A preview of a cashless future: where everything is bought with digital payments.

July 6, 2017

From barter to cash to checks to online banking, money is an evolving technology that has been part of human history for thousands of years. Imagine a cash-free society, where all financial transactions are conducted via mobile app.

Sweden is on the cutting edge

The country has been an early adopter of several technologies; for example, both personal computers and mobile phones took off early there, Bloomberg reported. The same is the case with mobile payments: With a population of just under 10 million, some 5.5 million Swedes now use a bank-owned app called “Swish” to send and receive payments.

Most flea market vendors now prefer to be paid via Swish as opposed to cash, Bloomberg reported, and even the homeless have begun moving away from cash payments. Most of the banks in Sweden no longer handle cash transactions — and retailers are legally allowed to refuse physical money.

India could become the first digital, cashless society

Modi’s move to demonetize the country was viewed as an isolated event. However, it was the action that forced everyone into the new digital system. Since Aadhaar was launched, 270 million bank accounts have been opened in India. A 2015 report from MasterCard found that India was one of the countries least ready to transition to a digital payment system. Yet, 12 months later such a system was rolled out.

If the transition to a digital society can happen in India, where just 2% of transactions were non-cash a few years ago, it can happen anywhere. India Stack could fast-track the move to digital payment systems across the developed world and mark the end of cash. For astute investors, there are also huge investment opportunities in this revolution.

Pros of a Cashless Society

Increased scope for monetary policy: In normal times, people choose cash’s convenience (at a zero interest rate) over other safe assets offering higher yields. During economic downturns, governments have difficulty stimulating the economy by lowering interest rates, because people choose to hold cash instead. Therefore, due to the existence of paper currency, governments and central banks possess limited power to stimulate economic growth. This is known as the zero lower bound theory.

Reduced tax evasion: Digital money and money services would bring about increased transparency in transactions, providing governments with enhanced abilities to track and analyse citizens’ financial activities. Ultimately, this would decrease tax evasion and increase tax payouts to the government.

Savings on costs of cash: Nations can benefit from the shift to cashless transactions by saving on the cost of cash. These costs of cash include ATM fees for individuals, cash storage and transportation expenses for businesses, and currency printing costs for governments. According to research conducted by the Tufts Fletcher School of Law and Diplomacy, the aggregate cost of cash in the US is $200 billion annually. The estimated cost of cash is MXN 3-6 billion annually in Mexico, and over Rs 200 billion annually in India.

Fostering the adoption of new wireless technologies: A cashless society could accelerate the path to digitisation, pushing those who might otherwise be reluctant—or previously have no need—to modernise. According to the McKinsey Global Institute, digital finance could provide an additional $2.1 trillion of loans to individuals and small businesses as providers gain improved abilities to assess credit risk for a larger pool of borrowers. Financial services providers would also benefit from a shift from traditional to digital accounts, potentially saving $400 billion annually in servicing fees.

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