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  • Writer's pictureMalte Gutfleisch

Dirty Money: Cash, Coronavirus and China

Money makes the world go ‘round. Cash is king. End of story, right? While the former might be true for another while in a mostly capitalised world, the latter could sooner or later be obsolete. As you might have noticed yourself, cash usage has generally been declining all over the world. Some of the questions people are asking now are: Why are we using less cash? Is this good or bad? How will this impact less fortunate people? How is COVID-19 impacting on this process?

As I was carefully doing my grocery shopping over the past few weeks, I noticed that tills had signs asking people to use some form of digital or card payment rather than cash. At first, it seemed trivial, but it now makes sense. Cash is one of the dirtiest objects that exist. Handled by dozens or even hundreds of people every day, bacteria and other residue accumulate quickly. Ever heard about cocaine being on notes? It’s true. Therefore, it makes sense to avoid it during a global pandemic, but it got me thinking. How is this impacting the general trend towards using less cash and will it stick after lockdowns are over?

Will cash be around forever and where are we heading?

Some of the most obvious reasons why governments like the idea of a cashless society seem reasonable: Cash is untraceable in most cases and digital payments are. This means that criminal activity is easier to detect. Fraud can be proven and maybe even be prevented in some cases. Tax evasion would be a miracle instead of a moral issue, not even considering that money laundering would be a thing of the past. However, not everyone is a supporter of their government or wants all this information recorded by companies and associated with them.

You might then ask why you as an average person would like to use less cash? I have to say that I was quite shocked when I first moved to the UK from Germany by the widespread usage of contactless payments. I had never used Apple Pay, Google Wallet or any other of those payment methods before and none of the people in my household had contactless debit cards at that time. After about a month, I was barely even able to remember the last time I had touched cash and I now only use it every couple weeks at most. A pretty common picture when I speak to my friends. It is convenient to have all your money on your phone or card and it being traceable and therefore recoverable should it be lost or stolen. It makes the act of paying for something much quicker and less of a hassle when trying to figure out different denominations. This is especially of interest for tourists. These are only a few advantages people see by using non-cash payment methods.

One of the stellar examples is China. Even though non-cash transactions are not the norm in every part of the country, it seems to have skipped the credit card era and moved straight into mobile payments. The convenience and flexibility it offers to its users makes it a clear winner for those. Alipay and WeChat Pay are just one part of the ultra-diversified social networks and retailers available in China, giving many users a one-stop shop option. It all seems great, but one of the major challenges of the banking sector all over the world for the decades to come is financial inclusion.

Cashless societies and financial inclusion

A vast majority of people in rural China still do not have access to the convenience many of their metropolitan counterparts enjoy and this is a pattern seen in every developing country. It is not based on the stage of the development the country is in but rather on some other key points that developed countries also face, just a smaller proportion of their population: Access to technology, financial education and point of purchase interaction.

The most obvious obstacle is technology. If you do not have a phone or laptop to do online banking or execute mobile payments with, you will not be able to make use of them. The same goes for internet access. Without it, there is no transaction.

Educating people on how to use these new features is another major barrier and probably the biggest one for most developed countries. How does one get people on board when they do not have any concept of how the banking sector works or how to handle money you cannot see and still be responsible with it? Amongst older people, trust issues prevail, which are not easy to overcome in an area where rapid change is the essence on which it functions.

Lastly, point of purchase interactions are the final hurdle. I feel like this is not often given enough attention, but as I mentioned earlier especially obvious to me. Germany, being the biggest economy in Europe, should be well on its way to using less cash, right? Well, people still love cash there, even though usage is declining. The problem is that it took years for shops and banks to get contactless payments and other payment methods to the consumers and make them aware of how and where they can use this. A few years ago, you could walk into a newly opened on-trend restaurant run by mid-twenties entrepreneurs and only be able to pay with cash. This actually happened to me a few times and let me tell you, it is a big dilemma when you need to leave to get cash but also cannot leave without paying. Similar behaviours of a society used to cash have also been recorded in Japan.

On the other hand, Sweden is becoming the poster child for this cash revolution. Four out of five transactions are now non-cash. How have they done it you might ask? They have not ‘done it’. There is no magical formula. Older people are still disadvantaged and many require extensive help adapting. Businesses, especially SMEs, sometimes struggle with fees and bureaucracy. Humanity has always been averse to change, so the debate if economic prosperity and social inclusion can work together is still very much relevant. Would you rather have everyone get the same chance at handling and using money or potentially limit future growth and increasingly globalised supply chains, tourist numbers and national productivity? Many will argue that these are not comparable, but the fact that we will be using less cash remains, so how can we approach it right now?

Coronavirus and the big jump towards e-commerce

As many smaller grocers and other shops have had to adapt to either government guidelines or making their business fit for these challenging times one question is pressing in regard to cash usage and e-commerce: Will these massive and rapid advancements towards a mainly online based shopping experience remain? A lot of volatility is making everyone nervous about the future, but the only way to know how our economies will respond is to remain focussed on saving lives and waiting until there is a safe way to continue.

Some of the recent changes in the UK have involved the raising of the contactless payment limit, which will slowly be rolled out, the option to use video conferencing to communicate with your bank in some cases and the first rollouts of 5G. All of these can be great enablers towards using less cash. Ultimately, one also has to consider that as generations pass, people will feel more comfortable with technology, which might support the shift as well. However, we can never know if the changes that await us will outpace our individual ability to adapt.

An interesting concept many people are currently discussing is a less-cash society instead of a cashless society, based on the idea that such massive changes in our banking system cannot and will not happen in the near future, at least not without a lot of people being left behind. ‘Make financial services work’ was a competition lead by the University of Glasgow FinTech Society in collaboration with leading individuals and institutions in Scotland, which tried to offer some solutions that address some of the previously mentioned challenges. Do you know of any interesting firms that offer promising innovations in this field, or do you have any ideas about how we should or could smooth this transition? How do you feel about using less cash or getting rid of it altogether? Let us know in the comments.

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