By Christoph Tutsch
Onpex GmbH
Recently, talk of phasing cash out in favor of electronic payments has increased. John Cryan, co-Chief Executive Officer of Deutsche Bank, predicted cash will disappear within a decade. Yet, when looking at the spending habits of Germany, Europe's largest economy, this doesn't appear to be the case.
According to a May 2015 Federal Reserve report, Germans conduct 80 percent of their financial transactions using cash, and only 33 percent own a credit card. The German people's reluctance to let go of cash could be attributable to their unique values and customs, though. The nation prides itself on frugality, paying its bills on time and avoiding debt, which explains why the German word for debt, schuld, also means guilt.
In addition, they are cautious of technology, protect their privacy with some of the most stringent privacy laws in the world, and quite often doubt the ability of public and private organizations to handle electronic financial records.
In contrast, other major European countries have embraced electronic payments and are moving away from cash. Many are even capping cash transactions. Italy and Portugal already imposed a limit of €1000, in Spain it is €2500 and in France €3000, according to the European Consumer Centre France. Meanwhile, the Associated Press reported in February 2016 that Germany is considering introducing a €5000 limit.
In addition, statistical portal Statista estimated that noncash transactions will continue to grow in the European market and that by 2020, the number of cashless payments will increase to 177 billion.
In the U.K., electronic payments are flourishing, in part due to innovations such as contactless payments and frictionless payment processes. The U.K. Cards Association found that 58 million contactless cards were in circulation in December 2014, contactless transactions in the U.K. had increased by 255 percent year over year, 2013 to 2014.
Commuters in London have been swiping their Oyster cards for years. When contactless payment cards were introduced to pay for travel, the transition was smooth. Nearly 1 million Londoners choose to do this every day; it saves them money and the need to purchase tickets daily, Transport for London stated.
Sweden, Finland and Denmark are also on their way to becoming cashless societies. India Times reported in July 2015 that the Danish government is already allowing shops to not accept cash.
In 1657, Sweden was the first country in Europe to introduce bank notes, according to History Today, and may well be the first to phase them out. There are just around 80 billion Swedish crowns (about €8bn) in circulation, with only half of that in regular circulation, TechRadar stated.
Swedish consumers have a tradition of welcoming electronic payment systems. Among other factors, Sweden's move towards a cashless society has been spurred on by the prevalent use of Swish, a direct payment app that can be used for transactions between individuals in real-time.
Cash costs money to process, to provide security for and to be replaced as notes wear out. Prior to accepting contactless payments, London's public transport provider spent over £30 million a year processing cash, according to BusinessZone.
In addition, if many people hoard small amounts of cash, large sums are removed from circulation. This reduces the control governments and central banks have over monetary policy, depriving them of the ability to influence the wider economy in a positive way.
A move away from cash toward electronic payments will also benefit the global marketplace by making cross-border transactions easier, faster and cheaper.
The shift toward cashless societies has been boosted by governments seeking to crack down on criminal activities, such as drug trafficking and tax evasion. Five years ago, Sweden's banks were suffering a spate of bank robberies and therefore decided to move away from cash. After this, not only did Sweden's financial sector become more efficient, but armed robberies hit a 30-year low, The Guardian reported.
However, while armed robberies will be more difficult in cashless societies, there is an increasing risk of online fraud, which has more than doubled in the last decade, The Guardian added.
Continuous innovations in payments security are countering those attacks and ensure that the industry is now better equipped to deal with and, potentially, eliminate online fraud. Tokenization eliminates the need to enter personal card details repeatedly and allows for safe "one-click" ordering.
Societies' payment habits will continue to evolve at different rates due to their own values and customs. The shift toward a cashless economy could occur, which is why tech companies will have to provide a range of solutions for this transition.
Christoph Tutsch is the founder and CEO of Onpex GmbH. He set up and funded the company in 2010 to provide businesses with a better way of handling online payments. He is responsible for the overall direction of the business and its continuing growth around the world. A lifelong entrepreneur, Christoph was previously co-founder and director of several companies in the telecom and marketing industries. He first came into contact with online payments in 2000 when billing Internet services on telecom bills. Subsequently, he moved directly into payments and built up third-party processing for a PSP. This did not have the flexible, modular and scalable technology a modern payment infrastructure should have. This was Christoph's main motivation to innovate the process and add greater simplicity to the payments industry. Contact him at michael@skyparlour.com.
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