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COVID-19: the viral spread of cashless society?

The transition to a cashless society seems to be gaining momentum because of the pandemic. But will the latter rid us of paper money for good?

At the outset of the pandemic, central banks across the world took appropriate precautionary steps. The People’s Bank of China started to disinfect banknotes in the most virus-affected regions. The Federal Reserve introduced a process of quarantining money. The Reserve Bank of India advised people to use electronic payments.

But it seemed like an uphill battle. Ever since the coronavirus struck, the run on cash machines has started. No wonder: when a crisis arrives, people like to keep paper money at hand – take the US in times of Great Depression, Iceland in 2008, or Cyprus in 2013.

In contemporary, reserve requirement economies, this is a big problem. Still, the cashless world brings benefits to all stakeholders: from individuals and companies, through to banks, payment organisations, and governments. Are we actually getting closer to it?


Individuals gain convenience as they don’t need to carry cash around. Security is another important issue. Cash is very easily stolen; so are debit cards, but at least the thief needs to know the PIN number. Mobile payments, banks biometrics, are even more secure. Thanks to the advanced analytics in banks people gain more control over their personal finances. Payment data is archived, so managing a home budget is much easier than before.

Sellers gain convenience and security too. Cash management can be very painful and expensive depending on the business. Banks are distinctly interested in increasing the share of cashless transactions made by customers, as this brings a lot of precious data that can be converted into sales. Moreover, it is hard to track paper money, which is why it is widely used on black and grey markets. Lower paper money usage eases fraud detection in banks.

Governments are very interested in the cashless society as well. Non-cash transactions are registered in banks, so a government can receive data on the economic habits of society. The data can be used to increase revenues by reducing grey areas and enforcing taxes; to decrease crime by tracking suspicious transactions; to shut down black markets; and to improve reporting. In societies where paper cash has a dominant position, the government only sees part of the big picture.

Not all rosy

But one cannot marginalize the risks that a cashless society brings. It is convenient to pay with a card or phone, but this comes at the expense of privacy. Paper money guarantees anonymity to some extent, while digital money guarantees no anonymity at all. Banks, credit information suppliers, government institutions, not to mention payment organisations such as Mastercard which grew by nearly 45% since the pandemic started – all of them gain lots of profits from customer-generated data.

Plus, in the middle of a rapid transformation from a cash to cashless society, some of us forget about those who are not privileged enough to refrain from using cash. The undocumented, the elderly, the homeless.

The move of not accepting cash by some stores in the US has recently sparked lots of discussion. Since cash is a legal tender, it should be accepted everywhere. And so, cashless stores were banned this year in New York. Philadelphia, San Francisco, and New Jersey banned them in 2019.


Asia and Europe at the forefront

On the podium of the most cashless-friendly societies are China, Sweden and Finland. China is a leader of world’s e-commerce, with a perfect environment for payment technology development. Very high smartphone penetration across the society has played a significant role in the evolution of mobile payments.

Since China is one of the leaders in the race to become cashless, it has seen innovations springing up. The quick response (QR) code payment service, popular in China, is a simplicity genius. In order to pay, the buyer scans a code presented by the seller, shows them a confirmation on a smartphone screen, and that’s it. The QR code is either printed on the merchandise offered or generated on the fly in a mobile app. The solution allows for excellent mobility and requires no additional device, not even a smartphone on the seller side. QR code payments are so widespread in China they can be found everywhere: from market stalls to luxury hotels.

Sweden has the most aggressive policy to become cashless. A lot of Swedish retailers do not accept cash. Only 20% of all transactions in Sweden are made by cash. There is also a very popular payment application called Swish which enables instant money transfers between people.

Another Nordic country – Finland, attempts to be cashless as well. It is one of the leaders in terms of card payment frequency. Finland is more cashless-ready than cashless per se, as it has one the biggest internet banking penetration level and smartphone penetration level in the world.

The right environment

Apart from the favorable government policy, factors that enable going cashless are: the penetration of technology, such as smartphones, e-commerce, and internet access plus the penetration of banking services, such as online banking, mobile banking, cards, and POS devices.

Typically, stores use POS devices to collect payments. Large supermarkets and malls demand devices that are able to process thousands of payments per day. But such sellers already accept digital payments. Thus, in order to increase the number of stores and service providers that accept cards, one should focus on business owners and small retailers. This group demands flexibility in terms of price, mobility, and a low entry threshold. One of the smartest solutions on the market is a POS app installed in the seller’s smartphone.

The technology uses an NFC module. Of course, it works only with contactless cards. Unlike the standard cash register, the app enables sellers to accept payments anytime and anywhere without the need for spending money on a dedicated device.

Policies at work

Because in most cases there is an oligopoly of payment organizations, the government needs to set maximum commissions for digital payments. For the seller, these commissions shouldn’t be higher than the cost of cash maintenance. A cashless-friendly environment requires trust. Banks, partners, payment organizations as well as governments should be extra transparent concerning use of data and data security in order to gain the trust of society

One of the best examples of good policy making is the establishment of the public-private foundation in Poland whose aim is to popularise cashless payments in the country. The foundation offers free POS devices through partner banks to business owners in order to encourage the latter to accept cashless payments. The foundation has already helped over 200 000 companies to start accepting cards and mobile payments.

The longer the pandemic will last, the more cashless-friendly the societies will become. COVID-19 has changed people’s behavior and this change is likely to be permanent. But cash will never disappear in full because grey and black markets are here to stay, and they’ll always run on banknotes. Moreover, societies won’t be keen to give up all the privacy regarding their expenditures. If any country decided to withdraw cash completely, the society would step back to the commodity money such as gold or any other valuable objects.

Still, we are facing an opportunity to speed up the digital transformation everyone can benefit from. In order to do that, we need to fulfill the necessary conditions such as appropriate policies which support going cashless, a significant technology penetration level across societies, and a wider spread of banking services.

This opportunity is ours to take – as long as we aim for inclusion in the race towards the future and don’t forget about the underprivileged.

Piotr Filipiak
Business Solutions Consultant, Comarch

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