There has been a debate for the last few years over ‘cashless’ economy or ‘less cash’ economy. I believe both are relevant as we move from the latter to former. You may have heard another phrase ‘cash is king’. The question remains, for how long? The new global norm and the ecosystem which is being built include both cash and digital currencies. Although cash is still a fundamental need of many economies, however several geographies have either migrated or are migrating faster than ever to becoming a cashless society.

As per the 2019 EU commission digital index, Finland is the EU’s best performing country in digitisation while Sweden ranks second and Denmark fourth. Norway scores equally high as its Nordic neighbours, and would have ranked fifth in the overall index if included in the ranking. Canada, China, South Korea, UK and Australia are also moving towards making cash irrelevant. India has also made an aggressive attempt over past couple of years of going cashless.

A frequent question which gets asked is – How does one become a successful cashless economy? The response to that is by creating a strong digital ecosystem which promotes digital transactions by keeping mobile first and frictionless at the centre of its strategy. 

Amol Bahuguna – Head of Payments and Cash Management – International and Transaction Banking Group – Commercial Bank of Dubai

As we have witnessed a surge in E-commerce transactions globally, there are prediction by experts that there would be over 2 billion digital buyers by 2020 and global retail E-commerce sales are expected to reach US$4.13 trillion. In the wake of COVID -19, these numbers look to me as just the tip of the iceberg. Exposure to internet, mobile penetration, wallet services and having easy access to credit card makes such opportunities much larger. India is expected to rank first in retail E-commerce sales by 2022, with a CAGR of 19.9%. 

The UAE has been a model economy, where the government had set a target to become cashless and paperless by 2020 and 2021, respectively. The UAE is well known to set such stretch targets and achieve them. As per Boston Consulting Group, the UAE’s reliance on cash used in day to day transactions is forecasted to reduce from 72% to 46% by 2021, which I think in the post COVID -19 era will reduce even further at a much faster pace.

The factors given below would help the UAE become a cashless and paperless society in a short span of time:

• Smart phone penetration and active internet users in the UAE have been the highest in the world and it is one of the key driving forces for the significant increase in adoption of digital payments, across both government and non-government services
• Mobile wallets like Samsung pay, Apple pay, Google pay along with friction less transactions have seen a major jump in the recent past. With the CBUAE increasing the limit of contactless transaction to AED 500, a recent Visa study, states that over 50% of transactions have become contactless. In addition, with the launch of UAE’s own mobile wallet, Klip, scheduled to go live by 2020, the entire payments ecosystem including banks, billers and other financial entities will get connected helping merchants reduce their cost of transactions.
• Credit and Debit card penetration. With the launch of WPS (Wage Protection System), the UAE government has ensured that businesses are paying salaries to all its employees digitally into their bank accounts or payroll cards, which has resulted in all employees in the UAE, both white collar and blue collar workers with access to a card instrument. As per the Global Payment Report, there are over two cards per person in circulation in the UAE. Prepaid card account for 20% of cards in circulation in the country. As the card penetration increases so will the spending on them, which is clearly reflected in the decline in cash payments. 
• Banks are the first ones to embrace any new technology as they are aware of the benefits of digitisation. In the wider scheme, banks continue to enable wallets, E-commerce platforms and payment aggregators, empowering a multi-payment ecosystem. Most payment transactions for which the customer earlier needed to visit a bank’s branch can now be executed simply through online or mobile banking platforms.

While a cashless society seems like a natural evolution of our collective marketplace, the question remains if a cashless economy is beneficial or harmful? The answer to which is a resounding YES in favour of being beneficial. However, you also need the transformation of the last mile on money transfers, payments and banking services to help close the financial inclusion gap and create efficiencies for government, private businesses and consumers.