A money evolution | World Finance

In March 2020, reports claimed the World Health Organisation (WHO) had warned against using cash amid fears it could be spreading coronavirus. The WHO later pushed back on the claim, declaring it had never issued any official warnings – but it wasn’t the only whisperings of ‘dirty cash.’ China had already begun sterilising money in February out of hygiene concerns, and in March the US Federal Reserve started quarantining dollars from Asia, begging an important question: how clean was cash?

In response, retailers across the world began putting more emphasis on cashless transactions, with contactless payments growing by more than 40 percent globally in the first quarter of 2020, according to a survey by Mastercard. A study by data firm Dynata found the preference for cash dropped by 31 percent in the early months of the pandemic across the countries surveyed, and YouGov research found that ATM withdrawals in the UK had fallen by around 60 percent over lockdown.

The explosion of online shopping further contributed to the trend, with consumers turning to online systems such as PayPal to make their transactions; Amazon’s revenue increased 37 percent to a record $96bn in Q3, as shoppers across the world flocked to the e-commerce giants to get their goods.

A gradual decline
This shift hasn’t come out of the blue, of course; the idea of a ‘cashless society’ has been touted for years, dating back as early as the 1960s with the advent of credit cards, and spurred on by the rise of electronic banking, digital wallets and mobile payment systems, made possible by the explosion of fintech firms such as Venmo, iZettle, Swish and PayPal.

Sweden had already gone almost entirely cashless – at the start of 2018, only one percent of the country’s GDP was circulating as cash – and Finland was edging ever closer too, with the central bank having forecast a cash-free society by 2029.

The pandemic has accelerated the move away from cash usage and the adoption of contactless payments instead

In the UK, cash payments were predicted to represent just nine percent of all transactions by 2028, according to a 2019 report by UK Finance. And in China, more than 90 percent of city-dwellers said they used WeChat Pay and Alipay as their primary payment method, a study by the Brookings Institution found.

But while the move towards a ‘cashless’ future might not be anything new, many experts believe the pandemic is likely to have sped up the trend.

Among them is Natalie Ceeney, Chair of Innovate Finance and leader of the 2019 Access to Cash Review study, which looked at consumer cash needs in the UK. “The pandemic is likely to have dramatically accelerated the decline in cash,” she told World Finance. “Those who can use digital have made a significant shift in their behaviours.”

Luc Gueriane, Chief Commercial Officer at financial services provider Moorwand, agrees. “The pandemic has accelerated the move away from cash usage and the adoption of contactless payments instead,” he said. “A lot of people are now realising the convenience of not using cash and are beginning to have more trust in digital banking products that have helped them throughout the pandemic with money management features.”

That’s good news for the fintech sector, and it brings benefits to the finance industry at large – but how close are we to really going ‘cashless’, what barriers are there, and how would economies ultimately cope with the transition?

How convenient
The potential advantages of a cash-free society are many – not least the convenience that digital and contactless payments bring to consumers. This in turn could encourage increased spending; a study by MIT professors Drazen Prelec and Duncan Simester in 2001 found that shoppers spent up to twice as much when using a credit card versus physically handing over cash, for example.

That could have positive knock-on effects for both businesses and the wider…