The Major Risks of a Cashless Society

Slower disaster recovery, greater discrimination, loss of freedom and no brake on payment provider fees are some of the concerns raised by a move away from cash, explored in a thought leadership webinar held 18 March on the societal and security implications of shifting to a cashless economy.

Organised by Perpetuity Research—a company working with businesses, international organisations, national and local governments to evaluate people’s behaviours and perceptions, and identify significant trends—and moderated by Martin Gill, Professor of Criminology and Director of Perpetuity Research, the event assembled experts from the humanitarian aid, cash security and secure payment industries to take a deep dive into the cracks likely to run through a society if cash has been eliminated.

James Shepherd-Barron, a Disaster Management Consultant and Humanitarian Advisor to Cash Essentials, noted smart financial technologies can offer convenience, flexibility, speed and benefits such as female empowerment, but they are ‘far from an unqualified social good’, especially in low-income countries, and those facing disaster shocks.

Cashless systems, he observed, allow governments to discriminate against groups they deem undesirable by watching, controlling or simply shutting down their spending.

First and foremost, James explained, cash does not discriminate. It is also efficient, circulating within disaster-struck economies and having a ‘multiplier effect’ that cashless options—spreading outside the bounds of a particular economy—do not offer.

He also raised concerns that e-payments stimulate over-borrowing, citing the example of refugees around Northern Kenya, ‘at least 20 percent’ of whom default on their loan repayments, ending up financially excluded because they’ve lost their credit rating. This ultimately ‘widens the gap between those who have, and those who have not’.

He concluded ‘the monetisation of money is not an accident, it’s a plan’ and feels there would need to be a concerted effort from the cash industry to take on the ‘deep pockets’ of cashless payment providers.

His wish was that people become aware of ‘the cost of transacting’ that comes with non-cash options, given there are ’16 or more intermediaries’ in the average debit card transaction, each requiring payment for their part of the service.

Paul Nicholls, Business Development at Oberthur Cash Protection, opened with the observation that while ‘we have to be realistic’ about a move towards cashless payments—as seen already in countries such as China and Sweden—cash is the only truly safe and inclusive payment option.

On the former point, he noted ATM use had fallen far more in affluent areas of the UK than in poorer areas, where people are more dependent on cash and have less access to cashless options. Regarding the latter, he pointed out that no security solution—from passwords to fingerprint readers to iris scanners and beyond—is infallible. Data centres, where financial institutions store their information, can crash. No cashless payment can be as completely secure as cash.

Negative interest rates—which would require savers to pay banks to keep their money—are an interesting example of how cash empowers people. With cash, there is the option of withdrawing money from an account in physical form, and storing it elsewhere, such as a safety deposit box.

Asked how people might respond to negative interest rates in a totally cashless society, Paul suggested they would be driven to find other ways to protect their money, such as making investments.

Andrea Nitsche, Chair of Cash Matters, emphasised that Cash Matters is for freedom of choice in payments. While being open to a varied payments landscape, the organisation regards it as vital that cash remains an option, because it is the only choice that gives people complete agency in the payments they make.

Cash functions independently of the issuer and gives people sovereignty over their own money in a way no cashless option can match. To illustrate the importance of this point, she drew on the philosophy of Canadian economist Pierre Lemieux, who specialises in the intersection of economic and political theory, and their effect on public choice, finance and policy.

Andrea also stressed that cash is the only form of payment that isn’t directly profit-oriented. It is a public good, deployed not to make a profit on its transfer but to support and sustain transfers free of charge. There are costs associated with cash, but cash itself is a means of value transfer that settles at par. Payment is a lucrative market, for providers of cashless options such as cards and e-payments. So long as cash exists, some of the potential in that market will remain out of reach for cashless payment providers, creating a clear motive for them to reduce and ultimately eliminate cash usage.

People are gradually waking up to some of the dangers of cashless societies, such as some governments using cashless payment platforms to watch and ‘socially score’ their people but more needs to be done to create awareness.

Andrea pointed out that cash rarely makes headlines because it has been a fundamental part of our societies for so long, its presence and function are taken for granted. Indispensable for a free and open society, it often goes unseen and unremarked, and it is here the risk lies: it could be lost without many people realising the role it played in making freer and more egalitarian economies.

What can we do to preserve cash as a payment choice, along with all the benefits it brings? The answer is simple: use it or lose it.

Click here to listen to a full recording of the event.