The concept has been a talking point since the introduction of credit cards in the 1950’s, but there are still barriers that hinder a full transition to automation and cashless transactions. Chief among these concerns are the current lack of cost-effective standards, concerns surrounding transparency and fear of a GDP slowdown. These variables have been moving targets for years and historically tend to prevent faster adoption.
However, there are certainly positive developments that signal improved steps toward adoption:
Banks are partnering with or acquiring fintechs and their innovative technologies to accelerate adoption. Merging the clout of a big bank with the ingenuity of a nimble fintech can only help expedite integration of new tools that can push us closer to a cashless system.
Open API and PSD2 regulations are relatively new initiatives working to facilitate instant payments. The former allows for a more white label approach to developing secure and seamless mobile payment. The latter will provide sorely needed guiderails to a fast-developing industry while reducing the barrier for entry that accompanies card and online payments.
While these technological innovations lay out a path toward more cashless transactions, they do come with increased complexity requirements to banks’ IT infrastructure. The transition and adoption of new infrastructure can be cost-prohibitive for smaller financial institutions and hugely pricey for larger banks that need to overhaul expansive organisations.
What We Expect by 2020
Despite these hurdles, it’s undeniable that we are moving closer to a cashless society than ever before. Card-based payments, P2P, mobile and a whole slew of other transaction mediums have ushered in a world where cash could soon be an antiquated form of payment. These changes could occur earlier than many think – at Oracle, we predict that by 2020 Europe will have advanced payment systems through the PSD2 initiative. This will usher in a new ecosystem, where more than 60% of all transactions will be cashless.
That said, while digital money is certainly making strides it’s still imperative to understand that there is a place in today’s society for physical cash to fill in the gaps. According to the 2016 UK Payment Markets study, cash was still the most popular payment method in 2015 (45.1% of all payments), but by 2025 it is predicted that cash payments will decrease to only 27% of all payments. The speed at which this change comes to fruition is still dependent on the environment financial institutions operate in. PSD2 will continue to facilitate development and innovation of new digital payment mediums so financial institutions will have to solve the digitisation puzzle on their end.
Oracle has been working with more than 100,000 customers including a wide range of financial institutions to streamline their operations and grow digital capabilities – customers like Saxo Payments, a cross-border payments solution
headquartered in Denmark. Saxo tackles the unique issues surrounding international, digital payments. In essence, these money transfers add large fees on top of normal operating costs – Saxo empowers FinTechs to deliver instant and low-cost cross border payments capabilities to their merchant clients.
With Oracle FLEXCUBE powering it, Saxo challenged the status quo while delivering a superior global service. Companies like this are leading the charge toward a cashless society by breaking down barriers that entities like Fintechs face when trying to go fully digital. More and more companies will continue to push boundaries in this way as digitisation allows for streamlined transactions.
Adapting As the Key to Survival
In conclusion, while a cashless economy is not exactly a new phenomenon by any stretch, the technological innovations over this past decade have significantly accelerated a society-wide transformation. Large financial institutions are challenged every day by smaller, more nimble competitors that have quickly adopted a cashless ideology; the pressure to adapt continues to grow. To truly thrive in this fast-moving environment banks need to leverage new technologies that allow more efficient and instantaneous processes. Streamlining digital transactions will not only increase growth and revenue projections but provide a more user-friendly environment for potential customers.