Forget Cashless – should we be focusing on establishing a Cardless society?

Creating a cashless society has been a frequent topic of discussion over the past few years, understandably so with the use of cash decreasing year on year, reaching an all-time low before the pandemic. Cash represented only 23% of all payments in 2019 down from 48% in 2014. The downward trend in the use of cash unsurprisingly has only been exacerbated by the pandemic, but with it an uptake and increase in the use of physical cards. Alongside this has been a rise in mobile payments, a market that was valued at $1139.43 billion in 2019 and set to increase year on year.

This change in behaviour moving away from cash to cards to mobile, begs the questions:

• Should a cashless society mean we are a card reliant society?
• Should a cashless society not also be a cardless one?
• Are we more likely to see a cashless or cardless society?

Why should we become cardless? What’s the problem with physical cards?

• Costly: There is a high operational cost for banks to produce and distribute bank cards, especially at the scale experienced today. Monzo’s new card, for example, costs £50 a card to produce. These costs need to be recuperated in some way from the customers, such as: charges associated with replacing lost cards, annual fees and subscription contracts.  
• Security risk:  Contactless payments via physical cards that don’t require a PIN or biometric verification means that fraudulent transactions can be made with ease. With mobile payments however, there is a linked biometric identity meaning the contactless payment is secure and requires no limit.
• Inconvenient: The majority of cards take up to 5-10 working days to arrive when opening a new account or receiving a replacement card, leaving an inconvenient and unnecessary lag time where the customer is unable to make a transaction.
• Irrelevant: Virtual cards are widely available and offer a more secure and convenient user experience. There has been an increase in the adoption of cardless ATMs, again removing the requirement for a physical card.

Why should we not focus on going cashless? What are the dangers of going fully cashless?

• Financial exclusion: We can’t ignore the fact that a reduction in cash use disproportionately negatively impacts society’s most vulnerable segments. There are proportions of the population who are and will always be more comfortable using cash.
• Technological difficulties: A reliance on cashless payments inevitably means a reliance on technology. At its most basic level, this requires access to electricity, which can be an issue for stores that operate without permanent premises like market traders. On the business side, paying for a card terminal is an added cost, as are payment acceptance fees. Finally, there are 1.2 million unbanked adults in the UK that have no means of payment if cash was fully eradicated, but who could operate without issue in a cardless society.

We have the potential to be cardless today, so why aren’t we?

• Inconsistent digital solutions: The process for delivering the virtual card needs to become seamless and instant, embedded within a digital account opening journey, giving customers’ immediate access through a mobile channel. Unfortunately, very few banks have the digital capability to do this today, making the process to create a virtual card cumbersome at best, and impossible at worst.
• Lack of incentive: Currently users do not see enough of a gain to use virtual cards over a physical one. Nothing that is offered as part of the product encourages them to use virtual cards exclusively. Customers need to be able to see and understand the clear benefits of using a virtual card, e.g rewards for using it, consumer loyalty cards automatically applied to purchases and clear cost benefits detailed.
• Habit: Cards have become part of the culture of day-to-day life within the UK.  Most people that have a card also have a mobile device and the potential to use mobile payments exclusively. However, this is not currently happening. Even the most tech savvy still use card payments as their primary mechanism at the point of sale. There needs to be a push at a high level to create a culture and behavioural change. This change logically should be led by the banks as cards from their perspective are expensive, wasteful and less secure, hence they should be pushing for a move to a virtual card.
• Spending abroad: Currently a card is a necessity on a trip abroad as the payment infrastructure differs from country to country. The uptake of cardless transactions in this scenario is more difficult to overcome as it requires global alignment.

There are already a number of exciting solutions in the virtual card space:

• Alipay and WeChat: China have successfully leapfrogged the card-based system by having two new payment systems dominating person-to-person, retail, and many business transactions. With over a billion users on each platform, the new payment system has replaced cards and cash.
• Cardless ATMs: NAB and Microsoft have designed an ATM using cloud and artificial intelligence (AI) technology for facial recognition. OneBanks is also driving a cardless ATM, where you have your face scanned using a biometric identity provider TrustStamp.
• Soldo virtual Mastercard: Virtual prepaid card for business expenses. Each one has a unique account number, which you give to employees and departments so they can make payments and purchase subscriptions autonomously. They are managed entirely online, so you can create and activate new accounts instantly and manage and allocate specific budgets.
• Swish: Launched in 2012 by seven Swedish banks. The service works through a smartphone application, through which the user’s phone number is connected to their bank account, which makes it possible to transfer money in real time using account-to-account infrastructure. Over 5.5 million Swedes use Swish, that is over 60% of the total population. Swish is ideal for person-to-person payments, but now has wide acceptance in most businesses.

Where do we go from here?

With a quick and easy set-up, clear incentive, outlined value and a few innovative banks in the market leading the way, a move from physical cards to virtual ones could potentially happen at pace.

For those people that currently rely on physical cards, the majority have mobile phones, so removing the card isn’t really hindering anyone in this segment of society. However, the proportion of the population that is cash reliant may not have an alternative and would be negatively impacted. It seems therefore that cash will always maintain some relevance, whereas cards could be deemed obsolete.

China is paving the way for making a cardless society a reality, becoming the first mobile-first nation. It has the world’s largest mobile payment market and is also a leader in peer-to-peer payments, by which people are able to pay each other by text. Mobile payments have been so successful in China because they are fast, straightforward and underpinned by technologies such as QR codes that are yet to be universally embraced elsewhere.

With China and other countries showing that a cardless, mobile first society is possible we are left with numerous open questions:

Will the UK follow a similar trajectory and become a cardless, mobile first nation?

What needs to happen to make this a reality?

Do we want to be a cashless, cardless society?