As smartphones and electronic devices have become extensions of ourselves, the concept of a cashless society is gaining traction. But what does this mean for Australians, and is it even a possibility?
The following look into how a cashless society works and examine the advantages and disadvantages of introducing cashless payments into the economy.
A Cashless Society
A cashless society is one where physical cash, such as coins and banknotes, plays a minimal or nonexistent role in everyday transactions. Instead, digital payment methods and electronic forms of money take centre stage.
How does a cashless society work? Digital payments encompass a wide range of electronic transactions, including:
- Credit and debit cards. These plastic cards allow users to make purchases by swiping or inserting their card into a payment terminal. The transaction is processed electronically, deducting the amount from the user’s bank account or credit limit.
- Mobile wallets. Apps like Apple Pay, Google Pay, and Samsung Pay enable users to store their card information on their smartphones and make payments by tapping their device at contactless payment terminals.
- Online banking. Users can transfer money and pay bills through online banking platforms, often via a computer or mobile app.
Contactless payments involve using a card or smartphone to make payments without physical contact with the payment terminal. This method is gaining popularity for its speed and convenience.
Digital currencies, such as Bitcoin and Ethereum, are decentralised and exist solely in digital form. These cryptocurrencies can be used for online and peer-to-peer transactions.
Some advanced payment methods use biometric data like fingerprints or facial recognition to verify the user’s identity and authorise transactions.
Advantages of a Cashless Society
- Convenience. Cashless payments offer unparalleled convenience. With a smartphone or card, you can make payments anytime, anywhere, eliminating the need to carry cash and change.
- Enhanced security. Digital transactions are often more secure than carrying cash, which can be lost or stolen. Many payment methods incorporate security features like encryption and fraud detection.
- Improved record-keeping. Digital payments automatically generate transaction records, making it easier for individuals and businesses to track their financial activities, budget, and manage expenses.
- Reduced costs. Producing and managing physical cash incurs costs for governments and financial institutions. A cashless society could potentially reduce these expenses.
- Financial inclusion. Digital payment methods can improve financial inclusion by providing access to banking and financial services for individuals who may not have access to traditional banking.
Disadvantages of a Cashless Society
- Digital exclusion. Not everyone has access to digital payment methods, particularly vulnerable populations such as the elderly, low-income individuals, and those living in remote areas. Some of these populations may not be tech-literate as well.
- Privacy concerns. Digital transactions can leave a trail of personal data, raising concerns about privacy and data security. There is potential for misuse or unauthorised access to this information.
- Dependence on technology. In a cashless society, individuals become increasingly dependent on technology. System outages, cybersecurity threats, or technology failures could disrupt daily life.
- Financial exclusion. Paradoxically, a shift to digital payments could lead to financial exclusion for those who are unable or unwilling to adapt to new technology.
- Hidden fees. Some digital payment methods may carry hidden fees, such as transaction charges, currency conversion fees, or subscription fees for premium services.
Cashless Australia
The prospect of a cashless society in Australia is both enticing and challenging. While the advantages of convenience, security, and improved record-keeping are evident, there are significant concerns, especially regarding digital exclusion and privacy.
Current Trends
Australia has been on a path toward increased digital payments for years. The use of contactless payments, mobile wallets, and online banking has grown significantly.
According to the Reserve Bank of Australia, the number of ATM withdrawals has been steadily declining, indicating a reduced reliance on physical cash. The RBA assessed that amongst the payment transactions recorded in 2022, only 13 percent overall were made in hard cash.
To add to the complications, Macquarie Bank announced in September 2023 that they will phase out cash, cheque, and phone payments in November 2024. It is moving to expand its AI/machine-learning partnership with Google Cloud to include support for online banking services.
The announcement brought up insights from UTS finance professor and banking expert Harald Scheule. “Electronic payments are a potential ‘piggybank killer,’ for a much younger generation: revolutionising the practice of young children receiving pocket money and saving it,” he said.
Government and Regulatory Role
Government and regulatory bodies play a crucial role in shaping the transition to a cashless society. They must address concerns related to digital exclusion, data privacy, and consumer protection. Developing robust cybersecurity measures is essential to maintain trust in digital payment systems.
Financial Inclusion
Efforts should be made to ensure that all Australians have access to digital payment methods and the necessary digital literacy to use them effectively. Initiatives to bridge the digital divide can help prevent financial exclusion.
Security and Privacy
Australia must implement stringent security measures and robust data protection regulations to safeguard the privacy and personal information of individuals engaging in digital transactions.
Consumer Education
Education campaigns can help inform Australians about the benefits and risks of digital payments, empowering them to make informed choices and protect their financial security.
The concept of a cashless society is not a distant future but a current reality that is rapidly evolving. Australia must navigate this transformation carefully, considering the diverse needs of its population. With the right policies, regulations, and education efforts, Australia can harness the benefits of a cashless society while ensuring that no one is left behind in this digital revolution.
DISCLAIMER: This article is for informational purposes only and does not constitute official financial advice. QUICKLE has no working relationships with any bank or financial institution.
