Special Feature
Part of a ZDNet Special Feature: Coronavirus: Business and technology in a pandemic

Coronavirus and a cashless society: We can't leave the most vulnerable behind

Opinion: Going cashless might be convenient for many, but for others, it risks causing misery.

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The COVID-19 pandemic has become a catalyst for change, with what we once considered 'normal' in both the workplace and society at large perhaps never to return. 

From exchanging handshakes to a nod of the head, the open office to working from home, face-to-face meetings to Zoom, and physical cash to digital payment options -- removing touch from our interactions, and transactions, has become a necessary measure to try and contain the spread of the novel coronavirus

When COVID-19 infections surged and cases jumped from country to country, once the World Health Organization (WHO) became involved, recommendations were made that you should wash your hands after handling money. 

While no links have been formally made between handling cash and possible COVID-19 transmission, once we were urged to ramp up our personal hygiene practices, many businesses also chose to ask customers to make contactless payments where possible, whether by payment card or mobile services. 

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Supermarkets, delivery services, and taxis, to name but a few, flipped to card and mobile payments within weeks. Financial institutions responded to the trend, with organizations including Visa easing restrictions on contactless transactions -- such as an increase to the contactless payment limit of £30 to £45 in the United Kingdom. 

According to research conducted by data firm Dynata, the UK is leading the race in going cashless. A recent survey found that while 12% of UK citizens still prefer cash payments, 50% of residents said -- pre-COVID-19 -- they preferred cashless payments, and this has now increased to 59%.

The preference for contactless -- and, therefore, cashless -- payments also appears to be a rising trend across Europe. 

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"Across all markets, the highest level of contactless payment ownership pre-pandemic was seen in China at 90%, followed by Singapore, with 85% owning some form of contactless card or phone app, the UK (81%) and Australia (78%)," the report notes. "In the US, by contrast, less than four in ten [38%] had contactless methods of payment before the pandemic, much lower than the global average of 68%."

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The report says that now, in the United States, there has been a 19% increase in consumers' ability to access a form of contactless payment method, joining traditional options such as cash, signatures and stripes, and chip-and-pin.

The benefits

COVID-19 may have introduced some of us to cashless payments methods earlier than we may have experienced otherwise, and the main benefit of contactless payments is a simple one: ease of use.

Banks, merchants, and online services are constantly working towards more seamless consumer experiences in an attempt to save us time, to cut costs, and to use the lure of convenience to retain customer loyalty on what is now a global product platform -- which has been created by the Internet, broadband, and mobile technologies. 

In the same way as reducing the number of hoops customers have to jump through to make a purchase online -- whether through card saving on a browser or fast checkouts with PayPal -- digital payments can speed up purchases and therefore may increase sales conversion rates. 

We like seamless services. Checking an app rather than going to an ATM to view your balance; brandishing a card in the local store and tapping it rather than fumbling with paper and coins; one-click purchases on Amazon -- in the modern world, convenience is king, and payment services must bow to this demand in order to stay competitive.

"Any device that gives you back your precious time is always going to be a hit, which is why we see more people making contactless payments; it's simply easier than cash," says Sukhi Jutla, co-founder of MarketOrders. "With cash, you have to visit the bank or an ATM to take the cash out, and when you spend it you have to wait to get your change back and then carry those coins in your pockets. Without a doubt, we are moving towards a cashless society with millions of us using contactless cards or our smartphones and watches to simply tap and go."

See also: Coronavirus: Business and technology in a pandemic

This trend also provides an opportunity for mobile payment providers, including Apple Pay, Google Pay, PayPal, and fintechs -- companies using technology to disrupt the traditional financial market -- to grow. 

Digital wallets, apps, blockchain technologies, and smart payment cards are all areas ripe for expansion and with the enforced adoption of contactless payment over the past few months due to COVID-19, companies that respond quickly with useful payment services are likely to benefit over the long-term.  

Luc Gueriane, Chief Commercial Officer at Moorwand called cash the "nemesis" of electronic payments and believes that if usage continues to drop, this will be of benefit to fintechs and society alike. 

"A failure to go cashless limits innovation in the fintech sector," Gueriane told us. "The fintech industry is there to build better financial services for the consumer, this is a lot more achievable when consumers are in a cashless society."

Gueriane estimates that physical cash usage could drop as far as to 30% post-lockdown, and while going cashless can be of benefit to tax offices, in reducing crime, and for the convenience of consumers, a "final leap" is still limited by technology and regulatory hurdles. 

"The crisis has made it clear that a lot more action is needed around making digital banking solutions available to all individuals. Many programs (digital banking solutions as well as crypto) are working to help make banking more financially inclusive. However, if there isn't buy-in from all involved, then there is a risk of a cashless economy becoming financially exclusive to certain demographics."

A full transition from paper and coins -- which could be viewed as somewhat archaic these days -- to digital methods is not a small undertaking, and there are factors which could have unintended consequences for the general public. 

The pitfalls 

Cashless payment methods assume that an individual has access to a bank account, digital wallet, payment card, or a device modern enough to support mobile money services. 

However, according to the Financial Inclusion Commission, approximately 1.5 million adults in the UK alone are unbanked. 

There is a significant number of people who rely on cash in their day-to-day lives; if not for lack of a bank account, then because physically handling money can help them regulate their outgoings and keep to a budget. 

Cards and digital payment methods are convenient but they can also be risky for personal budgets. Without the option to pull out banknotes and coins, it may escape notice how much you are actually spending -- and this, in turn, may expose you to increased risk of debt or the pitfalls of unsecured credit, such as high-interest payday loans.

Those in abusive relationships and under the financial control of a partner may also suffer, as digital payments create a paper trail.

Generational factors also come into play, with the elderly potentially not signed up to online banking, being without mobile devices able to support digital payments, or they may be uncomfortable with using payment methods beyond familiar cash, visits to the bank, or chip-and-pin. 

As reported by Which?, a complete move to cashlessness could also impact those with disabilities who need ready access to cash day-to-day. In addition, with the number of ATMs and high street banks shrinking year-by-year in countries including the UK, individuals who need the option of physical cash could end up disenfranchised as a consequence of cashlessness.

Tim Muzio, Payments and Fintech Consultant at Odgers Interim, told ZDNet that financial exclusion is a major barrier to going fully cashless anytime soon. 

"While there is still a large demographic of society unable to bank or have access to digital financial tools, we must have cash as a payment option," Muzio commented. 'I think ultimately a cashless system must be embraced and we should be pushing this agenda forward, for reasons such as security and financial awareness, but until we can service all demographics with access to banking and financial education, cash will remain in circulation."

Local to global

The exchange of money on a local level, such as paying the babysitter, giving a friend money towards a takeaway, or buying produce from a vendor at a farmer's market, could be impacted by going cashless as physical currency can simply be far more convenient when making smaller transactions and in particular contexts. 

Social platforms, including WhatsApp and Facebook, are already trying to harness the microtransactions in our daily lives, with varying levels of success. However, there are larger challenges on the global scale.

Payments networks would need to be able to facilitate millions of transactions on a daily basis with speed and reduced cost if countries en masse try to go 100% cashless. The ISO20022 standard has been proposed as an internationally-agreed framework that would reduce friction between cross-border payments, but Swift, the main financial institution messaging platform, has chosen to delay migration until the end of 2022.

The reason for this decision is that banks need more time to prepare for the next-generation standard, and this will take time to complete successfully. A push for cashless transactions could encourage rushed integration, which would only lead to more problems down the line. 

Security considerations

In a society where we are fully reliant on digital services, this could open up the general public to financial vulnerability when there are IT and cybersecurity failures. 

In 2018, an IT meltdown at Visa was caused by a single broken switch, leading to the failure of over five million transactions across Europe in a matter of hours. 

One hardware failure caused utter chaos, and in light of this, if we drift into a cashless scenario without being fully prepared for such a transition and without technical safeguards in place, such incidents could become a common occurrence, resulting in serious economic damage.

Fraud, phishing, social engineering, and scams, too, are also a risk when we adopt mobile banking and digital services. It is not something that can be avoided these days, but when you add groups that may be unused to or not very knowledgable about these services to the mix, rates of fraud may increase. 

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"I doubt we will move to a completely cashless society and there remains a strong reliance on cash," Intellectual Property solicitor Alexander Carter-Silk from Keystone Law told ZDNet. "The move to a digital currency depends on whether society can trust electronic money, cryptocurrencies, and cloud computing. Every asset has risks attached to it. Moving physical money is expensive and as time goes on, we will become more accustomed to using digital, but for many, cash will remain king." 

Are we going cashless, as well as contactless?

Innovation often comes out of necessity, and with the rapid spread of COVID-19, consumers were forced to change their spending habits and both financial institutions and traders were required to rethink how they accept payment. 

It is not the time to remove banknotes and coins from our wallets, but it does appear that at some point in the future, they may vanish as consumers rely less and less on these payments and become more accustomed to and comfortable with digital services, virtual wallets, and online banking. 

However, it is not only the generation that has grown up with broadband and mobile technology that needs to be considered. If cash is not protected, we run the risk of isolating and harming those who, for whatever reason, require physical money in their day-to-day lives. 

According to Hans Tesselaar, Executive Director of BIAN, support and education are key to helping cash-first users cope with an increasingly digital payments environment and banks will need to play a "pivotal role" in the future. When asked how this can be achieved, Tesselaar commented:

"Firstly, they need to make sure its services can be easily accessed and used by those that depend on it the most, like the elderly. Secondly, banks will need to proactively increase their support function in guiding those that need help. 

At such a difficult time, customer experience will be paramount to a bank's success both now and in the future. The coronavirus has forced a lot of changes to our everyday lives. I expect when we start to recover from this pandemic, that many of these changes will stick."

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