The end of cash: Why, when and how to flick the switch Written by Table of contents 04 Foreword written by EY 06 In a cashless world, access, identity and data issues are complex A not-so-modern trend 07 Global drivers Unintended consequences 08 A three-point plan Carde˜nas of Conekta case study: card declined 09 The question of identity Riksbank case study: how central should a central bank be? The global battle 11 Conclusion: Fair, open and dependable 4 The end of cash: Why, when and how to flick the switch Foreword written by EY Why the move away from cash is about more than money The transition to a cashless society is much heralded, but is it really inevitable or desired? It is a complex concept that involves far technological approaches, as well as However, India’s overnight ban on some more than money. The prospect of varying levels of cultural willingness to bank notes in 2016, which led to going cashless highlights how currency give up notes and coins. Trust is also an widespread panic, is also a cautionary and transactions are increasingly and issue. Despite the proliferation of digital tale of the downside of removing cash inextricably linked to identity. However, banking options, the customers we too quickly. Even in countries further it also reflects how the increasing surveyed for our recent series of along their cashless journey, there are digitalization of our world can reports on open banking told us they concerns that removing notes and coins paradoxically open up opportunities for are wary of sharing data with financial altogether may harm vulnerable some groups while excluding others. institutions and uncertain of the need groups, including the elderly, people for, and benefits of, online banking. with disabilities and rural communities Globally, cashless transactions are on Stronger cybersecurity and regulations with patchy internet access. Financial the rise, increasing their share of the are obvious measures to help overcome inclusion in a digital economy is a payments mix each year. The seemingly the trust barrier, but we have found significant, complex issue that needs progressive demise of cash presents that it’s often those markets with the addressing carefully before we move significant opportunities, particularly toughest laws, such as the UK, that further down the road to do away for banks. Handling money, including have the most skeptical customers. The with cash. maintaining ATMs, currently accounts ability of financial institutions to inspire for about 10% of banks’ operating In a cashless society, identity would be trust through innovation in cashless expenses. The potential for digital inextricably linked to financial solutions may be a more effective way transactions to cut these costs, while participation, raising concerns around forward. allowing for new insights into how the wisdom of going entirely digital and customers spend and save, is appealing. Certainly, technology-led innovation is prompting important questions around For governments and central banks, a helping bring financial services to the how digital data are managed and cashless economy could help combat world’s unbanked population for the protected, as well as who actually owns fraud and the money laundering that first time. India’s electronic Aadhar our digital identities. As Mastercard’s supports criminal activity, while scheme, which uses biometric Mike Cowen suggests in this report, providing information on monetary authentication to overcome know your “degrees of validation”— where a flows that could guide better policy. customer (KYC) issues, has created consumer owns their own identity that digital identities for more than one is validated from multiple sources—may But, the pace and nature of adopting billion people and helped increase the be a safer, more transparent and cashless transactions differs across the country’s rates of financial inclusion. privacy-friendly option that also builds world, partly because of different trust with consumers. The end of cash: Why, when and how to flick the switch 5 This is where we return to consumers. our economy must be done by carefully vulnerable consumer and business Although digital transactions are on the considering a range of complex issues. segments are not cut off from the rise, cash is still king in many markets. The benefits of going cashless are clear, economy and society. Digital systems Most consumers are not ready to but the risks of a transformation that is must be safe and, critically, fair. completely do away with cash, and too fast or radical are real too. It is Financial inclusion is a global many merchants feel the same. The end important that, even as cashless imperative. It can be enabled by of cash is a long way off. transactions increase, a range of cashless options that help build a better payment options are available for working world, while unlocking new In the meantime, and as this report different situations and to ensure growth opportunities for banks. highlights, the ongoing digitalization of Jan Bellens EY Global Banking & Capital Markets Jennifer Lucas Sector Leader EY Americas Payments Advisory Leader Tel: +65 932 961 92 Tel: +1 704 277 3782 [email protected] [email protected] James Lloyd Hamish Thomas EY Asia-Pacific Payments Leader EY EMEIA Payments Advisory Leader Tel: +852 9666 4747 Tel: +44 796 717 6593 [email protected] [email protected] 6 The end of cash: Why, when and how to flick the switch In a cashless world, access, identity and data issues are complex. Will the 21st century see the rise of a cashless and transactions, could and should go entirely digital. What does a society? The introduction of credit cards, digital The second is ensuring the transition to digital money cashless society wallets and cryptocurrencies have led experts over leaves no vulnerable populations behind. mean for the the past decade to speculate on the progressive demise of physical money, with stakeholders such A not-so-modern trend US$1.7b as banks, consumers and governments seemingly Cashless transactions are nothing new. Traders unbanked gaining from the change. settled debts by checks in medieval Italy and worldwide? If the world went cashless tomorrow, banks may Catalonia. For consumers, little changed in the rejoice at no longer handling notes and coins, which intervening centuries until the first Diners Club can be counterfeited or stolen. Digital payments charge card appeared in 1951. Mobile wallets later would also give banks and payment processors followed after Apple’s iPhone launched in 2007. greater information on their customers’ lifestyle. Open banking, which opens up banking customer data For central banks, digital money could mean more to third-party developers, promises another insight into how money flows through the economy, revolution, with account-to-account payment services with early warning signs possibly helping monetary appearing across the European Union (EU). policy function more efficiently. Canada, Australia, Singapore and other nations are But what of the US$1.7b unbanked worldwide? If also breaking the control banks have on customer people rely entirely on cash, they cannot borrow data, and allowing other licensed firms to initiate to grow their businesses or improve life for their digital and mobile payments. families, as cash-dependent often means credit-less. Non-cash payments are rising worldwide. Their The end of cash as an anonymous and accessible volume jumped to US$482.6b in 2016, growing on method of payment also raises vital concerns. The first average by 10.1% globally, including a 25.2% upswing is whether money, or specifically identity, ownership in emerging Asian countries.1 Number of non-cash transactions in the top 10 market (billions), 2015–16 Growth 2015–16 5.7% 6.9% 25.8% 1.6% 9.0% 9.9% 36.5% 10.4% 5.1% 11.1% 148.5 150 140.5 120 90 74.5 69.7 60 48.0 38.1 28.7 29.1 22.7 24.8 30 23.2 21.1 17.3 15.3 12.6 12.7 13.9 12.0 9.6 10.6 Non-cash transactions (billions) transactions Non-cash 0 US Eurozone China Brazil UK South Russia Japan Canada Australia Korea 2015 2016 Note: Some numbers may differ from data published in WPR 2017 due to previous year data updated at the source. Sources: Capgemini Financial Services Analysis, 2018; ECB Statistical Data Warehouse, 2016 figures released October 2017; BIS Red Book, 2016 figures released 2017; Countries’ central bank annual reports, 2017. 1 World Payment Report, Capgemini/BNP Paribas, 2018 https://worldpaymentsreport.com/non-cash-payments-volume/#transactions-volume-top-10-markets The end of cash: Why, when and how to flick the switch 7 When India made certain banknotes illegal overnight, the population suddenly discovered “that 86% of its cash was obsolete. While these figures are impressive, cash still prevails. In sub-Saharan Africa, swapping mobile phone credits In fact, cash in circulation relative to GDP increased began replacing cash in the early 2000s. The trend In the US, only in 2018 to 9.6% across all continents, up from 8.1% led to the creation in 2007 of M-Pesa, a mobile in 2011.2 phone-based money transfer service in Kenya. Other 9.6% countries have adopted the mobile money operator of card In Europe where payment infrastructure is efficient (MMO) model with various degrees of success. transactions and increasingly cheap to use, the European Central used modern Bank says household cash payments were €1.7t In Latin America, many people are wary of traditional EMV chip compared with €1.1t for cards. Seventy-nine percent banks on cost or trust grounds, yet MMOs have of all point-of-sale transactions were still cash-based.3 gained far less traction.