Just 155 years after the United States government began issuing banknotes in 1862, cash seems about ready to say goodbye. The Federal Reserve Bank of San Francisco revealed that in 2012, only 40% of payments in the U.S. were made in cash, and the number is only expected to drop even more in the coming years. A TSYS survey also found that only 9% of Americans preferred paying in cash.
Since the introduction of debit and credit cards, the goal seems to be to make cash obsolete. With the rise of online shopping,prepaid credit cards,andmobile payment schemes, we are definitely closer to becoming a cashless society than we think. If you are interested in investing or launching your own financial technology (fintech) venture, here are some of the challenges that you may face, as well as the opportunities that you can take advantage of.
Opportunity: Wide Adoption of Mobile Devices and Mobile Internet
The growth of mobile, cashless payments in China is due in part to the large number of mobile phone users in the country. WeChat, the messaging app from Chinese tech giant TenCent, had over 963 million active users in the second quarter of 2017 alone. This huge number also means that more people have access to a reliable internet connection, which is critical for mobile-based cashless payments like WeChat Pay. In the United States, mobile phone penetration is expected to reach beyond 80%, so investing in cashless payment solutions anchored on mobile holds a lot of potential as well.
Connecting bank accounts or money markets to mobile phones and applications—like how Chinese ecommerce company Alibaba connects its Alipay app to its own money market fund Yu’eBao—is also an important component of going cashless. Other business solutions, like the widespread adoption of wireless broadband for retail can also prove to be useful in instilling confidence in cashless transactions, since reliable internet connectivityhelps ensure that payments will go through smoothly.
Opportunity: Security and Fraud Tracking
Online transactions do pose some security threats, but whatever financial fraud committed through cashless payment systems are also easier to track. Think about it this way: if a wallet filled with cash is stolen and the thief spends all the money, there is virtually no way to get it back. However, if an anomalous transaction happens using a credit card or other cashless solutions, it will be easier to track and, with enough proof, recover the credits. What fintech companies can do is to double up on their security features and ensure that, should something untoward happen, their customer service team is up to the task of handling the fallout that follows.
Economy-wise, a cashless society allows for more flexibility in developing monetary policies. Going cashless can also effectively eliminate black markets, because cashless payments leave a digital trail that can be tracked through a database.
Challenge: Convincing Customers to Adopt Cashless Payments
While online and other cashless payment options have grown in popularity and coverage through the years, there is still room for improvement especially in terms of community acceptance. The younger and more tech-savvy adopterscan easily and be more willing to make the shift, but confusion is rife with the elderly, those with a shortage of digital skills,and those who are not exposed to digital services in the first place. Then there are also those who are unbanked. Considering that a huge chunk of cashless payment options still rely on connecting bank accounts to mobile devices and apps, this is a considerable hurdle to overcome.
Communication is one of the primary solutions to address this matter, especially in explaining the advantages of cashless transactions. Encouraging direct debits and teaching budget management may also help bridge the gap and slowly increase the acceptance of cashless solutions.
Challenge + Opportunity: Cultural and Economic Nuances
Some cultures are simply not used to doing cashless transactions. In much of Asia, for example, there is low credit card penetration. However, the region has high mobile penetration and online connectivity, paving the way for non-credit card cashless payment options. Meanwhile, Sweden and Finland has made headway into the cashless revolution, although instead of credit cards, Swedes and Finns prefer debit card transactions due to the ease of funds transfers.
This means that a fintech company should be open to altering its products and services to align with the mentality of the community they are trying to serve. Once the consumers have been used to the practice, more and more options can slowly be introduced.
Cash may very well be on its way out. The only question that remains is how long the transition is going to take. Or maybe cash will never truly die and will instead be seen as a niche product. One thing is for sure: now is the time, more than ever, for the private and public sectors to tackle the challenges and build on the current gains to reap the benefits of going cashless.