A seemingly relentless march toward electronic money transfers across the globe means a significant decrease in transactions involving real cash. What is behind this move, especially when using cash is free and universally understood? What does it mean for banks?

Understanding what happens behind a cash transaction provides insight into some of the drivers for traditional banks. Processing cash transactions is expensive, complex, open to fraud and mostly covered by banking organizations as an obligation to the public. However, this gives the digital-first challenger banks a huge advantage; they can process electronic transactions only and leave the traditional banks to foot the bill for cash and the associated ATM infrastructure.

Should this continue? Should all banks share the costs of cash transactions, or should traditional banks stop handling cash altogether? Are traditional banks disadvantaged in comparison to the challengers, and will this leave them and, in turn, our society at risk of a potentially unstable financial future by further fragmenting the banking value chain.

There are potential pitfalls for consumers in a cashless society, and the current impact varies by country. Consider, for example, the U.S. where estimates show that a quarter of the population is “unbanked” and without access to this new cashless world. In Sweden and the Netherlands, retailers can choose their preferred payment method, with no obligation to accept cash, so activities like buying a bus ticket prove difficult for tourists or the young when using cash is not an option. In addition, what happens in terms of electronic transactions when there are power cuts or your device battery runs out?

This is in contrast to the UK, where the government has suggested that shops should be required to accept cash, and the banks must process it accordingly.

There also are global providers, such as Facebook’s Libra, ready and willing to provide the unbanked with digital payment alternatives. If the national banks and financial institutions do not move quickly on alternative solutions, neither the government nor nationally controlled banking associations are likely to control the future direction of electronic versus cash transactions.

There are a lot of unanswered questions and uncertainties, but what is clear is that there is no common approach, and banks, governments and society as a whole should engage in a conversation on the future of a cashless society at a global level.

CGI is collaborating with banks and governments around the world to address issues like this. For further discussion, please feel free to reach out to me.

About this author

Picture of Charlotta Wark

Charlotta Wark

Vice-President, Banking, Sweden

Vice-President Charlotta Wark is head of banking for CGI’s operations in Sweden. With roots in business consulting and a career path that includes leadership roles such as chief marketing officer for international IT companies, Charlotta has extensive experience with problem solving and business development, particularly ...

Comments

Hi Charlotta - I enjoyed reading your article and agree in principle that cashless even though sounds exciting cannot totally wipe the cash driven transactions out of the payments ecosystem.
Coming to your point regarding the unbanked segment, there is a shift in terms of how they transact with cash, technically based on the experience I have from banking industry that the "x" we all try to solve in terms of prepaid cards. The issuance of which requires some basic KYC and with limits in place offers this "unbanked" segment a proxy bank account. Having said that their pay cheques, transactions then eventually get transformed into cashless society and an inclusive way of inducting this segment into the broader payments ecosystem. I will like to know your thoughts around solving for this unbanked segment and where it will lead us in the journey of becoming truly cashless?
**Views are my personal and do not represent any of my employers/ clients or organizations I worked with**

Submitted by Ashish Madan on September 30, 2019

Thank you for your reply and interesting question. The area of unbanked is super interesting for many reasons, and the way to address it would be to be much more inclusive and lower the barrier, to enable as many people as possible to become banked in one way or the other. Obviously if as many as possible would be banked, and get a safe and controllable way of managing their income and other assets, it would be of great value to both the society as well as the individual. A truly cashless society is most likely many years ahead, due to the inherent trust we have in physical notes and coins.

I really support your comments and it will of course help our society to achieve the sustainable goal . As a certified anti money laundering specialist I want to learn more about the laundering of money through the cashless system and how your organization is combating the money laundering .
Thanks

Submitted by Sheikh Farid U… on November 4, 2019

Thanks for your interest in this highly important area. If you would like to know more about our offerings in this space, please contact your local CGI office and/or have a look at https://www.cgi.com/en/solutions/cgi-hotscan360 where one of our offerings is described a bit more detail.

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