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The East West road to the cashless economy: part one

June 14, 2021

Jonathan Bennett, Chief Commercial Officer

Jonathan Bennett

Chief Commercial Officer

Different regions of the world are moving towards a cashless economy at different paces, with a marked variation in the proportion of contactless versus physical money transactions between countries in the West and the Asia Pacific.

A report published by data analytics provider GlobalData last month [May 2021] forecasts that cash will remain the most widely used payment instrument for a substantial portion of the world’s population for at least the next decade. But it also highlights the progress already made in the adoption of technologies that support mobile payments, such as near field communications (NFC) and QR codes in different regions, with the West favouring the former and the Asia Pacific the latter.

The coordinated establishment of regional interoperability has played a big part in advancing the adoption of mobile wallets in some Asian countries, often in parallel with the development of consumer-to-business and business-to-business payment and transfer systems.

The coronavirus pandemic has changed attitudes to cash in both regions of the world, boosting eCommerce sales amongst consumers who previously relied on cash transactions in physical stores and prompted many retailers to build or expand their digital operations. The greater consumer preference for online shopping is likely to persist once COVID-19 lockdowns and social distancing restrictions are entirely removed, with mobile rather than card payments expected to account for a gradually more significant share of transactions.

The US lags other Western countries in mobile wallet uptake

In the first of two blogs comparing the West and Asia Pacific regions, we look at GlobalData’s findings for the US, the UK and Sweden. American consumers are highly comfortable using payment cards both in-store and online. There are many card issuing and alternative payment brands covering P2P, eCommerce, and mobile proximity payments, giving buyers plenty of choices.

The uptake of mobile wallets remains limited in the US compared to other Western countries, with only 27% of US respondents taking part in Global Data’s 2020 Banking and Payments Survey having used a mobile wallet in a physical store the previous month. Based on recent trends, the company predicts that cash usage in the US will take more than a decade to be wiped out completely. Its use has declined by only 2.6% between 2012 and 2020, while the use of payment cards has recorded a compound annual growth rate (CAGR) of 7.1% over the same period.

The growing popularity of mobile payments in the UK means consumers have adopted cashless payments on a much larger scale, predominantly due to less provider fragmentation and a greater acceptance of NFC technology in mobile handsets and sales (POS) terminals. The increasing use of mobile wallets like Apple Pay, Google Pay and Samsung Pay, as well as local solutions Pingit and Paym, have all also accelerated the transition.

Cash transaction volumes have also declined faster (14.7%) between 2012 and 2020 and are predicted to make up just 20% of transaction volumes by 2024. With fewer people using ATMs, combined with the increased cost of running them, it is estimated that around 300 cash machines are being taken out of service in the UK every month.

Sweden leads the way

The poster child for cashless payments in the West, according to GlobalData, is Sweden, which is now projected to be completely cashless by 2023. Its smaller population of just over 10m has made it easier to roll out a modern digital payments infrastructure. At the same time, the country also has a wide range of affordable and widely available financial products.

The introduction of BankID (which now has 8m users) set the ball rolling in 2003 by giving Swedes digital signatures with which they could certify electronic transactions and documents. In 2012, the six largest banks in Sweden collaborated with the country’s bank to bank clearing system and central bank to launch Swish, a platform linked to BankID which effectively created a national mobile payment system. Mobile payment transaction volumes have increased exponentially ever since.

Based on GlobalData’s Payment Instrument Analytics, the situation has evolved to where cash use by value for payment transactions in Sweden was just 1.1% in 2020. That has led to some Swedish retailers experimenting with completely cash-free stores while parts of the country’s transport networks no longer accept cash.

Choice and flexibility dictates the pace

Ultimately there is no defined roadmap for any global or sovereign migration to a cashless economy and considering financial inclusion imperatives, nor should thereby. Several catalysts for progress – including consumer and merchant acceptance, network infrastructure and smartphone penetration – will define the shifting proportion of cash, card and mobile payment transactions going forwards.

For merchants, the key is to stay flexible and offer consumers as many different payment options as possible to maximise revenue and stay ahead of the competition as the transition continues.

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