Posted by Bethany Frank on 09 Feb 2016
Physical currency is as old as history itself, but modern technological and lifestyle changes are causing a shift in the way people exchange value for goods and services. Emerging financial technology trends show that many segments of society are ready to go cashless. Mobile payment platforms, contactless payments, and concepts such as bitcoin all suggest that businesses, consumers, and financial institutions alike understand the benefits of ditching cash.
In developing nations like Nigeria, cashless financial transactions are fueling economic empowerment. Last year, the Nigerian government launched a state card pilot program that grants financial aid to 13 million Nigerians through an electronic payment system. According to Dr. Leora Klapper, lead economist at the World Bank Development Research Group, “digital financial services lower the cost and increase the security of sending, paying, and receiving money."
The increased digital financial activity in developing regions is largely driven by mobile technology: population segments that were historically ostracized by banks can now access independent app-based financial tools through their cell phones. Digital payment and money management apps remove the restrictions and dangers of physical currency and enable the poor to conduct financial activity beyond local boundaries. The expanded accessibility is increasing financial inclusion in developing regions and improving the quality of life for millions of people living in poverty.
In the West, several northern European nations are fully embracing the idea of a completely cashless economy. Consumers in Norway and Sweden rely on cash for less than 6% of all payments made today. Furthermore, the amount of cash in circulation within Sweden is expected to decline 20-50% by the year 2020 according to data from Sweden’s central bank. A number of technological and social trends are driving this rapid decline in cash payments, leading to speculation that Sweden might soon become the world’s first truly cashless economy.
Cashless transactions are taking hold in the United States as well, albeit at a slower pace. With credit and debit card usage already at an all-time high, mobile payment platforms like Apple Pay and Android Pay are expected to drive a larger shift towards digital payments. The trend is likely to be further buttressed by some big-name retailers as they join the race to grab a share of the mobile payments market.
P2P payments are also going cashless with social payment apps like Venmo transforming how Americans lend money to friends and family. Splitting a bill used to mean that one person picked up the tab using a credit or debit card, and everyone else reimbursed that person with cash; in contrast, Venmo and similar apps enable users to transfer funds directly from their bank accounts to another’s, entirely eliminating the need for cash. Thanks to its speed and simplicity, payment volumes on Venmo are skyrocketing— in Q2 of 2015 alone, users sent over $1.6 billion through the app.
In addition to mobile-driven digital payment technologies, alternative currencies like bitcoin pose a threat to paper currency. Although it is often considered a failure due to low consumer interest and adoption rates, the advent of bitcoin led to worldwide conversation and speculation about the future of currency, and many experts agree that the future is digital rather than paper-based. Despite hurdles, bitcoin usage continues to increase year after year as well. According to Brian Armstrong, CEO of major bitcoin exchange Coinbase, “the ultimate aim is to turn bitcoin into something that anyone can use to more easily store, send, and receive money.”
While it’s unlikely that paper and coin-based money will disappear altogether anytime soon, it is no longer unreasonable to imagine societies in which all financial activity is digital and cash does not exist. Both industrialized and developing nations are quickly adopting cash alternatives and digital payment technologies in lieu of physical currency. These new technologies not only have the potential to help businesses and governments save on printing and operational costs, but can also promote socioeconomic mobility among the impoverished and help create a better world at large.
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