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11 December 2024
The world of finance and economics has been shifting for quite some time; it has been moving from a ‘cash is king’ mentality to one dominated by cards and electronic payments.
The world, of course, is not uniform. There are countries like Sweden where 85 to 90 per cent of the transactions are cashless, and only 13 per cent of the population uses cash at all.
However, Sweden is a country that is research-intensive, devoting more than 3 per cent of its GDP to innovation and research.
In such a technology-driven economy, one would assume a higher use of plastic cards, whether debit or credit, but is this shift to card payments beneficial for everyone and what alternatives could we be missing out on?
Chinese innovation
The technological race to develop secure systems of cashless payments has been heating up for years. China currently has a clear lead, but the Biden administration has promised to address these issues of languidly in the US market with a large push for investment.
Nevertheless, the Chinese system has been to develop wallet technology based on the use of QR codes, which effectively amounts to disintermediation of the banking system. This rest of the world still uses – in one way or another – the banking system, whether this is with the digital wallet or hard plastic.
The benefits of the Chinese system are that it is far cheaper – since there are no transaction fees as long as one stays on the same platform – as well as being convenient and instantaneous.
However, cash does allow for those who wish to have themselves be watched less by governmental or business enterprises, and this autonomy is a liberty many would fight to protect.
Then there is the budgeting component. If someone has 100 euros in their wallet and did not want to spend more than that in an evening or over a weekend, it’s rather simple to limit oneself. If we become solely reliant on digital wallets, then this fiscal discipline could be easily lost, exacerbating issues for those already trying to curb their spending.
In countries where there is a high level of social welfare and initiatives which want to be inclusive for all rungs of society (like Sweden), this could be a more viable option. In this situation, a cashless society may be desirable if it is using the tool to actively promote equality.
However, if there is not an attempt to make a more level playing field, then you’ll have increased divisions in society with those who can reap the benefits of technology and are able to manipulate the market to a larger extent than those without the knowledge or access to infrastructure to adapt their practices.
Derivations
The US has a diversified monetary market; there you have cash, cards, checks (which never existed in many Central European countries), and digital payments such as PayPal. The whole gambit of outflows runs from the medieval to the modern, but they all coexist in one market.
The European model is essentially a version of the US model with two slightly different components.
One is that larger fragmentation of the payment world, which means adopting a specific payment method that is behaviorally based. Here the focus tends to be about the easing of processes to make the transactions as frictionless as possible.
The second reason is that commercial banks act differently than in the US. This is based on the different regulations which exist in Europe that effectively put a cap on interchanges, so the share of the profits that banks take from transactions is less and thus cheaper for the customer.
It is almost impossible to determine exactly what the future of transactions will look like because we are currently using so many different modes in our day-to-day lives.
The dominant trend seems to lead towards more electronic transactions (including cards), but there will also be a phasing in of a QR-based technology as well, though perhaps for security reasons, with a system not based in China.
This is a summary of a discussion with Michał Rożynek (Strategy & Innovation Consultant) and Martin Miszerak (Visiting Lecturer, Business School of Renmin University) at the New Europe 100 Forum 2.0 on 10-11 December 2020, edited by Galan Dall, Editor-at-Large of Visegrad Insight. Find out more about the New Europe 100 network here. For updates, follow us on Facebook, Twitter and LinkedIn.
The interview is part of a project supported by the International Visegrad Fund.
