In the winning essay of the 14-15 age group in our Young Financial Journalist competition, Tife Yoloye looks at the future of cash and digital transactions.
Digital banking and cybercrime
Whilst there have been significant advances in the world of digital banking and cryptocurrency, physical money is not going to be eliminated in the foreseeable future for a range of reasons.
Previously, illicit transactions were highly dependent on cash since it was much more difficult to trace. Had cashless society been a viable option 25 years ago, the rate of street crime would have plummeted, and the informal economy would have massively staggered. But now, research by We Fight Fraud (WFF) reveals that rather than stopping illegal proceedings, a cashless society actually encourages it.
During the coronavirus quarantine, criminals quickly adapted to the lack of movement, and began to run rampant with online attacks. Ever since 2020, cybercrime has increased by 600% due to the pandemic. A recent example is the CNA Financial Breach in March 2021; the American insurance company suffered a ransomware attack that resulted in company data being stolen, resulting in CNA Financial paying a $40m (£31,921,000m) settlement fee.
If a leading American insurance firm could be cornered like this, smaller companies are extremely vulnerable. An older example of cybercrime is from 2013, when a gang stole $45m (£36m worth now) by hacking into a database of prepaid credit cards and then draining cash machines around the world. This was 10 years ago, and we have long since entered a more advanced technological phase. To cybercrime alone, the UK lost £4bn in 2022 — a 67% increase from 2021. So, until we find a much better solution to cybercrime, we would only be enabling online illegality by going cashless.
Gambling, and the general lack of money management, also affects the transition to a cashless society. Offline gambling usually requires cash, and this is a hassle for most. However, lockdown popularised gambling from home, making it more desirable since you could use a credit card. A study from the University of Bristol showed that the usage of online gambling grew six-fold during lockdown, and for the citizens that didn’t gamble before lockdown, gambling increased between 4% and 14%. The pandemic indirectly revealed that if we introduced a cashless society, gambling rates would skyrocket, even encouraging those who didn’t gamble previously.
In 2017, 48% of the adult population (roughly 21m) gambled, and 17% of those were online (3.57m). But after the pandemic, online gambling registrations have increased drastically to total approximately 32.65m, as of 2022. This surge proportionally increases the occurrence of problems associated with gambling such as bankruptcy, job loss, homelessness, and the breakdown of personal relationships. Already, issues like this are prevalent because of bad spending habits, especially with the use of credit cards.
What are the issues with a cashless society?
People tend to overspend by substantial amounts when buying with their card rather than cash, because cash has a tangible value, whilst your card doesn’t. A 2022 study by Aqua showed that adults in the UK overspend, on average, by £846.54 yearly. With all this data, if society goes cashless, economic issues like debt and poverty will rise rapidly, placing millions in a difficult position.
Lastly, if communities went entirely cashless, then economic inequalities would be highlighted more than ever. To live in an age where payments are entirely tech reliant, all citizens must be fully equipped with the necessary tools. However, 6% of America’s population is unbanked, and in the UK almost 2% of the population is unbanked. Within this figure, 90% of British citizens earn low incomes. Push forward a cashless society is unnecessary, as it would negatively affect those who cannot access digital payments, for example workers in service industries who are often paid in cash.
Currently, over eight million people in the UK (17% of the population) make payments with cash daily, so to disable a way of life for almost a fifth of the population is a mighty expense for the sake of digital advancement. However, this is only the case in HICs like the USA and the UK. If LICs, for example Nigeria, are considered, we can see that the cashless utopia some wish for is still very far off. Nigeria, being one of the top three unbanked countries in the world, has 40% of its population without a bank account, meaning 59m unbanked adults, and in over 60% of rural communities across Nigeria, there are no bank branches, agents or ATMs. Should the country try to progress into a cashless society in the foreseeable future, the livelihoods of over half the country would be shattered almost irreparably.
To conclude, because of issues such as economic inequality, bad money management, and data security, advancing into a cashless society in the near future is a concept hosting an array of challenges yet to be solved.
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