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A Cashless Society – Benefits, Risks and Issues

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A Cashless Society – Benefits, Risks and Issues A Cashless Society Benefits, Risks and Issues (Interim Paper) by S. Achord J. Chan I. Collier S. Nardani S. Rochemont November 2017 Non-Business Disclaimer The views expressed in this [publication/presentation] are those of invited contributors and not necessarily those of the Institute and Faculty of Actuaries. The Institute and Faculty of Actuaries do not endorse any of the views stated, nor any claims or representations made in this [publication/presentation] and accept no responsibility or liability to any person for loss or damage suffered as a consequence of their placing reliance upon any view, claim or representation made in this [publication/presentation]. The information and expressions of opinion contained in this publication are not intended to be a comprehensive study, nor to provide actuarial advice or advice of any nature and should not be treated as a substitute for specific advice concerning individual situations. On no account may any part of this [publication/presentation] be reproduced without the written permission of the Institute and Faculty of Actuaries [or authors, in the case of non-IFoA research]. A Cashless Society- Benefits, Risks and Issues (Interim Paper) Contents Table of Contents Executive Summary .............................................................................................................. 1 Keywords .............................................................................................................................. 4 Correspondence details ........................................................................................................ 5 Section 1: Introduction .......................................................................................................... 6 Section 2: Background to a Cashless Society - What is Money and what forms of Cashless alternatives exist? ................................................................................................................. 8 2.1 What is money? ........................................................................................................... 8 2.2 Categorising Cashless Alternatives ............................................................................. 8 2.3 Digital Currencies ........................................................................................................ 9 2.4 Bitcoin: A Case Study ................................................................................................ 10 2.5 Central Bank Currencies (CBC) ................................................................................. 13 2.6 Innovations for Making Cashless Payment Easier ..................................................... 14 Section 3: Benefits from a Cashless Society ....................................................................... 18 3.1 The Cost of Handling Cash (With specific reference to the UK) ................................. 18 3.2 Cost of collection ....................................................................................................... 19 3.3 Cash vs card usage ................................................................................................... 19 3.4 Average Transaction Values ...................................................................................... 19 3.5 Investment in payment technology............................................................................. 19 3.6 The Contribution of Cash on the Hidden Economy and Tax Evasion ......................... 20 3.7 Illegal Immigration, Crime and Benefit Fraud ............................................................. 22 3.8. Withdrawal of Large Denominational Notes .............................................................. 25 3.9 Automated Payment Transaction (APT) Tax .............................................................. 26 3.10 Worked Example of an APT tax -United Kingdom .................................................... 27 Section 4: Negative Interest Rate Policy (NIRP) .................................................................. 28 4.1 A quick tour of monetary policy history ...................................................................... 28 4.2 NIRP & the nature of money ...................................................................................... 29 4.3 NIRP’s avenues into the economy ............................................................................. 30 4.4 NIRP and banks ........................................................................................................ 33 4.5 NIRP and a cashless economy .................................................................................. 35 4.6 NIRP and the economy in general ............................................................................. 35 4.7 NIRP considerations for life insurers and pension schemes with long-term ALM ....... 37 Section 5: Financial Exclusion and the Effect of Technology and De-Cashing .................... 40 5.1 Different stages of De-Cashing .................................................................................. 40 5.2. Financial Exclusion and the Effect of Technology and De-Cashing for Countries in the Inception Stage. .............................................................................................................. 40 Non-Business 5.3 Case Study: M-Pesa .................................................................................................. 41 5.4. Financial Exclusion and the Effect of Technology and De-Cashing for Countries in the advanced Stage. ............................................................................................................. 42 5.5 Easing the problem of change ................................................................................... 43 Section 6: Risk and Issues .................................................................................................. 44 Issue 1: Hidden agendas ................................................................................................. 45 Issue 2: Trust in banks .................................................................................................... 45 Issue 3: Trust in governments/ politicians ........................................................................ 46 Issue 4: Economics of money .......................................................................................... 47 Issue 5: Financial exclusion ............................................................................................. 48 Issue 6: Change leadership ............................................................................................. 49 Issue 7: Digital economy readiness ................................................................................. 50 Issue 8: Security of transactions, data and biometrics ..................................................... 50 Issue 9: Social value of cash ........................................................................................... 51 Issue 10: Removing cash may stall the economy ............................................................ 52 Risk 11: A cashless society may not live up to its promises ............................................. 53 Risk 12: Displacement towards alternative means of payment ........................................ 54 Risk 13: Totalitarian regimes ........................................................................................... 55 Risk 14: Sovereignty risks ............................................................................................... 56 Risk 15: End to the right of a private life? ........................................................................ 56 Risk 16: Innovation marketplace and user experience ..................................................... 57 Risk 17: Lack of competition on payments market ........................................................... 57 Risk 18: Excessive reliance on technology ...................................................................... 58 Risk 19: Politics versus Innovation .................................................................................. 58 Risk 20: Financial stability ............................................................................................... 58 Section 7: SWOT analysis .................................................................................................. 60 7.1 Stakeholders in a cashless society ............................................................................ 60 7.2. SWOT: The Public .................................................................................................... 61 7.3 SWOT: (Non-Financial) Businesses .......................................................................... 62 7.4 SWOT: Governments and Central banks ................................................................... 63 7.5 SWOT: Banks ............................................................................................................ 64 7.6 SWOT: Payments Ecosystem (ex-banks) .................................................................. 65 Section 8: The Cashless World in motion ............................................................................ 66 8.1 The Cashless Society in the Western world .................................................................. 67 8.1.1 Case Study: Sweden, an Early adopter .................................................................. 67 8.1.2 Ecosystem and attitude challenges in the USA ......................................................
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