World Reimagined: Is There A Future Without Cash?

When Shelle Santana was a child, her parents bought almost everything with cash. They would regularly tell her that purchases should be made with physical money and that credit cards were only for emergencies.

“I behave in the exact opposite way of how I was raised,” says Santana, an assistant professor of business administration in the Marketing Unit at Harvard Business School. “I use credit cards to pay for everything.”

Santana is one of millions of Americans who pays for everything with plastic. She also studies how companies use cash and cards, and found that many more businesses have gone cashless (defined as at least 95% of transactions occurring through debit, credit, or mobile payments) since the pandemic began. She analyzed data from point of sale company Square and found that on March 1, only 8% of Square’s sellers were considered cashless. By April 23, that number had climbed to 31%.

While she thinks that number will decline somewhat as the economy opens up, with the pandemic making people think twice about handling physical money, and with more businesses accepting contactless payments – transactions via credit, debit or mobile apps – there may come a day where hardly anyone uses cash.

“There are certainly benefits to going cashless,” she says.

More contactless connections 

While credit card usage among consumers has been on the rise for years, the pandemic has significantly increased the adoption of non-cash payment sources. With stores closed and with worries around whether the virus could spread on surfaces, many retailers had to make it easier for people to pay online -- or at least quickly and with limited physical contact. 

In an August survey, the National Retail Federation found that 67% of U.S. retailers now accept some form of no-touch payment, with 58% saying they accept contactless cards – up from 40% in 2019. And, while 19% of consumers said they made a digital payment in-store for just the first time in May, 94% of retailers surveyed expect the use of contactless payments to rise over the next 18 months.

Contactless payment methods have been around for a while, but in many ways cashless commerce is still in its infancy, says Andres Ricaurte, senior vice-president and head of global payments at Mphasis, a company that helps firms with their digital transformations. 

Over the next several years, the digital payments market will evolve in significant ways, he says. With the advent of open banking – a system that allows financial firms, fintech startups and others to share data and financial information easily via APIs – businesses can create account-to-account transactions, where money from one place goes directly to another without needing a credit card company or bank to act as the payment processor. 

This would allow all kinds of companies to accept and process payments, he explains. For instance, Ricaurte sees a time when a company like Starbucks lets customers use its app, which includes a prepaid “card” that people use to buy coffees instead of their credit card, to purchase anything from any store. They might load their card with $1000 and then purchase something online from a store that uses Shopify. The dollars would go directly from the card to the merchant and into their bank. 

Skipping the credit card company eliminates several fees, but it also allows companies to learn more about their customers’ purchasing habits and keep their brand top of mind.

“Companies like Starbucks, Uber Eats and Airbnb are now thinking, if I can facilitate payment to our core service, why can’t I facilitate other kinds of payments?” he says. “And when you do that you can have greater rights to the user’s share of mind.”

While the Starbucks example is, so far, hypothetical, but entirely plausible, says Ricaurte, some companies are already trying to shake up the payments system. In May, Shopify said it would start offering deposit accounts and payment cards to small business owners, while companies like Venmo, PayPal and Zelle are making account-to-account transactions between individuals and businesses far more commonplace. 

Challenges remain 

Making it easier and cheaper for people to pay without money is a key to becoming a cashless society, but there are still questions as to whether economies should stop accepting physical dollars entirely. There are advantages to cashless, says Santana. It becomes faster to transact, it’s safer for companies who no longer need to hold money on premises, there’s no more going to the bank to make deposits, it’s easier to track tax evasion since every transaction will be recorded, and so on. 

However, a lot of people don’t want to keep their money with a financial institution. According to Santana, 8% of Americans have no bank account, while about 16% are underbanked, meaning they don’t often use the account they have. In some developing countries, people still keep cash in drawers at home because they don’t trust the banks.

“About 25% of consumers in the U.S. are not financially secure enough to use a financial institution for their financial needs,” Santana says. “And so it becomes much tricker to go cashless if you’re going to marginalize one out of every four U.S. consumers.”

A lot service workers, such as taxi drivers and waiters, would also balk at having to accept digital tips, which could then be tracked and taxed, says Ricaurte. “There’s a whole secondary economy that flourishes by being off the grid,” he notes.

Martin Chorzempa, a research fellow at Washington’s Peterson Institute for International Economics, adds that there are also a lot of legitimate reasons as to why someone might want to transact anonymously, which could be a problem in a fully digital commerce economy. 

The only way a society can become truly cashless is if they can entice the unbanked to open a bank account, if there was a way to quickly convert cash into some sort of digital currency, and if, says Chorzempa, people could easily hold assets across multiple accounts, since a lot of people don’t want to keep all of their money with one institution. 

Sweden, she adds, is farther ahead than most countries, with about 85% of its transactions done electronically with a contactless debit card on their phone. But there are some worries there that they’ve gone too far too fast.

“Even in Sweden people are becoming increasingly concerned with who gets left behind by a cashless society,” she says. “Any significant move toward cashless in the U.S. would need to address these concerns. While I do see the U.S. evolving to a 'less cash' economy, I don't see 'cashless' being on the horizon in the near term.”

Ricaurte echoes those sentiments, saying that “even in a fully advanced society, cash needs to be part of the strategy,” he says. “You have to think about the holistic payment experience.”

Still, COVID-19 is certainly pushing people around the world to embrace more digital and contactless forms of payment. Santana does carry a bit of cash in case of an emergency, but, unlike in her parents’ generation, her credit card – and now her phone – will always be the best way to pay.

“I do everything digitally as much as I can and, in the pandemic, much more so,” she says. “Now I just use my phone instead of my card, making even fewer points of contact.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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