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A world without cash?

03 February, 2017
Hank Uberoi
Hank UberoiChief Executive Officer
Insights

Recent events in India, where more than 80% of physical cash was removed from circulation, could provide some clear pointers to the future of money. This tentative first step towards a cashless society has been called ‘a cultural economic revolution in the making’.

In India’s case, 96% of transactions are currently carried out in cash. Many people still do not have bank accounts, meaning there is tremendous upside in driving the financial inclusion agenda. There is widespread realisation across the globe that, in a digital world, everything does not have to be about cash.

Could this bold and far-reaching move be contagious? At the moment, it would seem unlikely, as people still like having actual cash in their pocket. It will be very difficult – at least, initially – to replace the trust factor of possessing physical cash, so I don’t expect anything to move very fast in the broad adoption of a cashless economy. Of course, extraordinary events could change that but over the next five to seven years, India will pave the way for the private sector to become cashless.

India is not the only country that is eyeing the potential of removing cash from the system. Sweden, for example, is using less and less physical money – since 2009, there has been a 40% decline of notes and coins in circulation. Experts are predicting that Sweden, the first country to issue bank notes in Europe, will preside over the continent’s inaugural cashless economy. It is not unrealistic to expect other European countries outside the Eurozone to follow suit. Sweden’s neighbour, Denmark, is similarly keen to get rid of cash – although emerging markets could show the way forward far sooner.

Overall, the use of cash is in decline as more flexible methods of making payments come to the fore. Certainly, in the low value cross-border payments space, non-cash business is growing faster than cash. Domestic payments, the vast majority of which are in cash, will be more affected by the eradication of physical money. In the ecommerce world, all B2B transactions are non-cash, so any impact from the phasing out of cash will be negligible.

The underlying driver for the abolition of cash will undoubtedly be technology. As ecommerce continues to grow, we will see greater interconnectivity across e-wallets, bank accounts and point-of-sale devices.

This will be heavily influenced by a millennial generation that has more comfort and dexterity when it comes to making digital payments than older generations.

Arguably, cash belongs to a bygone age and in some ways, it is an inconvenient form of currency. But the events in India are merely signalling the start of a new mindset that will take some years to formulate. An ill-timed and badly-constructed transition would be disastrous for any economy. We shall all closely watch how events unfold in India in the next few years.

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