While cash is still important for many consumers, it is losing ground to non-cash transactions. Credit and debit cards are the fastest-growing payment instruments globally.
The COVID-19 pandemic inspired fears (largely misguided) that the virus could spread through currency, leading to a national coin shortage. And as new technology makes it easier and safer to pay with a click, businesses are shifting to digital payments.
The Rise of Digital Payments
The growth of digital payments is a key component in the push to transition economies to cashless systems. But the pace of this transformation will be a crucial factor in determining the success or failure of the endeavor.
This is especially true in emerging markets, where rapid growth has created new opportunities and new challenges for payment providers and other stakeholders. As a result, there is considerable debate about which payment models are best-positioned to gain momentum and which monetization paths they should pursue.
Policymakers should consider a wide range of incentives, infrastructure, and regulation to foster innovation and boost public confidence in noncash systems. They can also seek out partnerships—both public and private—to marshal expertise and create momentum. These efforts can help reduce barriers to adoption that are not related to the cost of acceptance and support formal entrepreneurship. They can also speed up business registration and reduce transfer times for payments to employees and suppliers.
Consumer Behaviors
Consumer behavior is the study of how individuals choose and use ideas, goods and services to meet their needs. This is a key concept for marketers, who attempt to understand what drives people’s buying decisions in order to market products to them effectively.
Consumers’ purchasing habits are influenced by their lifestyle. For instance, a person who leads a health-conscious lifestyle will probably purchase different products than someone who is more interested in the latest technology or a designer pair of shoes.
Many countries are moving towards a cashless society, where paper and coin currency is no longer used for financial transactions. The benefits of going cashless include cost savings and a reduction in the risk of theft and fraud. However, critics argue that it will exclude low-income citizens and lead to increased digital dependency. Furthermore, there are risks to data security and the impact of natural disasters on card networks. These concerns have led some states to ban businesses from excluding cash payments.
Policy Issues
The choice to stop accepting cash has implications beyond cost and convenience. Some of these consequences involve financial inclusion and privacy issues.
In the past year, many restaurants and retailers have gone cashless. This is good for businesses, which report that it saves them money by reducing opportunities for theft, and makes them less attractive robbery targets. It also eliminates the costs of handling and transporting cash, and frees employees to spend more time helping customers.
But it’s bad for consumers, who face new privacy risks from credit card companies and merchant data brokers that may get to know more about them than they would if they paid cash. And it’s bad for people living on the margins, who have difficulty opening a bank account because they lack ID or face bureaucratic barriers to getting one.
In addition, a business that is cashless might pay higher fees to merchant services companies and could lose revenue from the loss of customer loyalty. These fees can be a hidden tax on low-margin businesses.
Regulation
Like Bob Dylan’s famous song, “the times they are a-changin’.” Banknotes are fading away, debit and credit cards are the norm, and digital payments are booming. These changes are driven by technological innovation and changing consumer behaviors.
However, going cashless comes with some costs. For one, businesses must spend time and resources managing physical currency—from securing armored vehicles to ensuring employees do not pocket cash. This time and effort could be better spent on serving customers or meeting other business needs.
Additionally, non-cash transactions depend on the reliability of the underlying networks, which can be vulnerable to cyberattacks and natural disasters. For example, the Target data breach of 2016 underscored the importance of strong cybersecurity.