Opinion: We are pursuing a cashless society in the wrong direction

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The pursuit of a cashless society has been going on for several years. Tech companies are introducing cutting-edge devices for digital payments, some financial institutions are going digital, and some governments are encouraging citizens to adopt digital payments with their programs.

One may wonder, what defines a cashless society and what will be its impact?

On a macro level

A cashless society is described as “an economic state whereby financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital information.”

Advocates saw the potential of digital transactions, which transcend location and time limits and empower individuals with access to financial services. This prompted small businesses and basic trades to occur in developing areas where banking infrastructures and robust regulations were lacking.

Digital payments also enable regulators and security forces to track tax evasion cases, terrorism funding, money laundering, corruption, and many other financial crimes (although there are ways around it through the dark web and cryptocurrencies). Going cashless also helps reduce the costs of circulating paper currency and allow governments to have better control over the flow of money in times of crisis.

The macro benefits of a cashless society are obvious. But does it truly benefit end users on a micro level?

On a micro level

If we evaluate the processes required to complete a digital transaction on a micro level, it seems that cash has a slight advantage over e-payments. Cash does not go offline and the effort required to pay with it is similar to paying with e-payment services (e.g. Apple Pay and Android Pay).

In the current segmented e-wallet and e-payment environment, consumers are unable to enjoy a seamless experience. There are multiple friction points throughout the process: creating an account, going through the authentication process, linking your credit card, and transferring credits from your credit card to the e-wallet. You’ll have to repeat the process when the vendor uses another e-payment system. All of this can be avoided by paying with cash.

Similarly, vendors would have to manage multiple point-of-sale systems (POS), each having different UI, contracting terms, and customer experience. These can all bring headaches to vendors. Moreover, each of these e-payment services charges a transaction fee, which brings in an unnecessary intermediary to the process—an additional layer of tax to an already well-thought-out process. This is inefficient and does not add value to society.

Questionable value

Over time, when the technology matures and e-payment services consolidate, users will enjoy a more unified experience. However, the argument that e-payment is a more convenient option remains controversial. One may question the value it brings to users, as existing methods are not far off from digital alternatives in terms of convenience and security. The diminishing value on improved convenience brings about a whole new dimension of debate on whether we are pursuing cashless society in the right direction.

It appears to be a chicken and egg situation, where the macro benefits of going cashless will only be realized if there is mass adoption. However, on a micro level, there are several obstacles that hinder mass adoption. And only economies of scale will see the significant value of these technologies to its stakeholders (security forces, tax regulators, financial institutions, etc).

Scanning QR codes to pay for meals or completing a transaction on Apple Pay isn’t the type of cashless society that we should be heading to. It fundamentally has no additional benefit to users, as discussed earlier.

Here’s an analogy that best describes that point: wireless charging of mobile phones. You can recharge your phone by placing it on an inductive charger—no cable needed. But it doesn’t bring any additional value or eliminates any obvious pain points that a charging cable could not provide. Similarly, e-wallets and e-payments don’t bring any noticeable value to the process or eliminate any obvious pain points that consumers face.

Cashless society in Kenya

True cashless