SHARE
SCB EIC ARTICLE
29 January 2018

Cashless Society: A Bit Challenging

Payment is an integral part of our daily lives but the way we are making payment is changing. The society is gradually moving from a fiat currency to a virtual one. As an example, our favourite cup of coffee was once paid by using bank notes or coins. When card system became more widely accepted, we swiped our debit or credit cards instead. Nowadays, we are increasingly neglecting these physical objects in favour of smartphone-based applications. A barcode in e-wallet is tapped, and the transaction is completed usually within few seconds.

Author: Veerawan Chayanon

 

iStock-885764280.jpg

 

Payment is an integral part of our daily lives but the way we are making payment is changing. The society is gradually moving from a fiat currency to a virtual one. As an example, our favourite cup of coffee was once paid by using bank notes or coins. When card system became more widely accepted, we swiped our debit or credit cards instead. Nowadays, we are increasingly neglecting these physical objects in favour of smartphone-based applications. A barcode in e-wallet is tapped, and the transaction is completed usually within few seconds.

 

As one of the fastest-growing regions in the world, Asia is witnessing the growing trend of cashless payment with an increasing array of services. Countries like China and South Korea are heading towards cashless society at a faster pace than others due to high internet speed and penetration rates, as well as a large share of smartphone ownership. A survey by Pew Research Centre in 2015 reveals that 65% and 94% of adults in China and South Korea has access to the internet, while smartphone ownership is 58% and 88% of the population, respectively.

 

In China, consumers are becoming increasingly adapted to mobile payment and are become more addicted to it. KPMG’s global survey shows that 85% of Chinese respondents are willing to use mobile wallets, comparing to 66% of those polled worldwide. Beijing-based consultancy firm iResearch also reveals that China’s mobile payments are around 40% of retail payments or USD 5.5 trillion in 2016, dominated by Alibaba Group Holding's Alipay and Tencent Holdings' WeChat Pay. Additionally, a research investment company CLSA predicts that China’s e-payments will surge to USD 45 trillion by 2021.

 

To match their enthusiasm for mobile payment and e-wallet, firms in China are offering consumers increasing convenience, accessibility, and attractive incentives. In Mainland China, from convenient stores to fine dining restaurants, accept e-payments while others, such as bike sharing, do not accept cash payment at all. Several businesses even offer superior benefits to encourage consumers to use mobile payments. Alibaba’s online money market fund Yu’e Bao provides attractive interest rates to clients who invest and spend with Alipay. This strategy turned Yu’e Bao into the world’s largest money market fund with assets of USD 233 billion as of November 2017.

 

In South Korea, debit and credit cards, e-wallets, and mobile payments have become the preferred choices when making transactions. The Bank of Korea (BOK) reveals that only 20% of all payments are made with cash. E-payments gained popularity in South Korea after the launch of T-money in 2004 in which public transport fares are paid by a stored-value card. T-money offers users many incentives and convenience such as fare deduction, discounts at participating stores and restaurants, and a modified chip that fits mobile phone SIM cards as well as the more traditional debit and credit cards.

 

The success of T-money, the popularity of smartphones, and easing of financial regulations in 2015 prompted a new wave of Fintech developments in South Korea. Tech giants like Naver, Kakao, and Samsung are investing to develop their mobile payment platforms with the aim of capturing behaviours of modern consumers. Moreover, BOK is now pursuing an aspiration of having a cashless society by 2020, beginning with the phasing out of largely worthless coins from the economy. It is important to note that it is not only because the minting cost is increasing and exceeding the face value, but people also do not want to carry coins anymore.

 

However, while China and South Korea represent success cases for mobile and e-payment, other Asian countries with well-established payment infrastructure, have a surprisingly low adoption rates of non-cash payments. Although there are plenty of choices of e-wallet in Japan, such as Suica, Pasmo, and ICOCA, Bank of Japan reveals that value of e-money transactions in 2016 is around JPY 5.1 trillion, accounting for only 4% of total retail sales. In addition, a study by insurer Meiji Yasuda reveals that 70% of Japanese consumers of all ages still prefer cash. This may be the consequence of an economic stagnation since the early 1990s in which Japanese consumers became more careful in their spending habits. In this sense, cash is a physical object that can be seen and controlled. Moreover, the low crime rate in Japan makes people feel safe in carrying cash while, at the same time, there are concerns over data security and privacy when money becomes virtual.

 

In Singapore, an auditing firm KPMG reveals that 60% of Singaporean respondents prefer cash to non-cash payment. An explanation given for this preference is that cash is more readily accessible via a large network of ATMs. According to the government’s report, the number of ATMs in Singapore has increased by 65% within the past decade, and 90% of residents can reach ATMs within 500 meters from their homes. Moreover, cashback services are available in convenience stores throughout the country. These are possible reasons as to why consumers in Singapore are more reliant on fiat money.

 

Furthermore, cash is also a preferred payment method for merchants in Singapore, especially SMEs, because they do not wish to bear the costs of e-payment adoption. In reality, transaction fees are normally charged by e-wallet developers, as well as the credit card issuers. Meanwhile, a point-of-sale terminal is not always free lunch. Moreover, each e-payment system is incompatible with another. Thus, consumers have to sign-up with different mobile applications, while merchants have to install additional devices to settle payment with different parties.

 

In learning from the above cases, it is evident that while new technologies for payment are available, they are not always by consumers and merchants alike. Thus, the key challenge lies in how to attract consumers and merchants to accept new forms of payment, whether through accessibility, convenience, incentive, or a combination of factors. This is an important consideration, as payment technology is evolving continuously with buzzwords such as blockchain and hashgraph as the next generation of payment. 

We use cookies and other similar technologies on our website to enhance your browsing experience. For more information, please visit our Cookies Notice.
Accept