Will world’s largest economy go cashless?

27 Aug 2021

Contactless and mobile payment options have led to the mammoth increase in cashless payments in recent years, with experts saying the first truly cashless society could be a reality by 2023. 

Sweden, say most commentators, is leading the charge and the U.S., the world’s largest economy, could soon follow the Nordic country’s example.

Businesses are defined as being cashless when they accept “95% or more of their transactions through credit or debit card,” says financial services and mobile payment company Square, Inc.

Contactless and mobile payments are forecast to jump each year by 21% in emerging markets and over 7% in developed markets such as the United States, according to analysis from A.T. Kearney, a U.S. financial firm.

Pandemic accelerator

Since the outbreak of Covid, a growing number of Americans have been opting for cashless payments in order to stop handling physical coins and notes.

According to research, 8% of Square’s U.S. corporate clients on 1 March 2020 were cashless, but by 23 April, the number of cashless businesses had jumped to 31%.

Previously, pre-pandemic, it took four years for card usage to increase by 9%, according to the payments firm. However, from April 1 to April 29, the use of plastic for $10 to $20 transactions in the U.S. had risen by 2%.

This is an acceleration of a trend steadily growing over the last two decades as Americans have been seeking ways of spending that doesn’t involve cash.

According to the 2019 Federal Reserve Payments Study, in 2018, U.S. citizens opted for non-cash payments 174.2 billion times, an increase from 143.6 billion from 2015. The value of these payments was $97 trillion in 2018, $10 trillion higher than 2015. 

“In the United States, 26% of all payments were made by cash so that’s over four times what it is in Sweden,” Associate Professor of Economics at Hofstra University Constantine Alexandrakis told Forbes.

Even though higher digital transactions are being reported across the board, Prof. Alexandrakis says the push towards a cashless America comes from the younger generations who are ‘digital natives’ having grown up in a world of technology and digitalisation.

Benefits of a cashless society

Advocates of cashless societies say there are major advantages for consumers, for businesses and for the government.

For consumers:

  • Time savings in banking, transit and retail transactions
  • Savings from avoidance of late payment fees
  • Savings from reduced crime
  • Increased convenience
  • Improved budgeting and expense tracking
  • More personalised customer service

 
For businesses:

  • Reduced theft
  • Labour time savings
  • Savings from reduced float times and costs
  • Potential for greater sales through digital channels
  • Better data to improve customer service
  • Leverage data for targeted promotional campaigns
  • Convenient inventory and expense tracking
  • Data to improve loyalty schemes

 
For the government:

  • Savings from more efficient government processes
  • Increased tax revenues from recaptured black market
  • Increased tax revenues from greater business sales
  • Criminal justice costs savings from reduced crime
  • Better data on citizen needs
  • Lower costs of managing cash

 
With so many advantages for society, a transition to cashless seems inevitable. And, as they say, “when America sneezes, the world catches a cold,” meaning, of course, as a global leader, other nations typically follow the United States.