The UAE is getting closer to becoming a cashless society in the next few years. This means you might not need paper money anymore. According to McKinsey and Co., electronic payments in the UAE went up by 9% from 2014 to 2019. That's pretty fast compared to Europe, where it only grew by 4%. Many people expected the shift to cashless payments to happen even faster. A recent study by Standard Chartered found that 64% of UAE citizens think the country will stop using cash completely by 2030.

Although it may seem like something from science fiction, a cashless world is becoming more and more common. Many financial organizations, service providers, and even governments support the move towards cashless financial practices and transactions, which are already commonplace in today's financial landscape. In this article, we'll talk about why this transition is happening, what's good about it, what's not so good, and how we can deal with the challenges.

A Cashless Society: What Is It?

People in a society without money do not make purchases using coins or paper money. Rather, they make electronic payments using cards or applications such as PayPal, Venmo, Zelle, Apple Pay. While many nations are heading in this direction, it's difficult to predict which will completely give up using currency.

Many social and practical issues must be resolved before a community adopts a fully cashless system. To help you understand how becoming cashless can impact banking, consider the following benefits and drawbacks:

Advantages of a Society Without Cash

Making the switch to a cashless society has many benefits, especially for those with IT expertise who can take full advantage of its ease. Embracing electronic transactions is not simply about convenience; here's why:

Lower Crime Rates

People who carry cash are more likely to become victims of theft. A shift to electronic payments may result in a decline in crime. For instance, a study by American and German specialists found that crime dropped by 9.8% in Missouri when the state switched from cash welfare payments to Electronic Benefit Transaction (EBT) cards.

Automated Records of Documents

It is anticipated that financial crime will drastically decline in a cashless world. Cash is often employed in illicit operations as a means of facilitating money laundering and avoiding transaction records. Money laundering is made more difficult by the ease with which the source of funds may be tracked down with electronic transactions. Since every payment is recorded, it is more difficult to hide income and avoid paying taxes.

Cash Management Costs Money

Going cashless is not simply convenient. Money is needed to mint coins and produce banknotes. Businesses must always have cash on hand, be able to refill it as required, deposit extra cash, and sometimes use safe money-transporting companies to do this for them. Banks utilize sizable security teams to protect their branches against real bank robberies. Transferring money and storing large sums of cash might become time-consuming, outmoded operations in a paperless future.

International Payments Become Much Easier

When traveling, you may want to exchange US dollars for local currency. But, if you're traveling to a country that accepts cashless transactions, you won't have to worry about how much local currency you'll need to make withdrawals. Rather, everything is controlled by your smartphone.

The Negative Aspects of a Cashless World

Depending on your perspective, becoming cashless might provide more difficulties than benefits. The following are some of the main disadvantages of a cashless payment system.

Digital Operations Privacy Trade-Offs

Compared to cash payments, electronic payments jeopardize privacy. It's conceivable that you trust the businesses managing your data and that you have nothing to hide. However, with more of your information available online, it is more likely to end up in the wrong hands. When you utilize cash, you may transfer and receive money anonymously.

Hackers May Target Cashless Transactions

Hackers are the bank robbers and muggers of the technological world. Hackers will target you more if you live in a cashless society. If someone is targeting you and draining your account, you may be left with no alternative choices for making purchases. Even if you are protected by federal law, it will be difficult to regain your financial standing following a breach.

Technology Problems Could Impair Your Capability to Obtain Funds

Mistakes, malfunctions, and thoughtless oversights may also cause problems and keep you from making purchases that are essential. In a similar vein, merchants cannot accept payments when systems malfunction. Something as simple as a dead cell phone battery might leave you "penniless," so to speak.

It's Possible for Economic Inequality to Increase

The poor and unbanked will likely suffer considerably more in a cashless society unless targeted outreach programs are implemented. For example, if buying smartphones becomes commonplace, individuals who cannot afford them will be left behind. While contactless charitable and homeless donation techniques are being explored in the UK, these programs may not be developed enough to completely replace cash donations just yet.

Payment Service Providers Could Charge You

If society is forced to choose just a few payment choices or if a certain app becomes the approved payment app, the companies who provide these services may not be able to continue offering them for free. Payment processors that imposed fees in an attempt to benefit from the high volumes would forfeit the savings from processing less money.

The Tendency To Overspend May Increase

To comprehend the financial impact of a cash transaction, you must physically remove the cash from your pocket and transfer it to someone else. But it's easy to swipe, touch, or click when making payments electronically without realizing how much you're paying. It can be important for customers to reevaluate their financial management practices.

The Bottom Line!

A number of technological developments and societal trends towards online and virtual financial transactions have led to a decline in the use of cash money. A totally cashless world might have a variety of drawbacks, however, and only time will tell whether money has a special position in society.