Back in 2016, the CEO of Deutsche Bank, John Cryan, predicted that by 2026 cash would no longer be used and the world would be thriving in a cashless society. The term cashless society refers to the economic situation in which any type of financial transaction is conducted through transferring digital information, instead of physical money.
The frequency in which financial transactions are performed digitally, by using credit or debit cards, along with other modern payment methods, such as mobile payments and digital currencies, has been increasing over the years.
Person Holding Black Android Smartphone Close-Up Photography (License), by Clay Banks
This trend increased even further amid the COVID-19 pandemic, with many people across the world abandoning cash in favor of digital payments. In 2020, the use of cash fell by 35% in the UK, as stated in The Guardian. That same publication establishes that 13.7 million people currently don’t use cash in their daily lives.
During that same year in the USA, only 12% of payments were made using notes or coins, with the vast majority of consumers (67%) using credit cards and debit cards to pay for their purchases. Other digital payment methods comprise the remaining 21% of consumers, with digital or mobile wallets taking the lead, followed by charge cards, prepaid cards, and POS financing.
It’s also important to consider that, although most developed countries are highly reliant on cashless payment alternatives, the same doesn’t happen in all regions. In fact, four out of the ten countries that are the most reliant on cash are European: Romania, Bulgaria, Ukraine, and Hungary. Alongside it’s possible to find Egypt, Kazakhstan, Morocco, Philippines, Peru, and Vietnam. On average, half the population of these countries don’t have a bank account (50,3%) and use cash as the main payment option (48,7%).
Although there are different realities across the world, it’s possible to expect that the use of digital payment methods will continue to increase in the following years. With this in mind, it’s important that businesses are prepared for this new economic state.
What Steps Have Companies Taken So Far?
The greater part of consumers nowadays is part of the Millenial (25%) and Gen Z (40%) generations. This segment of the population, which has been greatly surrounded by technology since being born, has a greater acceptance of new ways of paying than older generations.
This is possibly one of the reasons why digital payment methods, such as e-wallets and cryptocurrency, have become one of the staples of recent years. At the same time, businesses have identified the need to cater to this group of consumers, and have also been moving towards the elimination of traditional payment methods.
Cheques, physical notes and coins, as well as manual payment processes, are now becoming obsolete in certain sectors. In fact, CNBC published an article in 2019 stating that 34% of the adult population under 50 in the USA admitted to not using physical cash in their daily lives, and this percentage is likely to be higher in 2021. Because of this, companies must start adapting to the possible cashless future, but according to some industry experts, it seems that they are already doing so.
Andrew Reid, who is the head of cash management corporations at Deutsche Bank, and who is responsible for three world regions, stated that the corporate world is already cashless “in their minds”. During that same statement, it was mentioned that removing manual payment processes is more cost-efficient and accounts for fewer risks. As such, it’s possible to expect an increased speed of digitization of payments in the years to come.
The Current Digital Payment Industry
The Digital Payments sector is nowadays the biggest segment of FinTech. According to Statista.com, in 2020, the digital payment sector counted with a global transaction value of US$5,204 billion. Earlier this year, CPA Practice Advisor, a leading online magazine focusing on accounting and tax, shared that the digital payments sector is expected to reach US$6.6 Trillion in the current year.
For the time being, China keeps the lead in the digital payments market, followed by the USA, and Europe. Sector-wise, it’s possible to say that most digital payment solutions were developed with the B2C markets in mind, but this fact is changing. It’s expected that in the upcoming years the companies behind digital payment methods will shift the focus to B2B operations.
Over the past year, it was possible to see the steady increase of businesses accepting digital payments as one of their methods and, in certain cases, the only one. Examples include the ever-growing number of delivery companies, that had inflation of customers during the lockdown, and that in most cases solely accept digital transactions.
Other examples include the entertainment sector, such as media platforms like Netflix and Spotify, and even online gaming. From gaming consoles to online gambling, the most used payment methods are those that don’t require physical cash. It’s possible to analyze this trend at SBO.net, a guide about online gambling that covers the payment methods available at betting platforms.
What To Expect In The Near Future?
Although we won’t live in a cashless society in the next five years, it’s important that these topics start getting increased attention. Certain countries, like Sweden, are well underway to eradicate the use of traditional payment methods, with only 20% of the country’s transactions being processed with cash. We can expect a similar future across other big nations in the world, and due to that, businesses must continue adapting to this reality.
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