It’s no secret that cash is being used less and less frequently. This has brought light to something we now refer to as a cashless economy. Or in other words, an economy characterized by the exchange of funds by electronic methods other than cash. This includes cheques, e-wallets, debit and credit cards, or cryptocurrency. While this trend has been on the rise for years, COVID-19 has further accelerated this transition. Sweden being among one of the first, with the expectation to become fully cashless by 2023. This is because cash passed from buyers to sellers is considerably less clean than using cards and other contactless payments since people don’t want to touch anything. Touchless payments have since encouraged customers and retailers to use cards and smartphone apps. While this might seem great. in the meantime, there are several hidden dangers of a cashless economy.
This might not sound like good news especially when a cashless economy seems like the natural progression of consumer purchases. That’s why we put together a list of 12 dangers that will arise in a cashless world. Keep in mind the ideas discussed in this article are largely based on speculation. They in no way reflect our own opinions at Hedgetrade.
No Cash Makes It Harder To Teach Your Kids The Concept Of Money
From a young age, it is important to teach children about the concept of money. Building these habits young goes a long way in ensuring financial literacy in adults. From the ages of 4 to 7, children should understand the principle of counting. As a result, they can see this first hand with physical coins. Walt Gardner, the Reality Check blogger at Education Week, states that “Forcing children to pay cash makes them feel an immediate connection between their spending and their budget. It also tends to impress upon them the importance of saving.” This concept can be lost using abstractions like a credit card which are foreign to a child.
In a cashless economy, there is a chance that kids will be set back when trying to develop financial literacy.
A Cashless Economy Means No Cash Gifts
This might not sound like a huge deal, but hear us out. In recent years cash gifts as wedding gifts are becoming more and more common. But that might not be possible with a cashless society. Instead, we would be resorted to offering Visa gift cards or e-transfers. Money is money. For some of us, there might just be something about opening a birthday card and seeing some crisp dollar bills. According to one survey by MintLife, 61% of Americans were hoping for cash as a holiday gift in 2019. Cash is often considered a more practical gift than receiving an unused gift that might have taken a lot of time to pick out.
Alternatively, a study by MarketWatch shared that $1 billion in gift cards go unused every year. There is even a market to resell unclaimed and unwanted gift cards. This might just suggest in terms of gifts, cash might still be king.
Can’t Pay Bills With Side Jobs
Consider for many, that they might earn a good chunk of their living working cash-paying jobs. This is not uncommon for immigrants, students, or independent earners who have taken upside jobs that pay cash. However, in an economy that doesn’t accept cash, these jobs would no longer be a viable option to pay bills with. For those that are entrepreneurs earning cash, this can be especially harmful since like small businesses, accepting card payments might not be feasible. Furthermore, the majority of these ones may only have access to cash, so cutting off their funding can cut them off from banks and society as a whole. Solving this problem will require banking solutions to those who don’t have a proper bank account.
This could prove problematic for those that depend on cash-paying jobs for the majority of their income. However, the problem also persists as the cost of living increases. This has led many to pick up side hustles or other forms of passive income that pay in cash to cover their expenses.
No Rainy Day Funds
Many of us might like to put away our change into a jar that helps serve as our rainy day funds. However, in a cashless economy, the concept of keeping money in your piggy bank goes out the window too. For those who feel more secure having personal cash storage on hand, they might just be out of luck as well.
Cash not only helps rainy day savings to grow but it also helps people to budget. One of the first things people in debt do is cut up their credit cards and allocate a certain amount of cash for their expenses. This helps to reduce overspending. However, in a cashless economy there runs the risk for some people to recklessly spend money they do not have since seeing physical money gives consumers a connection to the money. This is often lost when you pay for things on the card and you never really “see the money.”
Difficulty for Charity Collection
It is no secret that the majority of our charitable donation doesn’t go to the people it aims to help. This is because in most cases, administration fees need to be paid for full-time workers that are trying to help the cause. In a cashless economy, another fee that will need to be considered is a credit card fee. Although a small percentage, this would also eat out of the amount of your charitable donation.
Additionally, many charities still get many donations through cash. This is often the case with charities that are promoted at the till of the store or giving change to the homeless. On less frequent occasions, we also might donate at physical pop-ups for the charity. Consumers agree that when there is no set donation amount, it is easy to drop in some of our extra coins without much thought. Therefore, charities will lose out in the sense that people won’t feel as though they don’t have “extra cash sitting in their bag” and might not be in a position to donate. As a result, the concept of cash donations is still very prominent. Especially in the UK.
In more recent times, you might have noticed that charities are partnering with local stores or opening up online donations to accept cashless donations. Moreover, other piloted ideas such as Helping Heart, Greater Change, and Samaritan have been actively looking for opportunities to match homeless people and charities with willing donors to facilitate cashless donations. These avenues have greatly mitigated this concern of a cashless economy.
Private Sales of Goods Will Cease
Next on our list of hidden dangers, is the harm for consumers reselling products on second-hand sites. In recent years, eBay, Kijiji, Facebook Marketplace, and Varagesale are being used more and more frequently to go out with the old and in with new. However, the majority of these purchases are made with cash. Some even allow the consumer to pick up a product in a box outside their home. In exchange, the purchaser can leave the cash in its place. These transactions are simple and easy to execute since we have cash. However, in a cashless economy, the exchange becomes slightly more complicated.
For one, if you are selling a one-off item from your home it is unlikely that you would invest in a device to accept credit card payments. This added expense likely does not make sense especially if you are just selling a small ticket item. Alternatively, receiving a gift card in the form of payment may not seem like a fair exchange for the item you are selling in most cases. Or you might need the cash to help pay for a bill or your mortgage. In this case, receiving a gift card might not do you a whole lot of good.
The only other option would be accepting an e-transfer which also has its risks. This is because e-transfers can be delayed or canceled if you aren’t meeting up with the person. They also remove the anonymity of selling to a stranger, which could bite you in the butt if the purchaser decides they don’t like their product anymore.
While private sales might not be impossible, there is still a ways to go in ensuring 100% secure transactions will ensue.
All Digital Transactions Will Be Traceable
In a cashless economy, another area for concern is that all movements and actions concerning money will now be 100% traceable. This can be both good and bad for your average consumer. Consider that every time you make a purchase you are adding to your digital trail of purchases. This trail will continue to be stored by the data provider, greatly reducing the privacy of a consumer. Cash allows at least some of these transactions to occur anonymously.
Banks have also considered turning the data from consumers’ spending income into a form of extra income. This means that our spending habits could be turned over to retailers so they could target the right markets. The thought is scary. If corporations and governments keep tabs on everyone, private information about us could be released to anyone. This concern on a small scale has been noted with targeted ads on Facebook and Google already. However, a bank having this information can be far scarier. Especially since your bank knows exactly what you spend money on. Search engines like Google only know what we are thinking about spending money on.
Since this pool of data could theoretically be accessed by the government, they can also decide to limit our rights based on this information. This very concept is being piloted in China where the country’s social-credit system rewards and punishes citizens based on their economic behavior. Announcements like this have led many in North America to avoid using banks, simply to ensure their anonymity.
Possible Determination of Purchases That Are Allowed
Another one is banks now have control over what is allowed to be purchased and what is not. With full control over our credit cards and digital payments, the bank also has the ability to accept or deny a purchase we make using their services. This means the bank also has the power to determine what purchases are deemed as ethical. This might include accidentally joining a pyramid scheme. It could also include purchasing high amounts of alcohol or marijuana or a gun. These activities would likely no longer be allowed at all. Our attempts to make these purchases will also suggest to the bank we have been acting suspiciously and should be watched.
Technically, these purchases are legal. But, imagine you just took out a mortgage for a new home or are paying off a vehicle. The bank might take a look at our discretionary spending. This includes your spend on eating out or vacations. They may decide to limit this until we have paid off all our debt. This is good for the bank since it ensures the bank receives the contents of the loan back. However, in the meantime, it also makes us a slave to the institution.
Small Business Will Pay The Costs of Going Cashless
Consider that small businesses that might have saved money by accepting cash, might now suffer. This is because accepting credit cards costs money. This “card-swipe” fee is around 1 to 2 percent of each credit card transaction. In one study these fees amounted to a combined $43 billion in revenue for Visa and Mastercard. This will only increase as credit cards became one of the only accepted payments by businesses. With a few credit card companies, this fee can be increased. Unfortunately, businesses have little choice in paying these fees.
The impact won’t stop there. Instead, it will trickle down to the consumer. This is because for these businesses to stay afloat, they might need to bump up the costs of their products to cover these fees. This means these fees will be passed on to the consumer in the form of higher product costs.
Small businesses will bear the costs in another way too. Behind this trend towards a cashless economy is the increase in online shopping on platforms such as Amazon. For smaller business owners, moving online might not be feasible depending on their offering. The transition can also be costly without the right expertise. For small grocers and other convenience supplies, this can be detrimental to the business as people become accustomed to ordering these products online. According to McKinsey & Company, E-commerce transactions have already surged by 80% throughout the COVID-19 pandemic.
Banks Will Have More Control
Consider that all of your funds will now be held by the bank, suggesting your wealth is now just a number on an app. This also means in the event of economic turmoil your account can be suspended entirely or frozen for an undetermined period of time. Additionally, more faith will need to be put into the government or private companies. With full control of our spending habits, the bank can also use this as information as to whether we show suspicions of a criminal, if we would make a good employee at a new job or if our habits suggest we should have custody of a child?
If we become more reliant on financial institutions, we also give them the power to impose conditions such as higher fees. With fewer options, consumers might be forced to pay these higher premiums as the bank continues to profit.
This can be somewhat mitigated with blockchain technology that removes the concept of this third-party intermediary.
An Increase In Cyber Crime
While there is believed to be a decrease in crime as a result of a cashless society, consider that criminals are likely to turn from physical bank robberies to digital. The worst part? Digital hackers and robbers can now steal millions of dollars in funds and can hide behind their computers while doing so. This was evident during the attack on Coincheck when $400 million was stolen. The majority of funds that are lost in cybercrimes are never recovered, which leads us to be slightly fearful.
Applications like PayPal and bitcoin provide us some assurance that our payments are secure. However, the more transactions they handle the more enticing they are as a cybercrime target. People continue to lack the education necessary to protect themselves even from smaller-scale crimes. This is because many tend to use unprotected devices and click on malicious websites even by accident.
Cybercrimes can even be scaled to a country as a whole. While this is currently just speculation, countries may now decide to attack each other by sending the countries best hackers into the payment systems of another country. The result could be disastrous.
System Failures Will Hurt More Than Before
As a whole, society has already become very dependent on the Internet. For a cashless society to really take off, this dependency would increase. This is because going cashless hinges on the premise of strong digital infrastructure and cost-friendly internet connections that penetrate rural areas. If we think things are difficult during a power outage now, any system failures or power cuts will only be amplified in a cashless society. This will end up costing companies more now than it has ever before if there are any failures in the system.
While this might seem unlikely, bear in mind that cash is the simplest transaction. In contrast, an electronic payment relies on intricate systems working together to ensure money is transferred from the buyer to the seller. Therefore, a complete system shutdown may be unlikely. But a portion of the system failing isn’t out of the scope of impossible. This can be mitigated if there is a form of emergency backup plan. This usually is accepting cash. So you might begin to notice the issue here.
In the event of a natural disaster, we might also be out of luck. If we go into the grocery store to pick up food or water we might have a hard time paying if all the systems are down. With natural disasters becoming more and more frequent, not having cash could be dangerous.
Vulnerable Populations May Not Be Able To Survive
Consider that while the majority of the population is cashless, many low-income earners and the older population do not have access to electronic payment systems. This means they currently already struggle to make payments with fewer tellers and ATMs in service. Many in this population do not have access to a bank account at all and pay for the necessities in cash. A cashless society would, therefore, punish these consumers who are unable to get a credit card. While these ones might not be the most trusted to take out a bank loan for a house or a car, it seems unfair that they shouldn’t be able to even make small purchases without cash. That’s the great thing about using cash. It provides greater financial inclusion since anyone can use it.
In Canada, this number is bigger than expected, with 3% of the population being unbanked and another 15% being underbanked. This means in order to cater to vulnerable populations, banking groups will need to develop some form of account for people who don’t have a fixed address. This will allow these populations to move forward into what we refer to as a “mainstream society” and may accelerate the cashless society. However, this is only one of the major issues that stand in the way.
A Cashless Economy Might Not Be On The Horizon
We’ll admit we can’t see a cashless economy on the horizon just yet. In Europe, bills and coins continue to account for 80% of all transactions, even with the impending effects of the Covid-19 pandemic. While the convenience of digital payment channels is great for consumers, technology seems to be better in moderation. That is, until more established technologies can mitigate the risks we have noted in this article.
We didn’t mean to scare you off from the cashless economy topic altogether. After all, cryptocurrencies are currently one of the most promising solutions on this front. One of these is our own platform Hedgetrade. To get started app.hedgetrade.com/signup is the place to go!