It’s hard to imagine a world without digital payments. Thanks to technological advancements and the increasing demand for convenience, speed, and security, cashless transactions such as card payments, e-money or e-wallets, and credit transfers have steadily gained popularity. The COVID-19 pandemic accelerated these trends, and they continue to gather momentum. Particularly noteworthy is the rapid expansion and adoption of fast payment systems.
The World Bank reveals that currently, two-thirds of adults worldwide are engaged in digital payments, with developing nations witnessing a significant increase from 35 per cent in 2014 to 57 per cent in 2021, notably in regions like Africa and Asia.
As digital payments soar, the volume of cashless transactions saw a significant rise in 2022, revolutionizing transactional norms, as per the Committee of Payments and Market Infrastructures (CPMI) Brief No. 3 (February 2024).
Increased Adoption of Cashless Methods
- Technological progress and the pursuit of convenience, speed, and security are driving the adoption of cashless payment methods.
- Cards, e-money, and credit transfers have become widespread, especially during the COVID-19 pandemic.
- Rapid payment solutions have emerged, facilitating swift and seamless transactions.
Volume of Cashless Payments in 2022:
- According to CPMI Brief No. 3 (February 2024), the average yearly cashless payments per capita saw substantial growth:
- In advanced economies (AEs), it increased from 426 to 468 (a 10 per cent rise).
- In emerging markets and developing economies (EMDEs), it surged from 246 to 291 (an impressive 18 per cent increase).
- Payment cards were the preferred choice, followed by credit transfers, with global cheque usage continuing to decline, except in Argentina.
Value of Cashless Payments
- As a percentage of nominal gross domestic product (GDP): in AEs, the value of cashless payments grew by 4 per cent while in EMDEs, it decreased by 2 per cent.
- Credit transfers remained the primary contributor to payment value, while e-wallet payments, though a smaller share, saw significant growth: 15 per cent in AEs and 22 per cent in EMDEs.
Small Payments and Transaction Values
- Cashless methods are increasingly favoured for small transactions, with average transaction values either decreasing or stabilizing in most countries during 2022.
- Despite inflation, average cashless transaction values did not significantly rise, indicating users’ growing comfort with cashless payments, even for smaller sums.
Cash Usage for Low-Value Purchases
While cash remains popular for low-value purchases, the overall trend favours cashless methods, reflecting changing consumer habits.
Hurdles & Challenges
The advent of cashless payments has transformed our transactional landscape, yet it presents a range of challenges. Let’s explore these obstacles:
- Privacy Concerns: Cashless transactions raise concerns about privacy due to the creation of digital footprints, leading to fears of financial data tracking, sharing, or misuse.
- Cybersecurity Risks: With increased reliance on digital platforms, the risk of cyberattacks and data breaches grows, posing threats to sensitive information.
- Technological Dependency: Cashless systems require reliable internet access and functional devices, presenting barriers to accessing financial services in regions with inadequate infrastructure.
- Exclusion of Vulnerable Populations: The transition to cashless payments may marginalize individuals lacking access to smartphones, bank accounts, or digital literacy, highlighting the need for improved financial inclusion.
- Transaction Fees: Certain cashless methods involve transaction charges, impacting both small businesses and consumers.
- Consumer Behavior and Habits: Cash usage is deeply ingrained in societal norms, posing challenges in altering behavioural patterns and promoting the adoption of cashless methods.
- Economic Inequality: Cashless systems risk widening disparities between the financially literate and the underbanked, emphasizing the importance of equitable access and education.
- Infrastructure Development: Establishing robust payment infrastructure, including ATMs and POS terminals, is essential for seamless cashless integration.
- Legal and Regulatory Frameworks: Governments must enact and enforce policies to safeguard consumers, combat fraud, and foster fair competition in cashless transactions.
- Resistance from Traditional Businesses: Some enterprises, especially small vendors, prefer cash due to familiarity and lower costs, posing hurdles to their adoption of digital payments.
Conclusion
While cashless payments offer efficiency and convenience, addressing associated challenges is crucial for a smooth transition to a digital economy. The ongoing evolution of digital payments continues to reshape our financial landscape, redefining value exchange in everyday transactions. Whether for a morning tea or a significant purchase, cashless options have become an integral part of our transactional routines!
Indrajit Roy Choudhury 
The greatest benefit seems to be transparency.
Unfortunately governments, while promoting transparency of financial transactions for the common man, seem to prefer opacity for themselves, as seen in the case of electoral bonds and numbered accounts in tax havens worldwide.
You’re right, sir.
Exciting times ahead as we adapt to the changing landscape of digital payments!
Well said. Thanks.
Cashless payments, like high-tech we trust, pave the way to flagship transactions. Embrace progress!
Yes, the progress needs to be embraced.
Every system has its benefits and flaws. Unfortunately, many governments have been promoting digital payments as if this will solve all problems. Yes, it will but the digital payments have their issues. They have been citing that digital payments are “robbery proof”, in reality, since a large population is still not tech savvy, they have become targets of digital frauds. Add to that, the government doesn’t have any system to help these people. Their stand has been once money has been siphoned off they can’t do anything. There is a lot of work that governments need to do. Also, there are concerns about rogue people in power shutting off bank account access. While these are theoretical, who knows? From the practical functioning, digital wallets are the best options for small payments. These have been around for quite some time and are fairly secure and with very low exposures.
Thank you, Arvind. Digital payments offer convenience and have significantly accelerated transaction speeds, with payments now occurring in real-time or near real-time. However, this convenience and speed come with inherent risks. Users must possess sufficient digital literacy to comprehend these risks and take appropriate measures to mitigate them. Additionally, as you pointed out, government bodies and cyber police must be proactive and swift in preventing cyber thefts. Progress is being made, and digital payments are poised to become even more prevalent, particularly for smaller, routine transactions.
I agree. I understand how these currencies help government reduce many types of costs, therefore they prefer this over physical money. Also as the world is moving towards faster speed and borderless systems, probably digital payments are aligned with it.
Yes, that’s the next step when digital payments go beyond the border, but that can be selective for most of the currencies, due to different economic situations in each country.
That’s a challenging task for sure