The road to cashless societies

The shift to cashless is challenging cash’s reign as the dominant medium of exchange as people increasingly replace their wallets with smartphones.

24 April 2018 | Shifting Asia

Cashless societies

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The next time you use your mobile phone to buy groceries or send money, it's worth pausing to reflect on the momentous shift toward cashless that is underway.


 

Money revisited

Throughout its dynamic history, money has served three basic needs: medium of exchange for goods and services, common measure of value for goods and services in an economy, and store of value over time.

People have reinvented the exchange of goods and services several times over the past millennia, moving from bartering to using coins and paper money and recently to digital payments. Changes to the form of money were often the result of new innovations – some failed or disappeared, but several continue to influence our world today. One such shift is the move toward a cashless society.

A cashless society is one that has moved beyond cash, by storing and exchanging currency in digital form. People can choose between various cashless options that are based on the digitalization of value storage and exchange.

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The evolution of money

 

Where Asia stands on the road to cashless

The story of Asia today is one of change.

Asia's digitally savvy population and high proportion of millennials are challenging cash's reign as the dominant medium of exchange as people increasingly replace their wallets with smartphones. This shift has been catalyzed by access to technological innovation like real-time payments using mobile devices, high smartphone penetration, the entrance of new innovative market players outside of traditional banking, the rise of e-commerce, and favorable government policy and regulation.

Digital solutions provide un- and underbanked people and businesses access to financial services they previously lacked, thereby fostering financial inclusion. A whopping 1.7 billion people worldwide do not have an account with any financial institution or mobile money provider (Source: World Bank “The Global Findex Database 2017”). The majority of these people are in Asia, with India, China and Indonesia as the three largest unbanked countries. The relatively low cost and ease of cashless technologies like mobile payments/banking should enable greater financial inclusion in Asia, thus accelerating the region's transition toward less-cash economies.

Still, the vast majority of transactions in Asia are in cash. This suggests further growth potential but also indicates certain obstacles to adoption.
 

Still, much of Asia is cash-based societies

Consumer payments in cash (as % of total transaction volume) 

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How Asia moves cashless

According to our interviewees, the world is moving toward a “less-cash” society, while Asia is leading the race to cashless. This shift means better, cheaper and faster access to money for people across Asia.

For example: The Indian government advocated for a cashless society during its demonetization drive of INR 500 and INR 1,000 banknotes. The South Korean central bank has been promoting the concept of a cashless society and plans to no longer mint coins by 2020. The Thai government launched the National e-Payment Master Plan to promote digital payments. And on 15 February 2018, Chinese New Year's Eve, 688 million people – roughly half of China's population – used WeChat to send and receive virtual hongbao (traditional red packets used to gift cash). China is an example of how countries can leapfrog to mobile payments, with more than two-thirds of internet users using smartphones for payments.

There are clear benefits of this trend: better customer experiences, higher operational efficiency for businesses, financial inclusion of previously un- and underbanked people, and higher transparency and accountability. But there are also concerns about the loss of privacy and the risk of fraud and cybercrime.
 


 

Thinking ahead

Asia is well positioned to further advance toward a cashless society, as many of the relevant ingredients are in place and the region is expected to be at the forefront of this transition globally. In this context, technological innovation will remain a pivotal enabler and the related digital payment ecosystem will make physical cash increasingly obsolete across the region, in CIO's view.

There are different roads on this journey. A cashless China might look different than a cashless Singapore, for example, and will most likely be different to some of the almost cashless countries in Scandinavia. Meanwhile, Japan is an interesting example: Japan has among the highest cash in circulation relative to GDP globally, despite the high availability of technology and an advanced banking system.
 

Progress differs significantly across Asia

Consumer transactions in cash (as % of total payment transactions value)

Cashless societies

Based on certain characteristics of cash like its universal nature, however, CIO thinks it is unlikely to disappear in the foreseeable future. As cash becomes increasingly obsolete as a medium of exchange, it will mainly play a backup role in less-cash societies. For instance, in times of economic crises, emergencies, or when the technology infrastructure breaks down, the expression "cash is king" will probably hold true.
 


The report also features insights from industry experts – they see the world moving toward a "less cash" society, with Asia leading the race to cashless. Read the report to find out more.


Other latest views from CIO

What technological opportunities should investors watch closely?

Asia in the mid-cycle, with a steady China and an innovation surge across the region