The total volume of digital payments worldwide in 2021 is expected to reach $11.53 trillion this 2024, and it is projected to grow at an annual growth rate of 9.52% to $16.9 trillion by 2028. As digital payments continue to take over, the idea of a cashless society is quickly moving from speculation to reality for some countries.

That said, some parts of the world will take longer to shift away from cash, especially where large segments of the population are unbanked. And let’s face it, for many countries, as long as a big chunk of the population prefers cash, going fully cashless won’t happen anytime soon.

The shift from cash to digital payments is largely driven by the convenience and efficiency of contactless payments, mobile wallets, and online banking, which are gradually replacing the need for physical cash. On top of that, innovations in financial technology are paving the way for a future where cash may not be necessary at all.

What is a cashless society?

Ever wonder what life would be like without dealing with bills and coins? Well, that’s exactly what a cashless society looks like. In a cashless society, all financial transactions are done digitally, using credit and debit cards, mobile wallets, electronic transfers, and other forms of digital payment. Digital payments mean no more carrying cash around. Digital transactions offer more convenience, efficiency, and traceability over traditional cash-based transactions.

What is digital currency?

Think of it this way: your Apple Pay balance or your card’s credit limit — both are digital currency forms. Digital currency exists solely in electronic form and allows transactions to occur without physical cash. It includes various types such as cryptocurrencies, central bank digital currencies, and digital representations of traditional fiat money, all of which can be stored and transferred electronically, providing faster and more secure payment methods compared to cash.

How does a cashless society work?

A cashless society replaces physical money with digital payment methods for all transactions. People use tools like credit and debit cards, mobile payment apps, online banking, and even cryptocurrencies to make purchases, transfer funds, and pay bills. Financial institutions, payment processors, and fintech companies facilitate these digital transactions, ensuring they are secure, efficient, and instant. Government regulations and technologies like encryption and blockchain help maintain security and trust in the system.

Pros and cons of a cashless society

Sure, a cashless society sounds great, but like everything, it has its ups and downs. While moving to a cashless system offers greater convenience and efficiency, it also raises concerns about who gets left out and how secure things really are.

Anyone who’s paid with a card or mobile phone can appreciate the convenience — no more digging around for loose change, and you can easily see how much you’ve spent. But not everyone has a bank account or a mobile device, and without those, a cashless society might cut off access to essential products and services. Let’s break down the pros and cons:

Pros

  • Increased convenience and faster transactions.
  • Enhanced security with digital tracking and fraud prevention.
  • Reduced costs of printing and handling physical currency.
  • Easier financial record-keeping and transparency.

Cons

  • Exclusion of individuals without access to digital payment systems.
  • Privacy concerns and potential data breaches.
  • Increased financial surveillance by governments and corporations.
  • Vulnerability to system failures or cyberattacks.

What are the technologies that are driving the shift to a cashless society?

Several key technologies are accelerating the transition to a more cashless society.

Mobile payments

Mobile payment platforms like Apple Pay, Google Pay, and Samsung Pay enable contactless transactions through smartphones and wearables. In North America, the use of these mobile wallets is projected to double between 2020 and 2025, signifying its high adoption rate. In China, the global leader when it comes to mobile payment adoption, a survey back in 2019 showed that over 81% of smartphone users made payments within the last six months.

Cryptocurrency and blockchain technology

Cryptocurrencies and blockchain technology are also shaking things up, offering decentralized, secure payment alternatives. Payments using cryptocurrencies are forecasted to grow at a CAGR of 17% from 2023 to 2030. Governments are developing central bank digital currencies (CBDCs) for state-backed digital payments. Plus, as ecommerce grows, digital wallets are becoming the go-to payment method, followed by card payments.

Biometric authentication

Additionally, advancements in biometric authentication, such as fingerprint and facial recognition, enhance security, while fintech innovations like peer-to-peer payment apps and digital wallets make cashless payments more accessible and widespread. These advancements have led to increased consumer confidence in these technologies — a 2022 Visa survey showed that 86% of consumers are interested in using biometrics for identity authentication for payment transactions.

Artificial intelligence (AI) and machine learning (ML)

Newer technologies like machine learning (ML) and artificial intelligence (AI) also help boost consumer confidence in digital payments. These technologies are being used to enhance fraud detection by identifying unusual transaction patterns and preventing potential security breaches in real-time. AI-driven solutions allow more personalized banking services, such as tailored financial advice, spending insights, and recommendations based on individual user behavior.

On top of that, AI and ML streamline payment processes, improve customer service through chatbots, and enhance overall efficiency, making digital payments faster, safer, and more convenient. As these technologies continue to evolve, their integration into payment systems will likely further reduce risks and improve the user experience, solidifying trust in cashless transactions.

Impacts of shifting to a cashless society

The move toward a cashless society will have wide-ranging impacts. Let’s take a look at the ripple effects:

  • Businesses will benefit from faster transactions, reduced cash-handling costs, and improved financial tracking, but may face higher transaction fees from payment processors. It’s no surprise many businesses have already adopted some form of digital payment, and some even refuse to accept cash altogether. I think the adoption of digital payments for different businesses will ultimately depend on their customer demographics.
  • Consumers will love the convenience and access to seamless digital payment options. But sadly, those without access to tech or banking services might find themselves excluded. And for them, what seems like added convenience for most of us becomes a barrier to accessing basic goods and services.
  • Financial institutions will need to innovate, providing secure digital infrastructure and managing cybersecurity risks, while also capitalizing on the growth of digital payment services. These institutions will play a much bigger role in a cashless society and they will need to live up to higher standards.
  • Countries could see increased economic transparency, reduced tax evasion, and more efficient monetary policy management, though this may also lead to greater financial surveillance and concerns over individual privacy.

Top countries going cashless today

Several countries are leading the shift toward a cashless society by embracing digital payments at a rapid pace. With widespread access to banking and technology, these nations are adopting mobile payments, card transactions, and other digital platforms, drastically reducing the need for cash.

Typical indicators of a country moving towards a cashless economy include:

  • A high percentage of the population has access to banking services.
  • A low percentage of cash transactions.
  • Widespread adoption of mobile payments and card transactions.

Other factors include decreasing ATMs per capita and government initiatives to promote digital payment methods.

Below are some of the top countries making significant strides in going cashless.

  1. Norway
    • 0% unbanked population.
    • Only around 2% of payments are made with cash.
    • 27.15 ATMs per 100,000 people.
  2. Finland
    • 0% unbanked population.
    • 36.75 ATMs per 100,000 people.
    • The Bank of Finland estimates that the country will be cash-free by the end of 2029.
  3. Sweden
    • 0% unbanked population.
    • Only around 1% of payments are made with cash.
    • 20% of transactions are mobile payments.
  4. Netherlands
    • 0% unbanked population.
    • 33.2 ATMs per 100,000 people.
    • 4th most likely country in the Eurozone to use contactless payments.

Government initiatives towards cashless society

To facilitate the transition to a cashless society, various governments around the world are implementing specific initiatives designed to promote digital payments. These efforts range from regulatory frameworks and public awareness campaigns to the development of new technologies and financial inclusion programs. Here are some of the initiatives of different governments that promote a move towards digital transactions:

  • India – Digital India Initiative: Aims to transform India into a digitally empowered society and knowledge economy, promoting cashless transactions through mobile payment platforms and digital wallets. The initiative includes programs like the Pradhan Mantri Jan Dhan Yojana, which seeks to increase banking access and digital payment adoption.
  • Japan – Cashless Vision 2025: The Japanese government has launched the Cashless Vision 2025 initiative to encourage the adoption of digital payments, with a goal of increasing cashless transactions to 40% of total transactions by 2025. This includes subsidies for businesses to adopt electronic payment systems and efforts to promote mobile payment platforms.
  • China – Digital Yuan Pilot: The People’s Bank of China is piloting the Digital Yuan (e-CNY) in several cities to encourage cashless transactions and enhance payment security. This initiative aims to reduce cash reliance and streamline digital payments.
  • Sweden – E-krona Project: The Swedish central bank (Riksbank) is exploring the feasibility of a digital currency, the e-krona, to maintain the country’s leading position in cashless payments and to provide a safe and efficient payment option for citizens.
  • European Union – Digital Payment Strategy: The EU has introduced initiatives to enhance digital payments across member states, including the Payment Services Directive 2 (PSD2), which aims to increase competition and innovation in the payment sector.

Barriers to a cashless society

Several factors could slow or block the transition to a fully cashless society:

  • Financial exclusion: Many individuals in developing countries lack access to banking services or digital payment technologies.
  • Privacy concerns: Increased surveillance and tracking of financial activities may deter individuals from embracing digital payments.
  • Cybersecurity risks: Fears of hacking, data breaches, and system outages can affect trust in cashless payment systems.
  • Cultural preferences: Some populations, particularly older generations or those in cash-reliant regions, may resist adopting digital payments.
  • Government regulations: Some governments enact rules and laws that prohibit businesses from refusing cash payments, which may hinder the transition.

Future of cashless society

As digital payments become more integrated into everyday life, the shift toward a fully cashless society seems likely. The future will see greater reliance on mobile wallets, cryptocurrencies, and CBDCs, with financial systems evolving to support faster and more secure transactions.

But let’s not get ahead of ourselves; the pace and extent of this transition will vary drastically across the globe, particularly in countries where large portions of the population lack access to banking services or mobile devices.

While this shift promises efficiency and convenience, it also raises concerns around data security, privacy, and financial inequality. Striking a balance between innovation and accessibility will be crucial to ensuring the benefits of a cashless future are available to all.