Digitalizing money: Adding debit and credit cards to mobile devices

More on Digitalizing Money

What is Cash Digitization?

Cash digitization is the process of transforming physical cash (coins and banknotes) into digital form. This allows money to be stored, transferred and used for financial transactions electronically.

A survey by International Monetary Fund (IMF) in 2021 found out that 111 out of 159 countries are planning to launch digital money in the near future.

Digital money and banking is now a global priority. A leading financial solutions company, J.P Morgan believes that robotics, virtual branches and data analytics will replace physical cash.

The Current Cash Landscape

Consumer spending trends are going digital and we need to understand the current cash landscape.

In this part of the blog we will look into the challenges of traditional cash systems, cash usage trends and statistics and the impact of cash on businesses and society.

Challenges of Traditional Cash Systems

Traditional cash systems are facing their own set of challenges. One of the biggest is the need for convenience and speed in financial transactions.

Traditional cash systems need cash flow management to have enough liquidity for daily operations. They need cash forecasting and cash reconciliation which can be difficult and time consuming.

As digital payments become popular, traditional cash systems seem cumbersome and time consuming. Managing physical cash involves storage, security, transportation and counterfeit detection costs which can be a big burden to businesses. Central bank digital currencies (CBDCs) can give access to banking services to individuals and businesses that don’t have access to traditional banking systems thus reducing the barriers of cash handling and a more inclusive financial landscape.

Cash Usage Trends and Statistics

To understand the future of consumer spending we need to look at the trends and statistics of cash usage. Cash is still a widely used payment method but its dominance is decreasing.

With electronic payment methods like credit and debit cards, mobile wallets and online transfers, consumers are looking for convenience. The rise of electronic currency (hard and soft) further proves the shift from cash to digital transactions. Understanding consumer behavior is key for businesses to adjust their strategies.

Let’s look at some stats on cash digitization:

– According to World Bank, digital banking has been moving fast since 2019 pandemic.

– According to European Central Bank, preference for cash over digital banking has decreased from 79% in 2016 to 59% in 2022.

– Another report by Insider Intelligence says point-of-sale transaction by cash was 18% in 2022. It will decrease to 10% by 2025 globally.

Cash and Businesses and Society

Cash affects both businesses and society as a whole. For businesses, cash transactions can create operational challenges like cash management, cash forecasting and risk of theft or robbery. The structure and stability of the financial system is also influenced by the use of cash, thus policy questions on financial stability and credit availability.

Accepting only cash payments can limit customer access especially in a digital world. Cash transactions can lead to illegal activities, tax evasion and money laundering.

Digital payments offers transparency and traceability thus authorities can combat financial crimes better. Digitization of cash can also bring financial inclusion thus individuals without access to traditional banking systems can participate in the economy.

Technologies Behind Cash Digitization

As we’ve mentioned earlier, recent technologies are driving the cash digitization trends and evaluation of digital assets by financial institutions. Cash digitization is changing consumer spending. These technologies means a more efficient, secure and convenient payment system.

Businesses that adjust to these trends and solutions like Wavetec’s can meet the changing needs of their customers and get a competitive advantage in the digital space. We’ll discuss the use cases that enables cash digitization.

Mobile Payments and Digital Wallets

One of the major drivers of cash digitization is the mass adoption of mobile payments and digital wallets. With the rise of smartphones, consumers can now make secure transactions with just a few taps on their screens.

Mobile payment platforms and digital wallets like Apple Pay, Google Pay and Samsung Pay have changed the way we pay for goods and services.

These solutions eliminate the need for physical cash and offers additional features like loyalty programs and easy access to transaction history.

All you need is a stable internet connection to send money to anyone in the world – no more waiting for someone to bring the cash for you.

Contactless Payment Solutions

With contactless payment methods like Near Field Communication (NFC) and Radio Frequency Identification (RFID), consumers can pay by just tapping or waving their cards or smartphones to the payment terminals.

This offers a faster, more convenient and hygienic payment experience which is very important in a world where physical contact has been minimized since COVID-19.

Healthcare, retail and finance industries are the first to adopt this.

Future and Trends in Cash Digitization

IoT and Cashless Payments

One of the trends in cash digitization is the integration of Internet of Things (IoT) with cashless payments.

IoT devices like smartwatches and connected home devices are getting more common, providing convenient and secure ways for consumers to transact without physical cash.

These devices can connect to payment platforms and enable payments anywhere – retail stores, online shopping and public transportation.

Central Bank Digital Currencies (CBDCs)

Another development in cash digitization is the emergence of Central Bank Digital Currencies (CBDCs). CBDCs are digital form of traditional fiat currencies issued and regulated by central banks, it’s a digital form of central bank money. Central bank money includes physical currency and digital balances which is important to understand the implications of CBDCs in the financial system.

These digital currencies offers faster and more secure transactions, financial inclusion and transparency in the payment system.

Many countries around the world are exploring or piloting CBDC projects, it’s a sign that digital currencies will be the new norm for payments.

Payment Technology Innovations

Cash digitization is driven by payment technology innovations.

Fintech and traditional financial institutions are constantly developing new solutions to improve the consumer payment experience. These are to reduce cash dependence.

Innovations and recent technologies include mobile payment apps, contactless payment methods like Near Field Communication or QR code payments, biometric authentication with fingerprint or facial recognition and blockchain-based payment systems.

Global Cashless Economy

s the benefits and convenience of digital payments is getting more visible, there is a global shift towards cashless economy. Many countries are experiencing decline in cash usage as consumers are adopting digital payment methods. This shift is further boosted by the potential of Central Bank Digital Currencies (CBDCs) to facilitate faster and cheaper cross-border payments and improve financial inclusion and reduce foreign exchange complexities.

A 2021 Orgio Group and the Payments Investigation found that only 8% of Swedes used cash in their last purchase compared to 77% who used a bank card.

Governments, financial institutions and businesses are driving this change by promoting electronic transactions and building the infrastructure. The growing acceptance and adoption of digital wallets, mobile banking and online payment platforms is reducing cash transactions.

Talk to Proekspert on digitalizing money for your institution.