Cashless Society & Rise of FinTech
30th October 2020
What is Fintech?
Financial technology or FinTech for short is technology developed to compete with traditional financial methods in the delivery of financial services. Companies taking part in the FinTech revolution range from large financial institutions to start ups, with popularity increasing during the Coronavirus pandemic creating the new normal for financial services. The UK is a pioneer in the FinTech Industry with over 1,600 firms, this is with the help of London’s financial services reputation to establish the disruptive industry. In 2018, the UK FinTech industry received over £2 billion from investors, more than any other European country (Gov.uk, 2019).
The Government has also released funding initiatives to help in the development of these businesses:
- Seed Enterprise Investment Scheme (SEIS)
- Enterprise Investment Scheme (EIS)
- Social Investment Tax Relief (SITR)
- Venture Capital Trust (VCT)
It would appear that FinTech is becoming a popular choice by reducing service costs and providing new solutions in technology for the financial services industry especially in the current climate with Coronavirus where many consumers will be looking to lower their costs (PWC, 2016). However, combined with new technology and the increase in cash not being accepted is this one of the biggest contributors to a cashless society?
Why could we be moving toward a cashless society?
Before the Covid-19 pandemic, cash was commonly used to pay for goods and services. In 2019, 23% of all payments in the UK were cash payments (Jones, 2020). However, since the pandemic, people’s habits have changed. Places where cash was commonly used such as pubs and cafes have been shut or the system in which they take payments has now changed (Jones, 2020). The government has also implemented changes in the way that payments can be made, to reduce the spread of the virus. One such change was the increase of the spending limit for contactless card payments. The limit was increased from £30 to £45 in order to encourage people to use contactless card payments and reduce human contact.
Coronavirus is spread through close contact which is why measures have been taken to reduce the amount of human contact in society. Government guidelines and business decisions have changed the way that transactions take place. As people are getting used to using non-cash payments, and businesses are set up to take as few cash transactions as possible, it is more than likely that we could be moving towards a cashless society.
Negative aspects to a cashless society?
The disruptive technology may be beneficial to our future, however, in the short term there are issues regarding the security of accounts and personal data of consumers. These consist of third-party security risks, malware attacks, data breaches, digital identity theft and money laundering. People are, understandably, hesitant to operate their finances through online methods due to the potential risk it presents (Finovate, 2020).
Other issues surrounding the development and implementation of FinTech are:
- Older generations might find the transition difficult as they tend to use cash methods for payments, especially when paying family or neighbors when they do a food shop for them.
- Many people in the UK do not have bank accounts, making it difficult to operate through technology when removing the cash transaction.
- Domestic Abuse Survivors – partners can trace the survivors spending habits, cash allows the survivors a way out.
Benefits aspects to a cashless society?
Moving towards a cashless society has a lot of huge benefits, some of which include:
- A cashless society can lower crime rate since there won’t be any tangible money for criminals to steal.
- There will be a reduction in money laundering and tax evasion since there will always be a paper trail.
- The risk of handling, storing and depositing cash is eliminated.
- Intensive data collection through digital transactions, consumers can use behavioral insight to manage their spending habits and preferences.
- The exchange of currency will be more simplified, as technology will be able to assist in more than one way, when dealing with exchange rates.(Express Money Blog, 2019)
We believe that that society could become cashless in the future, but not the near future. There are a lot of obstacles to overcome before FinTech can be widely implemented, such as older generations finding the transition difficult. However, the benefits to FinTech outweigh the negatives, so there will be a transition in the future. The Covid-19 pandemic has impacted the way cash is being used in society and has accelerated the development toward becoming a cashless society. As government guidelines and business decisions continue to be made to reduce the spread of the virus, non-cash payment methods are becoming more common in society. Therefore, while it may not happen soon, society is likely to become cashless in the future.