Daily Management Review

Why inclusion is at the centre of the cashless economy debate


Within every great debate there are certain rigid facts. As the arguments on both sides evolve, it becomes clearer which points bend and which stubbornly endure. In the debate over cash and the digitalisation of money, one consideration that cannot be so easily brushed aside is the likelihood of the disenfranchisement of vulnerable people should cash disappear. 
Advocates and detractors of economic digitalisation — removing physical cash from circulation —draw their battlelines around security, economic efficiency, flexibility, civil liberties, and even the extremely fuzzy realm of ecology.
But one area that cannot be ignored by economists is the human element; digitalisation of the financial system will lead to vast rifts among different groups of people, as underprivileged populations are inadvertently excluded from economic participation.
The cost of digital payments
We already see these divides presenting themselves in outcomes within education and the workplace, as society transitions to an increasingly heavy diet of digital technologies.
Frank Sorrentino points out that economic inclusion will take a back seat with any move to a cashless economy, as it will place barriers in front of certain people and not others.
“It would punish consumers who can’t get a credit card, either because of income or lack of credit,” says Sorrentino, who is chairman and CEO of ConnectOne Bank and a Forbes contributor.
While it is understandable that financial standing should be fair game when seeking financing for a house or car, as far as Sorrentino is concerned a poor credit score should not be a consideration when buying a coffee or collecting your household shopping.
“The cashless economy would cut these folks out of the system,” he says. Without the option to pay in cash, many people will have few options for transacting, for buying goods, or taking advantage of services.
A national survey in 2017 by the Federal Deposit Insurance Corporation  found that around 8.4 million US households, or 6.5% of the country, were ‘unbanked’ — meaning they didn’t have a checking or savings account, according to Cale Molson writing for the digital payment provider Veem.
"Another 24.2 million households, or close to 19% of the country, were classified as ‘underbanked,’ individuals who have a bank account but also use financial services like money orders and payday loans," Molson explains.
Many low-income households use cash — having physical banknotes in-hand — as a budgeting technique. Often, it is one of the first methods suggested by financial advisors and can be the only effective way to avoid incurring excessive spending fees from unforgiving banks.
Unfortunately, black Americans are less likely to have bank accounts than other groups in the United States. And according to a June report  published by the Bank for International Settlements, the same is true for low-income groups in Europe. This puts people within these groups at a higher risk of exclusion in a cashless society.
A report by the United Kingdom’s Institute for Public Policy Research argued that shaping the transition to an increasingly digital economy will require continued access to cash, alongside improved access to digital financial services that work for everyone.

“For communities across the UK, barriers to accessing and using cash are growing. As our population ages and trust in digital payments remains low among broad groups of consumers, it is clear […] that cash will continue to play a critical role as a universally accessible means of payment,” according to Cash Essentials.

Generational divides
It is bad enough that older generations suffer through the inevitable restrictions of ill health, but they are now cut off from parts of society by a digital barrier that has only recently been erected, says Tim Newark. He contends that this is the latest contributor to a sense of isolation in the elder generation.
"Lloyds, NatWest, Barclays, HSBC, TSB and Co-op Bank are among the lenders who have shut 529 branches since the first lockdown last March," Newark says. This is despite the Financial Conduct Authority urging them to delay such action for fear of impacting the most vulnerable.
Since 2015, just over 4,000 local branches have been shut down across the nation. With so many criminals targeting older generations, many people only feel truly safe talking face-to-face with bank staff who they have known for many years.
Some might say that the elderly need to simply join the modern age, but that is the argument of someone who has not fully considered the colossal scale of the changes they are dealing with.

For anyone born when computers were room-sized mechanical objects, venturing into the virtual world is a daunting challenge. This also makes them particularly vulnerable to cyber-criminals and predatory sales tactics.

In the digital economy there is little room for naivety. In this increasingly abstract world, the feeling of spending pennies and fortunes is often indistinguishable. The lack of tangibility can be a serious problem for the upper categories of the aged population. This is another reason that cashlessness puts them at greater risk.

Inclusion by design

Digital technologies are complex and require a multi-party digital supply chain to function. Cash, on the other hand, is simply passed from its owner to the recipient: end of story.

There is peace of mind in the simplicity.

Setting aside other arguments, it is difficult to propose that there is a financial tool more inclusive than cash.
For adults with learning difficulties, digital financial technologies can be too abstract to make use of with confidence. Were banknotes to disappear, this is another extremely diverse group of people that could suffer.

It would also create problems for many other people with impairments. Modern banknotes, on the other hand, have features to help blind people know what value of note they are holding.

The reason that inclusion is so central to any reasoned debate on the topic of cashlessness is that the evidence is overwhelming: cash is highly inclusive and removing it from the equation will harm a wide range of vulnerable groups.