Dynamics of a cashless society

A cashless society  describes an economic state where financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital information (usually an electronic representation of money) between the transacting parties. Cashless societies have existed from the time when human society came into existence, based on barter and other methods of exchange, and cashless transactions have also become possible in modern times using credit or debit cards, mobile payments and digital currencies such as bitcoin. However this article discusses and focuses on the term "cashless society" in the sense of a move towards, and implications of, a society where cash is replaced by its equivalents in other words,  legal tender (money) exists, is recorded, and is exchanged only in electronic digital form.

Cards be it a credit or a debit has almost become a compulsory item in the wallet of any individual. The convenience of carrying, fast and easy way of transaction, issues of safety and security are couple of winning points which are driving us to gradually come out of cash. The evolution of e-commerce economy is also in the rise. The popularity of sites  like Amazon or e-Bay globally has also enabled local entrepreneurs to launch e-commerce sites in Bangladesh. Mobile banking (digital transactions through using mobile) has gained significant momentum in terms of volume of transactions is really notable. The innovation in this field is like at the speed of light! Not only the customers or sellers who are benefitting from this innovation but this is also helping increase the volatility of money helping increase in supply. This acts like a tonic for the growth of overall economy. We are witnessing innovation in the global market keeping the ultimate consumer satisfaction. Terms like Bitcoin and Blockchain are getting more familiarity.

The way we pay is changing dramatically. For example, people are beginning to use their smartphones for every kind of formal and informal transaction — to shop at stores, buy songs online, and even split their rent. At the heart of these changes in how we pay are thousands of companies competing and collaborating to facilitate transactions.To understand why the payments industry has faced so much disruption in such a short time, there's just one key thing to understand: Payments is about transferring information from one party to another, and nearly every stakeholder in the industry benefits when that process runs on digital rails.But payments is also an extremely complex industry that few fully understand. Digital  currency can be defined as an Internet-based form of currency or medium of exchange distinct from physical (such as banknotes and coins) that exhibits properties similar to physical currencies, but allows for instantaneous transactions and borderless transfer-of-ownership. Both virtual currencies  are types of digital currencies. According to the Bank For International Settlements' "Digital currencies" report of November 2015, digital currency is an asset represented in digital form and having some monetary characteristics. Digital currency can be denominated to a sovereign currency and issued by the issuer responsible to redeem digital money for cash. In that case, digital currency represents electronic money (e-money). Digital currency denominated in its own units of value or with decentralized or automatic issuance will be considered as a virtual currency. The recent development in the industry  can be summarised as follows, 

Payments is an extremely complex industry. To understand the next big digital opportunity lies, it's critical to understand how the traditional credit- and debit-processing chain works and what roles acquirers, processors, issuing banks, card networks, independent sales organizations, gateways, and software and hardware providers play.

Alternative technologies could disrupt the processing ecosystem. Devices ranging from refrigerators to smartwatches now feature payment capabilities, which will spur changes in consumer payment behaviors. Likewise, blockchain technology, the protocol that underlies Bitcoin, could one day change how consumer card payments are verified.

Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money.

Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy web hosting services, pizza or even manicures.Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value. Several marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies. Mt. Gox is the largest bitcoin exchange. People compete to “mine” bitcoins using computers to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 25 bitcoins roughly every 10 minutes.Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them. That’s why it has become the currency of choice for people online buying drugs or other illicit activities.

The risks of a cashless environment may impose the following risk which require careful attention and action to mitigate. Swiping your credit card makes payment information accessible to all the businesses that you transact with.

When your personal data is exposed, it can make you vulnerable to data breaches. If your credit card information is stolen, it could be used to make fraudulent purchases. And if more personal information is retrieved, it could lead to identity theft.

Cash is a foolproof way to pay for something — but cashless options aren’t always so reliable. Your credit card could be declined, or your phone could run out of battery, blocking you from paying using an app. Cashless transactions rely on technology, which sometimes fails.

Some financial professionals recommend paying in cash as a way to be more mindful of your spending and also to ensure that you don’t spend more money than you actually have.

Swiping a credit card or using a cash app is often so mindless that you don’t really think about the money you’re spending, which can lead to spending more money than you can actuallyafford.

It’s not just the businesses you shop at that pay fees for cashless interactions — you may end up having to pay fees to live in a cashless society, too. Peer-to-peer payment services like Venmo charge fees for certain transactions, for example. Credit cards also charge a number of fees, including annual fees, late fees and foreign transaction fees.

If people start relying on credit cards and apps to make payments, it could lead to negative interest rates, which reduces bank profits. Banks might react by increasing their fees, which could end up costing consumers.

The writer is MD and CEO of Community Bank