Cashless societies are growing worldwide, especially after the pandemic boom in demand for online banking. Innovations in digital payment infrastructure, such as mobile payment, online banking services and digital currencies, have made it simpler for people and businesses worldwide.
Fintech businesses have driven the transformation toward cashless payment by offering innovative digital banking services. The pandemic was also a tipping point that accelerated the demand for digital transactions. Fintechs developed as a necessity for many people during challenging times after the pandemic, particularly vulnerable groups that required emergency lines of credit and methods to make and receive payments.
By 2021, over 70% of adults in developing nations had bank accounts. But this still leaves around 30% of the population requiring access to vital financial services. Fintechs provide accessible and affordable services which enhance financial inclusion, especially for those that are ‘unbanked’ or lack access to a bank account. In the UK nearly 1.3 million people, approximately 4% of the UK population lack access to banking services. The government and relevant financial groups are collaborating to encourage the adoption of digital payments, and the UK Request to Pay Service enables people and businesses to request and make payments via digital channels.
Other nations are accelerating their plans toward a cashless society. For example, in Sweden, only 10% of all payments were made in cash in 2020. The shift toward cashless payment in Sweden has been enabled by the support of mobile payment solutions like Swish, allowing people to send and receive money via mobile applications.
Enhancing financial inclusion In under ten years, India has become a digital finance leader, making considerable progress in promoting digital financial inclusion via the Government-led PMHDY programme. The banks of India are also part of mobile payment solutions like Unified Payments Interface (UPI), which connects multiple accounts to one app. The national digital infrastructure, the India Stack, also intends to improve financial inclusion by encouraging businesses to develop fintech solutions.
Many developing nations are utilising digitalisation to improve financial inclusion. For example, Kenya launched the M-Pesa mobile money service in 2007, while microfinance groups offering small loans to low-income household was introduced in Bangladesh many years ago. These innovative platforms have bridged the gap between the traditional financial system and people lacking reasonable access to financial services. By eliminating barriers like high transaction costs, physical branches and credit history requirements, fintech businesses can reach more customers and offer customised financial services. The technology supporting these systems enables fintechs to interact efficiently with their customers. The rise of digital payment methods has generated considerable data that provides insights into customer behaviour, purchase patterns and other relevant information that supports a cashless society.
Supporting the UK’s unbanked group
Nations like the UK can encourage digital financial inclusion to support the unbanked population, but this requires government support, innovation and the broader adoption of mobile payment solutions. Various challenges need to create a reliable cashless economy. The move to a cashless system could exclude certain groups that lack access to digital payment methods, like the low-income or elderly populations.
A recent study by Age UK showed that 75% of over 65s with a bank account stated they wanted to perform one or more banking activities in person at a branch, building society or post office. Increasing cashless options could also increase the potential for cybercrime and digital fraud, especially for people without financial knowledge. There are concerns regarding the recognised data protection standards, which many industry professionals believe need addressing as the trend toward cashless societies progresses.
Establishing control and protection
Regulations impact how fintech businesses provide services and ensure they remain within the law. Since fintech businesses are often considered disruptors, it can create a challenging connection with regulators. Collaboration between regulators and fintech will enhance the recognition of new business models and support the future delivery of regulatory frameworks. The innovation hub launched by the Financial Conduct Authority is a good starting point, offering support for product and servicing launches and providing access to vital data sets for further testing and development.
Fintechs can enable the finance industry to become more inclusive but requires regulations and policies to support innovation, drive competition, strengthen financial stability and ensure people remain protected in a future of cashless societies.
