THE BIGGER PICTURE
Speaking realistically, are we likely to live in a cashless society in the future, or is this wishful thinking? If Sweden is anything to go by, then we will.
There, some 85 to 90 per cent of all payment transactions are made electronically. The Swedes do not like using cash, but across Europe attitudes vary significantly. Some cultures are deeply reluctant to give up cash, a recent consumer survey showed. Germans believe that using cash gives them greater control over their spending and Europe's economic superpower still makes 75 per cent of its payments in cash. In Italy, where the cash culture runs deep, as much as 83 per cent of all commercial payments are made in cash.
However, looking globally, advances in mobile technology have been embraced with real cultural change. Societies in Africa, Latin America and Southeast Asia have recently had the opportunity to leapfrog the old payment infrastructure, skipping the traditional PC in favour of the 4G phone. Societies have culturally embraced this change with resulting massive 4G cellular technology usage for everyday payments.
In Africa, and in particular Kenya and Tanzania, the cashless mobile banking system “M-Pesa” means millions of people pay bills, collect salaries, buy livestock and shop in local markets via accounts on their mobile phones. Not requiring smartphones, M-Pesa leverages old SMS technology for secure everyday payments.
It is in Asia and the US where the cultural change is greatest. In the case of China, western internet systems have been blocked and replaced by two local Chinese internet companies that run WeChat and Alipay, two mobile phone payment applications. Due to the sharp increase in the use of mobile phones to make payments for everything, from groceries to gasoline, these two companies are set to surpass global credit card companies like Visa and Mastercard in total daily transactions in 2018. Unless they open a local bank account, tourists and foreign business in China will soon have only one choice - to make their payments by credit card. Asian culture from Japan to Singapore has unreservedly embraced the mobile payment technology, turning their phones into cash wallets.
In the US, using your phone to pay for a latte, watch a movie or take a taxi is nothing new. However, the three largest US banks will start rolling out ATMs that will also allow customers to withdraw currency using their smartphones, instead of cards. Wells Fargo expects that more than one third of its ATMs will have smartphone readers by the end of 2017. If successful, this could certainly replace bank branches.
The transition to mobile cashless payments is not just technological; it has been influenced by new cultural and generational preferences. In the US, Europe and Asia the millennials are driving the banks' agendas when it comes to how payments are made. The speed at which countries are weaned away from using cash speaks more of a society's developing culture than of its technology.
This may also be generational. As the baby boomers give way to millennials, cultures will change. The relationship that those in their 20s and 30s have with the financial system is very different to that of the prior generation. They rarely visit branches and prefer to make all transactions via their mobile devices.
Furthermore, the banks themselves do not like dealing unnecessarily with cash and they prefer to cut expenses, as profit margins are being squeezed by the costs of increased regulation and loss of proprietary trading opportunities.
A global, entirely cashless society? Unlikely - although some countries will have to deal with the reality of little cash in circulation in the near future.
The comments and observations by the author are a reflection of his opinion and do not constitute an offer to buy and hold securities, nor does he receive any remuneration of any kind from names referred to.