Cashless Society: A boon or bane?

University at Buffalo
State University of New York
Prepared for: Cheryl Charmain Arnold

ENG105-L08

Angela Loh Wan-Yun

UBID: 50293621
CASHLESS SOCIETY: A BOON OR BANE?

Content Page

1. Introduction 2

2. Findings 4

2.1 Advantages that a Cashless Society presents 4

2.1.1 Accessibility & Convenience 4

2.1.2 Eliminates the occurrence of financial crime 5

2.2 Risks and Issues that a Cashless Society poses 6

2.2.1 Absolute dependency on technology infrastructure 6

2.2.2 Infringement of a right to a private life 7

2.2.3 Diminished Financial Prudence 9

3. Discussion 9

References 11

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CASHLESS SOCIETY: A BOON OR BANE?

1. Introduction

In definition, a cashless society is a concept in which all economic transactions are

carried out and registered in an electronic format without any use of paper currency (Kurian,

2013). “Cashless Society” stemmed from an explicit vision of the future in the early 1960s

and the radical idea was seen to be a natural solution to the crisis management of paper

checks and the associated costs with paper currency (Bátiz-Lazo, Haigh & Stearns, 2014).

According to Bátiz-Lazo, Haigh and Sterns (2014), a number of researchers came to a

common consensus that the “looming crisis in transaction volume that could be solved only

by eliminating the paper from the system”. As globalization has made its mark on the world,

physical cash is progressively replaced with electronic money, and the radical vision of a

cashless society has seemingly materialized presently. Technological revolution has

introduced a variety of electronic payment instruments such as electronic cards, Internet

banking, mobile payments, digital wallets and virtual currency, all of which contributes to the

emergence of a cashless society (Akinola, 2012). The transition in adopting cashless means

seems to be continuing to intensify with more countries taking upon the change towards a

cashless society, some more advanced than others in this replacement of payment trends. At

the forefront of the cashless trend is Sweden, having only 2% of the nation’s financial

transactions conducted in physical currency and majority of the country’s banks and

businesses have refused to accept and manage cash (Stickland, 2018). E-marketer reports that

almost 30% of smartphone users in India uses their phone for financial transactions at the

point-of-sale at least once a month, and the trend is expected to grow in conjunction with the

government’s Digital India Initiative that encourages the push towards digital payments

(Srivastav, 2018). According to Stickland (2018), China has emerged to be at the leading

edge of mobile payments as most of urban china has massively abandoned the use of cash

and cards, using mobile e-transactions via platforms such as WeChatPay and AliPay for day-

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to-day purchases to bank transactions. In this emerging cashless phenomenon in societies,

while there are certain benefits such as convenience, there have also been apprehension from

individuals on issues that bring up concerns for the future. It is argued that anonymity of

paper currency transactions are vital to individual rights and cash is still relevant since

electronic payments are reliant on technological infrastructures that are subject to system

faults and failures.

Thus, the hypothesis for the paper is that a completely cashless society poses more

risks than benefits to society as a whole. This paper aims to examine the cashless society

phenomenon by reviewing existing literature to uncover the advantages and disadvantages of

advancing into a cashless society. Limitations to this paper it focuses on present societal

conditions and it is unable to explore beyond the potential risks and issues of a cashless

society due to a lack of in-depth studies on the actual risks of a society solely dependent on

electronic money transactions since the economical concept has yet to be fully realized.

2. Findings

2.1 Advantages that a Cashless Society presents

2.1.1 Accessibility & Convenience

The ease and freedom of managing financial transactions has been one of the main

driving factors towards a cashless society. The cashless society has been conceived to provide

convenience for users in terms of payments and storing of value, where the speed and

efficiency is made possible through technological structures and automation (Almeida,

Fazendeiro & Inacio, 2018). A study conducted by See-to and Ngai (2017) found that

consumers perceived that cashless modes of payment are useful as it reduces time and energy

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CASHLESS SOCIETY: A BOON OR BANE?

costs by making timely payments often without the need to go to the point of purchase. For

example, smart card technology such as credit cards was designed to provide consumers with

options for financial transactions to provide high transaction speeds and more flexibility

compared to physical cash; the consumer does not have to worry about having available

funds for purchases made (See-to & Ngai, 2017). Hence, consumers are able to purchase

goods and perform day-to-day transactions without the worry and burden of carrying physical

cash with them all the time. Globally, the number of active mobile users have reached 2.598

billion in 2018, a 14% increase from 2017, and make up 52% of the web traffic use (“Digital

in 2018”, 2018). Thus, with the proliferation of smartphone usage worldwide, mobile

payment was considered to be well situated for transactions as consumers are in possession of

their smartphones most of the time (Dinh, Nguyen & Nguyen, 2018). Therefore, with the

accessibility and convenience of electronic payment instruments, consumers are able to

perform daily tasks and purchase goods with ease and at their own convenience.

2.1.2 Eliminates the occurrence of financial crime

Cash has fuelled a long list of crime such as bribery, tax evasion, corruption,

counterfeiting and even financing terrorist organizations, thus has pushed governments

towards the realization of a cashless society in order to mitigate illegal activities (Boorstin,

2017). For example, retail businesses in the United States incur an estimated loss of 40 billion

annually due to theft alone, and this cost is disproportionately borne by cash-dependent small

businesses in neighborhoods or rural areas (Chakravorti, 2014). The risks that come with

physical cash in terms of theft or robberies is known, thus with the implementation of

digitalized currency, would limit such occurrences and remove black market activities

(Putter, 2016). With the adoption of a cashless society, the substitution of cash for centralized

electronic money will enable governments to have total knowledge and control on every

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transaction and possession of money by individuals and organizations (Almeida et al., 2018).

With all transactions tracked and recorded in system, illegal transactions such as money

laundering and tax evasion would be minimized or even eliminated. Almeida et al. (2018)

states that in conjunction with legislative power, governments would be able to detect, trace

and fight criminal or terrorist activities as well as grant access for direct tax collection or

mandated payments. A study conducted by Wright et al. (2014) attributed that the decline of

overall crime rate in the United States of America were due to the decline in the proportion of

financial transactions involving cash, with a 9.8% drop in total crime rate after implementing

an electronic benefit transfer system. Hence, when there is surveillance on all transactions,

the likelihood of financial crime happening is greatly minimized or even eradicated

completely.

2.2 Risks and Issues that a Cashless Society poses

2.2.1 Absolute dependency on technology infrastructure

Transitioning into a cashless society would create an absolute dependency on the

technological infrastructure supporting all transactions and functions required. System

failures due to ordinary software or hardware issues and accidents could disrupt a large

amount of access devices such as mobile payments, interbank networks and internet banking

(Almeida et al., 2018). The disruption caused could affect financial transactions where

payments would be delayed or denied, thus inconveniencing individuals or organizations.

Commercial banks are reliant on specific ensemble of information technologies to provide

core banking services to service a vast group of clients (Eastburn & Boland, 2015).

Therefore, the disablement of technological systems in bank servers due to technical faults or

glitches could result in difficulties for many individuals and companies. An example of the

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relative fragility of technological structures would be the Northeast Blackout which was a

catastrophic outage of power that impacted 55 million people in parts of the United States

and Canada (Almeida et al., 2018). The blackout was due to an overloaded power generation

unit in Ohio caused by a mixture of equipment failures and human error, which resulted in

detrimental impacts on transportation, hospitals and government buildings (Desai & Cook,

2018). An analysis report by Tricentis discovered that in 2017, a total number of 606

software failures had affected 3.7 billion people worldwide and incurred a loss of US$1.7

trillion with a total cumulative downtime of 268 years (“Software Fail Watch”, n.d.). Hence,

in the case of a cashless society when there would be no physical cash present and only

primary usage of technological systems, any breakdowns in the informational technology

structures would lead to economical and societal disruptions with no alternatives provided in

terms of financial transactions. Almeida et al. comments that societies fully dependent on

cashless means are more vulnerable towards intelligence terrorist attacks or cyber-crimes and

can potentially cripple the economy of the country, citing that history of cyber-security points

for the recurrence of attacks, breaches and disruptions in the future. Cyber-attacks have

grown in severity and frequency worldwide and is an omnipresent threat to businesses and

consumers around the world (Stickland, 2018). A report found that the cost of cyber-crime

damages has increased from $3 trillion in 2015 and is predicted to continue rising to an

estimated amount of $6 trillion annually by 2021 (Morgan, 2017). Hence, errors or loss of

data due to any technical faults could lead to drastic economical and societal disruptions,

putting the nation in a state of panic and frenzy when there is a breach in data and disruption

in financial transactions.

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2.2.2 Infringement of a right to a private life

A cashless society with only digital currency with centralized control by the state

would propel society towards a reality where an individual’s purchasing power is determined

by demographics and personal data, thus infringing an individual’s the right to privacy. The

transition from physical cash to digital currency would not just be a change in form but also a

transition from private, dyadic and decentralized transactions to transactions that are

monitored, intermediated and under centralized control (Antonopoulos, 2015). As cashless

financial transactions leave a digital trail for governments to monitor and control, authorities

could also choose to block, seize and delete any organization or individual of their choosing

from the global financial system based on personal information (Lindsey, 2017).

Antonopoulos (2015) points out that every transaction made with a card or online payment

network could be scrutinized by the state “without suspicion of a crime, without warrants or

any form of judicial oversight”. As a result, the totalitarian surveillance of digital currency is

toxic to democratic societies where the power of surveillance would erode away the social

contract and enhances the potential of corruption for officials in power (Antonopoulos, 2015).

White (2018) states that a society that wages a war on physical cash would compromise

financial privacy and provide means of victimless prosecutions wherever and whenever

banks are required to “know their customers” and render clients’ transaction records to the

state. An example is of the United States (US) far-ranging initiative Operation Choke Point,

which was designed to target “high-risk” activities by payday lenders and criminals that

preyed on the poor, however the US government also actively pried into the affairs of

everyday citizens and then determined which organization or individual should be financially

cut off from payment systems (Lindsey, 2017). Thus, it led to lawsuits against the federal

government seeking to end the “illegal government campaign” and its improper regulatory

overreach as the initiative had strong-armed banks to cut off ties with lawful businesses that

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CASHLESS SOCIETY: A BOON OR BANE?

were not in the state’s favor (Community Financial Services Association of America, 2018).

When every dollar spent is monitored and controlled, there would not be any freedom of

expression and self-determinism present in society as voices can not be heard or lobbied for

when funding can be blocked for unfavored organizations that want to drive change. A study

by See-to et al. (2018) also found that consumers were more likely to lose their privacy

through cashless means and this loss of privacy exposes them to the risk of identity theft,

while cash is perceived to be more secure due to its property of anonymity. Almeida et al.

(2018) highlights that cashless systems face threats of data breaches and user account thefts

which detrimentally affects the prestige of the system and may alienate users. Therefore, a

cashless society creates a loss of privacy poses societal risks for individuals as individuals are

unable to exercise their right of expression and the likelihood of identity theft is also

enhanced.

2.2.3 Diminished Financial Prudence

In the advent of a potential cashless society, there is an increased possibility that

consumers would have to renew their efforts to manage spending as a reality with only

cashless transactions leads to diminished financial prudence. With the ease and convenience

that cashless modes of transactions brings, it is easy to swipe, tap, click without noticing the

exact amount spent. According to See-to et al. (2018), it was discovered that the memory

error of an individual is positively correlated to the expenditure amount and that individuals

were likely to be more forgetful of their expenditure when it came to cashless transactions

like credit cards. “Pain of paying” is a negative emotion experienced by consumers upon

making purchases and the delay in payment into the future brought by credit cards reduces

this experience (See-to et al., 2018). Usage of cashless modes of transaction skews the

perception of exactly how much an individual spends and removes the mental dilemma a

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person has on whether there are sufficient funds left upon making purchases. As a result, the

adoption of a completely cashless society could cultivate habits of over-expenditure as

consumers would not be able to feel the “pain of paying” and thus neglect to consider the cost

of purchases made using cashless methods.

3. Discussion

The reality of a cashless society is inevitable and opens up a vast array of

opportunities and bears risks that may be difficult to overcome. It is admittedly difficult to

grasp the full extent of the benefits and detriments a cashless society, which is why there is a

need to remain vigilant to not neglect issues of technological limitations and privacy rights

for convenience. Despite the convenience that cashless transactions bring about, the same

perceived convenience also leads to a higher tendency for over-expenditure as consumers are

unable to feel the “pain of paying” and therefore can rake up debts especially through the use

of credit cards. In addition, although it was found that a cashless society reduces occurrences

of financial crime through the centralized control of the government, the surveillance of the

centralized digital currency encourages moral hazard in democratic societies and takes away

personal rights to privacy of everyday citizens. Furthermore, despite the reduced crime rate

for such as robberies or money-laundering, it is impossible to eradicate the risk of cyber-

attacks as these intelligent attacks are hard to predict and defend against. With a society fully

dependent on electronic formats, the scale of the cyber-crime damages could be crippling to

society and the economy as there are no other monetary alternatives to fall back on in times

of crisis. Although physical cash is more susceptible to financial crimes, it has been seen to

be a symbol of economic liberty due to its property of anonymity, hence it still remains

relevant in financial transactions in society. Thus, as we advance with the inexorable march

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of progress into a cashless society, further analysis into counter-measures are needed to

resolve the potential risks the cashless reality poses.

(2539 words)

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Almeida, P. D., Fazendeiro, P., & Inácio, P. R. (2018). Societal risks of the end of physical

cash. Futures,104, 47-60. doi:10.1016/j.futures.2018.07.004

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