services. For example, many target banking services, where we no longer have to physically go to the bank to carry out transactions; we can simply do so through Apps on our mobile phones or via websites. However, as we move more into the realm of virtual space and away from hard cash, what does this mean?
Sweden is leading the path when it comes to a country going cashless. According to an article published by National Public Radio (NPR) news “In 2018, only 13% of Swedes reported using cash for a recent purchase, according to a nationwide survey, down from around 40% in 2010”.
If you visit Sweden, you will meet signs that say “No cash, only card” in many businesses. Cash is increasingly becoming scarce and due to strong broadband coverage and a welcoming attitude of a Tech-Savvy population, the trend is heading at full speed. Even at many banks, you will be hard pressed to find actual cash. Many people find it convenient to move around without cash as it lessens the risk of being robbed and also makes monetary transactions faster.
While many around the world worry about the risk of surveillance in the digital era, Claire Ingram Bogusz, a researcher at the Stockholm School of Economics says that “Ordinary Swedes are not concerned at all. The convenience of having your bank account, your money at your fingertips and increasingly on your smart watch vastly outweighs any concerns that they have about security or about being tracked”.
A friend of mine visited Sweden recently, and when I asked about her experience there, she had the following to say “basically, cash is not expected anywhere I have been to in Stockholm. This made our life so much easier since we did not need to convert currency. It was an amazing experience unlike travelling to a country where credit card machines are not easily available, or the ones that are available do not work with your cards. You avoid embarrassing situations of not having enough cash, and you can easily pay with your phones and digital watches”.
My friend’s experience is echoed in what Christopher Loob, General Manager of Urban Deli, a restaurant and ecological food company in Stockholm, had to say about the issue, "It is good for both, the guests and for us. It saved us a lot of time in that we do not have to count cash anymore. There has hardly been any reaction. Almost everybody has the alternative payment method—a credit card”.
As mentioned, people in Sweden regard going cashless as a way to avoid theft which goes hand in hand with what some of those pioneering the expansion of the technology in the financial sector believe, and that is relying on digital payments will make it easier to enforce the law and limit criminal activities. This is because online activities can be tracked and monitored, which makes it easier for government surveillance to take place. This will facilitate combating tax evasion, bribery, counterfeiting, illegal financing, and many other criminal activities.
Another advantage of the ability to track electronic payments is that the data can be used by central banks and the financial sector to make informed decisions regarding economic policies based on collected data. Money changes hands quickly, and with cash there is no way of knowing the whole cycle, but when we pay for things online everything is visible. While this digital footprint can be regarded as one of the advantages, it can also be a disadvantage given the rising concern with online privacy as well as safety.
We have already witnessed how data can be sold by companies and used to manipulate the public. There has also been several cyber-attacks on companies where sensitive customer data was leaked, leaving many vulnerable to cyber-crime. There is also the issue that the infrastructures needed to move towards a cashless future are not available to all.
While in some countries, such as Sweden, the idea of going cashless is becoming a daily reality, the abandonment of the use of cash runs the risk of leaving behind vulnerable sections of society. This can include the elderly and the underprivileged who may not have the access or know-how to use today’s digital financial tools. After all, it is estimated that around two billion people globally do not have a bank account, which is why some people are still very much attached to the idea of using cash. Cash is accessible to all whereas digital financial services are not.
While going cashless and depending on the use of smartphones and cards is becoming more popular, many ponder the effect this will have on the environment. Upon first thought, the idea of leaving paper behind seems like an environmentally friendly solution; after all, anything that means we cut fewer trees must be good for the environment, or is it?
In a paper written by Sabrina Rochemont entitled A cashless society: Benefits, risks and issues, “Among all the devices, trends suggest that by 2020, the most damaging devices to the environment are smartphones. While smartphones consume little energy to operate, 85% of their emissions impact comes from production. A smartphone’s chip and motherboard require the most amount of energy to produce, as they are made up of precious metals that are mined at a high cost. Smartphones also have a short life, which drives further production of new models and an extraordinary amount of waste”. The production of smartphones is not the only issue; the data we use to perform our online transactions has to be stored somewhere.
While we can use our smartphones to make cashless payments, these go through large networks of server farms which need a lot of energy to keep them running. With the increasing demand for electronic financial services, we ramp up electricity consumption, which in turn majorly relies on fossil fuels, the use of which is well known to be detrimental to the health of our planet. As mentioned by Bridget Dayton in the article Ecology: The Carbon Footprint of the New Means of Payment, she says that, “Experts calculated that the footprint of data centers and communication networks will reach 764 megatons in 2020. In other words, their footprint will equal that of over 163 million cars driven for a year”.
It is therefore important to weigh up the pros and cons of a cashless society and the reliance on FinTech. If we are inevitably heading towards that future, studies need to be conducted to ensure that correct foundations are laid ahead of time to minimize harm to people and environment.
Resources
actuaries.org.uk
bcg.com
cashless-economy.com
forbes.com
greenjournal.co.uk
npr.org
Cover Image by freepik