The death of cash has been forecast for near on 50 years.
Initially the introduction of credit cards, and more recently the rise of contactless payments, e-wallets and cryptocurrencies, has led to generation after generation of industry experts predicting that physical money would soon become obsolete.
While consumers today have never enjoyed so much choice when it comes to completing their payments, in many countries, even in the developed world, notes and coins are still used prevalently and the concept of a truly cashless society is unlikely to materialise anytime soon.
Within the past decade, the world has reached an inflection point. Cash has been the predominant method of payment for more than 3,000 years, yet the exponential rise of technology has undoubtedly affected all areas of the economy and transformed the way that people can shop, save, transfer and exchange money.
The movement away from cash is happening in very different ways and at varying paces around the world. In Europe, 80 per cent of point-of-sale transactions are still conducted in cash and even in North America, where card payments are most regularly used, cash is still used in more than half of transactions under $25. This is not to say that non-cash payments aren’t increasing; estimates suggest global year-on-year growth of around 13 per cent between 2016 and 2021.
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Along the way, businesses are increasingly starting to recognise the incremental benefits of each advancement in payment methods, such as the reduced cost of processing cash and the time saving process it offers. Scandinavian countries are already well down this path and, in Sweden, less than 20 per cent of transactions in stores are made using cash, half the number of 2012.
A divergent picture can be seen across emerging economies. For example, in India, cash continues to thrive despite the government's demonetisation policy and only 5 per cent of transactions are cashless. A different route can be seen in Kenya where M-Pesa, a partner of Finablr, allows customers to conveniently make payments directly from their phones to the extent that the value of payments on the network represents almost half of Kenya's gross domestic product. Such outcomes are a product of each nation's distinct history, culture and investment in innovation.
Security and fungibility (mutual interchangeability) are perhaps the two ultimate reasons why cash remains king. We see this clearly in the Middle East: the demographic indicators point towards a population ready to adopt e-commerce, although the rate of adoption still lags behind mature markets.
In fact, a significant proportion of e-commerce transactions in the region still end up as a cash transaction. In 2016, Middle East consumers made $900 billion in cash payments. This is expected to rise to $1.4 trillion by 2021, according to the PYMNTS Global Cash Index.
The evolution of payment methods provides interesting insights on the fundamental drivers of consumer choice when it comes to the payment journey. It comes down to experience, convenience, and security.
In 2017, Finablr's subsidiaries, UAE Exchange, Travelex and Xpress Money, recorded $100bn in transactions - $30bn in remittances and $70bn in forex transactions. It also handled more than 150 million customer transactions annually.
While the technology for a cashless society is available today, whether notes and coins go the same way as videos, cassettes and photo film to become a defunct relic of the past seems highly unlikely.
Cash remains by far the most common payment method across the world today and, while there will be less physical money in the world economy in future, even this is likely to deviate significantly across countries and cultures. Overall, financial institutions that accept and embrace a hybrid payment ecosystem can deliver the flexibility necessary to provide consumers with convenient payment choices.
Promoth Manghat is the chief executive of the financial services firm Finablr
