Are we living in a cashless society? | Stripe (2024)

Cashless transactions are becoming more common globally, as digital and card payments proliferate. Around the world, people increasingly rely on debit and credit cards, mobile payment apps, and other digital payment methods for their daily transactions.

Other noncash innovations have also propelled this shift in recent years, including contactless payments such as tap to pay cards and digital wallets. At the start of the COVID-19 pandemic, contactless payments gained popularity because they felt safer. After public health concerns decreased, convenience gave these payment mechanisms longevity. In addition, mobile payment platforms such as Apple Pay and Google Pay have become more widespread, making it easy to pay without cash or cards.

And the numbers tell a striking story: global digital transactions are forecasted to exceed $14 trillion by 2027. In Scandinavian countries such as Sweden and Norway, over 90% of point-of-sale (POS) transactions are now cashless, and cash is so uncommon that many businesses no longer accept it. In Asia, mobile payments are skyrocketing. China is leading the charge with services such as WeChat Pay and Alipay. And as of 2023, nearly 88% of mobile internet users in China used mobile payment methods.

This shift isn’t uniform, though. In many parts of the world, cash is still the top choice, due to a combination of factors such as lack of access to banking services, distrust in financial institutions, and the informal nature of some economies. However, the direction of the shift is clear: more people are moving away from cash, driven by convenience, speed, and the evolving capabilities of digital technology. Governments and financial institutions are exploring how to facilitate this transition while considering the needs of all citizens.

Below, we’ll discuss what businesses should be aware of when considering whether cash should remain part of their payment strategy.

What’s in this article?

• What is a cashless society?
  
• Types of digital currencies
  
• Progress of cashless initiatives in key countries
  
• Governmental stances on the move away from cash
  
• Implications for customers and businesses in a cashless world
  
• Business benefits of cashless societies
  
• The benefits of using cash and what the future holds
  

What is a cashless society?

A cashless society is a concept in which money changes hands through digital means rather than physical banknotes or coins. In practice, this would look like customers going about their day—buying coffee, paying bills, shopping for groceries—without ever touching a bill or coin. This idea is not new, but its adoption has risen, driven by the introduction of technologies such as credit cards, online transfers, and mobile wallets.

In a cashless society, all payments are processed through digital networks. Banks keep an electronic record of transactions, and people access their funds through electronic systems. The advantages to cashless societies might include reduced physical crime (since there’s no tangible money to steal), lower transaction costs, and the convenience of not needing to carry cash.

However, cashless societies have challenges, too. Not everyone has equal access to the internet or other technologies necessary to participate fully in this type of economy. Privacy is also a concern, since nefarious actors can track and record digital transactions. Transitioning to this type of system requires careful planning and widespread adoption of accessible and secure infrastructure.

Countries are at different stages of moving toward this concept. Some countries have taken significant steps—with businesses and customers readily adopting digital payment methods—while others still heavily rely on cash. The trend toward digital transactions is influenced by technological advances, governmental policies, and customer behavior.

Types of digital currencies

Multiple forms of digital currency are becoming more integrated into daily life, enabling faster and more convenient transactions while reducing the need for physical cash. Each currency system has its own set of benefits and challenges, but all are shaping the future economy.

• Digital wallets
  Digital wallets, also known as e-wallets, allow individuals to store funds electronically and make transactions online or in store using a mobile device. Services such as PayPal, Venmo, and Alipay link to a customer’s bank account or credit card, allowing them to transfer money or make payments with their smartphones or wearables.

• Cryptocurrencies
  Cryptocurrencies use cryptography for security, making them tough to counterfeit. They typically operate on blockchain technology—a distributed ledger enforced by a distinct network of computers—and are not issued by a central authority, theoretically avoiding government interference. They are popular for their investment potential and for enabling direct transfers between users without an intermediary such as a bank. However, most governments do not recognize cryptocurrencies as legal tender. Bitcoin, the best known of these currencies, was introduced in 2009.

• Stablecoins
  Stablecoins are a type of cryptocurrency that is tied to a reserve asset, such as a currency or a commodity, in order to reduce volatility in value. They combine the security and privacy aspects of other cryptocurrencies with the stable value of traditional currencies, which makes them more practical for everyday transactions.

• Mobile money
  In regions with less access to traditional banking, mobile money systems have become popular. These services allow customers to deposit, withdraw, and transfer money on a mobile device without a bank account. M-PESA, a well-known mobile money service in Kenya and Tanzania, is an example of a mobile money service that has profoundly impacted the economy.

• Central bank digital currency (CBDC)
  CBDCs are digital tokens similar to cryptocurrencies that are issued and regulated by a country’s central bank. This digital form of a country’s official currency comes with the same level of trust as its physical form. Unlike typical cryptocurrencies, CBDCs are centralized and are considered legal tender. They are designed to be stable, provide an alternative to physical cash, and improve payment systems. Pilot programs and research into CBDCs are underway in many countries as governments explore ways to combine the ease of digital transactions with the regulated, secure backing of traditional banking.

The adoption of digital currencies depends on how easily businesses and customers can use them for everyday transactions. Due to price volatility and regulatory challenges, cryptocurrency acceptance by businesses is limited. However, cryptocurrency proponents hope to overcome these hurdles with CBDCs.

Progress of cashless initiatives in key countries

Some countries (and smaller jurisdictions within those countries) are moving away from cash much faster than others. In some places, cash is still widely used; in others, it’s rarely used and then only in isolated circ*mstances. Here’s a look at the position of cash for a few of the most developed countries:

United States

The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022. This is driven by convenience and the extensive network of businesses that accept electronic payments. Challenges in the US include addressing the needs of those without bank accounts and managing concerns about digital security.

United Kingdom

In the UK, contactless technology is propelling the transition away from cash, particularly in cities and on public transport. The government and financial sector’s support of digital payment technologies has also encouraged customers and businesses to adopt these methods. As of 2020, 83% of people in the UK used contactless payment methods. After the COVID-19 pandemic began, people became even more inclined to use contactless payments, accelerating the country’s move away from cash.

Japan

Japan’s relationship with cash is characterized by its advanced technological capabilities and a cultural preference for cash. Japan’s Ministry of Economy, Trade and Industry reported that nearly 33% of payments were cashless in 2021. Efforts to promote cashless payments have intensified, and these include government initiatives to increase acceptance of electronic payments—especially in areas that experience a high volume of international tourism. These measures include subsidies for businesses that install cashless payment systems and tax incentives for customers.

Germany

Germany’s cautious acceptance of cashless payments is due to the population’s preference for privacy and control over personal financial data. But customer habits appear to be changing: a Deutsche Bundesbank report found that Germans used cash for 58% of their purchases in 2021, down from 74% in 2017. There’s a gradual shift away from cash, especially among younger demographics, who are more open to digital transactions.

Each of these countries is moving toward cashless societies at its own pace, influenced by distinct cultural attitudes, government policies, levels of technological adoption, and readiness of financial systems to support such changes.

Governmental stances on the move away from cash

Governments around the globe are creating a variety of policies and initiatives to promote digital payments. These efforts include creating digital transaction infrastructure (such as payment systems and high-speed internet access) and educating the public about the benefits and security of going cashless. Some governments incentivize businesses to accept digital payments by offering subsidies or tax rebates to upgrade their payment systems.

But policymakers face challenges in this shift to digital payments. They need to ensure that the transition to a cashless economy does not exclude certain groups, especially those without access to technology or banking services. Policymakers must also address security and privacy concerns about data protection and digital fraud.

Governments are aiming to promote cashless policies while also acting as guardians of fair and accessible financial systems for all citizens. This requires ongoing discussion and careful consideration of socioeconomic factors.

In the United States

The US government has taken a multifaceted approach to regulating and encouraging the use of digital assets. President Joe Biden’s Executive Order on Ensuring Responsible Development of Digital Assets is a comprehensive initiative, covering consumer protection, financial stability, and innovation in the financial sector. It includes strategies such as research and development, sharing data on customer complaints, and supporting innovative firms in order to gain global market presence. It also discusses a potential U.S. Central Bank Digital Currency (CBDC) and how such a currency could improve payment systems and promote financial inclusion.

To protect customers and guarantee fair market practices, the Biden administration has directed regulators to pursue investigations and enforcement actions against illegal activities in the digital assets space. It has also designated the Consumer Financial Protection Bureau and Federal Trade Commission to monitor the industry and act against unfair practices. The government has also tasked the Financial Literacy Education Commission with leading public awareness efforts to inform customers about the risks of digital assets.

Under the Biden administration, the federal government has focused on improving access to financial services, advocating for instant payment systems such as FedNow and creating a framework to regulate nonbank payment providers. It has also worked to improve the efficiency of cross-border payments and to ensure digital assets serve all Americans equitably.

Financial stability is a key concern for digital currencies, and the Department of the Treasury has worked with financial institutions to identify and mitigate cyber vulnerabilities. On an international scale, the US has used its influence in global organizations to promote frameworks that reflect core US standards and to help other countries develop digital asset infrastructures that respect data privacy and financial stability.

And to combat illicit finance, the administration has considered legislation to strengthen laws against money laundering and terrorism financing within the digital asset sector, including increasing penalties for unlicensed money transmitting​​.

These initiatives illustrate a concerted effort to promote innovation and economic growth while protecting customers and maintaining financial stability. The US government recognizes both the transformative potential of digital assets and the importance of careful oversight to prevent their misuse.

Implications for customers and businesses in a cashless world

In a cashless world, customer habits and business operations would transform considerably. Shoppers would shift to digital-only transactions, which would then affect customers’ budgeting, spending, and financial tracking. Businesses would need to update their payment systems, train staff, and potentially alter pricing to account for electronic transaction fees.

Some segments of society would face challenges. Tech-savvy individuals would likely adapt readily, while older individuals or those without access to banking services might struggle unless they receive targeted education and support. Moving toward a cashless society requires building infrastructure that accommodates everyone, ensuring its benefits—such as increased transaction speed and convenience—do not exclude any group.

Business benefits of cashless societies

When transactions are conducted electronically rather than with physical currency, businesses can benefit. Here are some of the key advantages:

• Reduced costs and increased efficiency
  Handling cash can be costly for businesses. It involves secure storage, transportation, and management. Cashless transactions, on the other hand, are usually more efficient and reduce these operational costs. And electronic transactions can simplify the checkout process, leading to faster service.

• Improved customer experience
  Many customers appreciate the convenience of cashless payments. This can improve the overall customer experience, making it more likely that they will return or recommend the business to others.

• Increased sales and revenue
  Studies show that cashless transactions often encourage higher spending. This is partly because people are less aware of how much they’re spending when they aren’t physically handing over money, and also because their spending isn’t limited by the amount of cash they have on hand.

• Better financial tracking and analytics
  Cashless transactions generate digital records, enabling businesses to track sales and customer behavior with greater accuracy. This data can inform decisions about inventory, marketing, and overall business strategy.

• Reduced risk of theft and loss
  Carrying and storing cash poses security risks. Cashless transactions eliminate the risk of physical money theft, which can also reduce insurance costs.

• Global reach and inclusivity
  Cashless payments can be convenient for customers who don’t have easy access to ATMs or who prefer not to carry cash. They also enable businesses to easily accept payments from customers anywhere in the world, opening up opportunities for global sales.

• Innovation and competitive edge
  Adopting cashless payment technologies can position a business as modern and innovative, which can be an important competitive edge—especially among tech-savvy customers.

• Lower environmental impact
  Going cashless can also have a positive environmental impact, reducing the need for printing and transporting physical currency.

In addition to these benefits, there are also challenges involved when businesses transition to a cashless system. These include guaranteeing transaction security and privacy, troubleshooting when customers may not have access to or be comfortable with digital payments, and paying transaction fees. Despite these challenges, the shift toward cashless transactions continues, offering opportunities for businesses to innovate and improve their operations.

The benefits of using cash and what the future holds

Cash is still a deeply integrated part of global economic systems, and it serves specific, ongoing needs. Here are some benefits of cash that will keep it relevant in the future:

• Accessibility and inclusivity
  Cash is an accessible payment method for all segments of the population, including individuals who do not maintain bank accounts. Cash helps unbanked individuals engage in daily economic activity. And cash doesn’t rely on digital infrastructure, so it’s more resilient than digital currencies in areas with unreliable or nonexistent internet access.

• Dependability in emergencies
  During power outages or natural disasters, electronic payment systems may fail, but cash remains reliable. This is why many emergency preparedness guides advise keeping a certain amount of cash on hand.

• Anonymity and privacy
  Cash transactions offer a level of privacy that electronic transactions can’t match. For individuals who are concerned about their data being tracked, cash provides a way to purchase goods and services without leaving a digital trail. This anonymity protects customers’ privacy and defends against the potential misuse of personal data.

• Support for informal economies
  Informal economies are a substantial part of many countries’ overall economic activity, and they often operate primarily in cash. These transactions are typically not recorded by the government and are tax-exempt. For example, street vendors and local service providers heavily rely on cash as it provides immediate payment without requiring sophisticated payment systems.

The future of payments will likely involve maintaining the integrity of cash as a payment option while also expanding and improving digital payment solutions. Individuals will be able to choose how they transact based on their personal circ*mstances and preferences. And businesses, policymakers, and financial institutions must provide robust digital payment systems alongside a strong infrastructure for cash, in order to build an inclusive financial system that serves the needs of all participants.