Cashless payments

What are cashless payments and how did they become popular?

Cashless payments refer to alternative methods of paying for a good or service without the presence of physical cash, such as with a credit card, debit card or with smartphones that are NFC compatible.

To perform a cashless payment, there are two elements that are required to be present – a reader device and a payment device. This is not to be confused with contactless payments, which do not require the buyer and seller to be in close vicinity of one another.

The existence of cashless payments surfaced in the mid-1900s with the popularization of electronic banking. Services such as bank transfers or wire transfers started to become more and more popular for fund transfers. Through the usage of passwords and codebooks, this was an extremely safe, secure and efficient method of conducting transactions.

In the later years, charge cards were introduced by brands such as American Express, followed by the invention of the first magnetic stripe credit card by engineer Forrest Parry in 1969. This form of payment became widely accepted when the Bank of America introduced its general purpose credit card, which allowed its customers to pay for purchases in installments.

Fast forwarded to today: debit cards, credit cards and mobile payments have become an integral part of our society. Though cash remains heavily used for payment, it is no surprise that cashless payments are on the rise. This can also be attributed to the introduction of contactless credit cards by big players like Visa, American Express and MasterCard, as well as the launch of digital wallets such as Gpay (Google), Samsung Pay and Apple Pay.

Benefits

Although the article has already mentioned a few positives of relying on cashless transactions such as speed and convenience, there are other benefits to adopting cashless payment systems.

First of all, cash payments do not leave paper trails behind. There are no reliable and accurate methods to track cash being spent by a business as records can always be fabricated.

However, with online payments, it is extremely clear cut. With each transaction, there will be a log that proves a transaction being made between two entities. As such, money laundering activities become much more implausible if the source and destination of money is easily identified.

Businesses aside, people would also have a much easier time tracking their finances. Since their payment app will have a record of financial transactions, users can simply tally up the amount spent in the month to know their monthly expenditure, and group them into different categories such as transport, food and entertainment.

Another benefit would be making payments internationally or when you are travelling overseas. It is very common for people to visit money changers to exchange their money into the local currency of their destination.

This can be extremely unsafe and inconvenient as you will be carrying thousands of dollars in cash on you, and the chance of you getting pickpocketed or losing the cash is always present. However, when roaming around in a society that accepts cashless payments, you’ll not have to worry that much about withdrawing and carrying cash as your payment apps will take care of everything for you.

Disadvantages

However, there are definitely some disadvantages.

For starters, internet banking and digital transactions can come with processing fees. For business owners, they would have to pay credit card companies a transaction fee that could cause a dent in their profits due to low margins.

People who are not technology savvy could also be privy to online scammers or hackers. An example would be an elderly citizen being targeted for a malicious attack or scam, which results in them losing a significant amount of money to the perpetrator.

By adopting these modes of payment, you would also sacrifice some privacy to the corporations that manage, store and handle your data.

An online transaction could also be affected by system malfunctions such as glitches or even a server maintenance that could delay a payment that could be urgent.

For users, it could also cause them to overspend. With these types of cashless payments, people do not usually feel the pinch that they normally would when paying with cash. It is simply too easy paying through cashless payment apps, and users might fail to recognize the accumulation of purchases over time.

How important is it for businesses to go cashless?  

In today’s society, more and more people are roaming around malls without a wallet. Many consumers rely heavily on their mobile wallet apps and cashless payment methods to pay for their purchases.

Not only is it convenient for them to leave their homes without a bulky wallet full of cash, it is definitely quicker to process their retail payments by tapping their card or phone. In a post pandemic situation where most countries are keeping the virus contained, it is still good to remain vigilant and practice safety measures in order to prevent another outbreak.

Businesses should be prepared to keep up in these changing times and evolve with technology and trends. A business cannot refuse the adoption of cashless payment systems, because it could result in them losing out on potential customers.

Since a growing number of people now go cashless, they might not have the means to pay for a good should the business only accept cash. The percentage for non-cash transactions are only increasing, and it is imperative for a business to adopt these trends and adapt to the behavioural factors of their customers.

The digitization of merchants globally is inevitable. Don't get left behind. Get your cashless payment solution today.