The Covid-19 pandemic accelerated the transition to a cashless world, supported by the technological advances that have been gradually taking place in recent years. The digital payments industry brought a series of changes and challenges for merchants and consumers.
The report “Global payments 2021: Transformation amid turbulent undercurrents”, carried out by McKinsey & Company, indicates that in 2020, cash payments fell by 16%, while digital transactions increased by 6%.
In Latin America and the Caribbean, almost 50 million people used digital payment methods such as cell phones, the Internet or cards in stores during the pandemic. A World Bank study indicated that 42% of adults in Latin America use digital payments in businesses, and 11% have recently adopted this payment format.
By contrast in Europe, according to the European Payments Council (EPC), cash transactions accounted for just 1% of Sweden’s GDP in 2021, and cash withdrawals have been steadily declining by around 10% annually.
It is a reality that some countries are much closer to a cashless future than others. For example, in Canada cash payments represent only 5.4%, 4.5% in Norway, 11.9% in the US and less than 10% in countries such as Australia, Hong Kong and Sweden.
The arrival of COVID-19 sparked the need to provide services differently. An example is the use of digital payments by governments to provide financial relief to the most vulnerable sectors. In the same way, the citizens themselves looked for ways to carry out secure transactions to comply with social distancing.
Digital payment methods
This system is designed for small businesses and allows you to receive payments over the phone despite not having a website. The buyer receives a link via email or SMS where he will complete the payment safely. With the massification of smartphones, banks have adapted to these changes by developing mobile applications so that their customers can carry out all their purchase operations or service payments through their mobile phones, transforming them into a kind of electronic wallet.
Among the great variety we can find bank applications for online payments, digital wallets (e-Wallet) and electronic stores or online businesses.
In this scenario, cryptocurrencies have not missed the chance to highlight the advantages of this new digital money, such as its speed, security, ease of use and low commissions. To use cryptocurrencies you must download a wallet application to your mobile phone or PC. Once installed you will be able to send or receive money to and from anywhere in the world almost instantly.
Why are digital payment methods the future?
The trend towards the digitization of payment methods is evident, avoiding physical contact between people and with payment terminals as much as possible to reduce the chances
of contagion, theft or loss of money. Cash will most likely be left behind as a form of payment.
With the significant decline in the use of money, the world is moving at different speeds, towards a global cashless society.
For governments, getting rid of cash would cut mining and distribution expenses and make it easier to crack down on tax evasion and drug trafficking. Stores could save on cash-handling costs, reduce theft and possibly earn more if faster checkouts led to more transactions per hour. Some economists say that without cash, central banks could fight recessions more effectively because they’d have an effective way to impose negative interest rates — basically a tax on savings meant to spur spending.