Closer than we think.
Digital transactions, credit cards and the absence of cash from our lives has been an upward trend for the better part of a decade. The more comfortable people get with digital payments, the more cash is phased out of our daily lives. Here’s the question we’ll try to answer today: How close are we to a totally cashless economy? Is that a real possibility?
UAE Is Leading The March Towards A Cashless Economy
If we are indeed going to end up in a cashless economy, that will happen in phases and stages. Surveying the current economic landscape, it seems that the UAE is leading the way, showing an acute propensity towards digital payments.
For starters, the Central Bank of the UAE (CBUAE) issued new regulation to support the development of digital payment services in the region. Couple that with a Mastercard survey in April, which found that 82% of UAE consumers prefer to make contactless payments, and what you end up with is a region that does not only believe in a cashless economy, but is actively taking steps to make that happen.
The Mastercard survey results weren’t the only ones to draw attention to UAE’s growing digital payments appetite.
According to Standard Chartered’s latest global survey, almost half of global consumers expect a cashless world by 2030.
Here’s what Sonny Zulu, Head of Retail Banking, Standard Chartered UAE had to say about the findings of the survey:
“The UAE is on a fast track in adopting digital banking and cashless payments and the pandemic has accelerated the digital drive. This is also mirrored in our digital transformational strategy at the Standard Chartered. We see consumers in the UAE, spending more on basics – such as groceries and healthcare – and digital devices than they did prior to the pandemic, and they expect this increase to continue in the future.”
China Might Have Something To Say
UAE might actually have a fierce competitor in the race towards a cashless economy. Unsurprisingly, that competitor answers to the name of China.
According to the first China Fintech report by SCMP Research, 87% of consumers are using fintech services, China holds a US$29 trillion mobile payment market in 2019, and the largest global market for online securities trading.
Those are stats that’re quite hard to refute.
Let’s not forget that the country is nearing the launch of the world’s first national digital currency. Take that and pair it with the fact that People’s Bank of China is overseeing a substantial number of tests of its Digital Currency Electronic Payment (DCEP), and you quickly realize that the country is determined to show the world what a cashless economy looks like.
Here’s what SCMP’s business editor Eugene Tang had to say about the findings of the report:
“The fintech companies of China, which are already pushing boundaries and setting the bar higher than any other company anywhere else, are expected to expand beyond Chinese shores into the broader world. The coronavirus pandemic, which has led to paradigm shifts in the way humans earn and pay, will only accelerate the rise of fintech, with increased investor and consumer appetite for online financial services.”
A cashless economy is as much a matter of infrastructure as it is a matter of will. According to the Ministry of Industry and Information Technology (MIIT), the number of 4G base stations in China totaled 5.44 million in 2019 – more than half of the world’s total. When it comes to 5G, China reached 110 million users in just a year.
Cashless Economy: The Challenges
While UAE and China are the poster childs of a cashless economy, the truth of the matter is that there are some serious considerations to be made when it comes to global adoption. Let’s examine the challenges associated with a world without banknotes.
What Happens To The Unbanked?
The Western World is lucky to enjoy the wonders of Wi-Fi and cellular Internet connections and all that comes with it. Our convenience sometimes blinds us to the fact that not everyone in the world has an internet connection or a bank account for that matter.
The Federal Reserve estimated there were 55 million unbanked or underbanked adult Americans in 2018 alone. Internet penetration statistics show that less than half the people in Africa have Internet.
The findings are quite clear: the infrastructure to support a totally cashless economy has still ways to go.
Cash Is Still King
The world is moving to digital and the pandemic has definitely expedited that process but to say that cash is not used by anyone would be a lie.
Data proves that cash is still king in certain countries in the world. Why is that the case, you might ask? In most cases, fear of change and the power of habits are hard to overcome. People are creatures of habit and to ask them to change a process such as payments is not the easiest thing in the world.
While cashless payments might be seamless and more convenient, some people are still wary about sharing their personal information and trusting a third-party platform to process their transactions.
In other cases such as Japan, the population is resisting change due to a generational gap in understanding technology.
How close are we to a cashless economy? Closer than we think but still, with a long way to go. The path is not going to be easy but we’re definitely moving towards that direction.
If the examples of China and the UAE are anything to go by, we’re making huge steps towards an economy that only uses digital payments methods. The root of the problem is whether we’ll be able to close the gap in infrastructure between the west and less-developed countries.
Stay tuned to the Axios blog as we will be back with more information on this.