No one listens to me on anything, let alone the future of payment systems, but Jack Dorsey is a billionaire, so you should listen to him. Ten years ago he tweeted that “In general, moving to a cashless society seems to improve economic well-being” and I remember being delighted that he was on my page, so to speak. I can’t say if he was basing that opinion on research or anecdotes or ideas or my blog posts, but I can say he was right and the evidence is mounting.
A detailed study by the Asian Development Bank (“Less, Cash, Less Theft? Evidence from Fintech Development in the People’s Republic of China”, August 2021) found that a one standard deviation increase in the level of fintech development is significantly associated with a 0.39 standard deviation decrease in theft density because fintech reduces theft density by reducing cash holdings (and, interestingly enough, by providing more opportunities for ‘use).
Moreover, a survey aimed at estimating the cost of theft for households suggested another unexpected source of welfare gain from the development of fintech: improved public safety.
Now, fewer robberies and muggings do not, in and of themselves, mean less crime. The crimes that are expected to grow are those that are suited to the online age and this seems to be happening as fraud is by far the No.1 crime in the UK. There must therefore be a link between the absence of cash and other types of crime, so it is reasonable to ask whether a growth in the use of fintech changes the types of crime that a rational decision maker choose?
(Early evidence at least suggests that it is: Stealing smartphones from people to make instant credit payments or cryptocurrency transfers seems easy and profitable to me.)
The question of rational decision-makers brought me back to the subject of armed robbery, which I had already written about in Forbes. I cited research that notes that bank robbers thought their business had been financially rewarding, aside from the fact that they were eventually caught and punished for their crime. Robbing a bank therefore seems like a good idea, if you rule out the possibility (in fact, the probability) of being caught.
Glancing over this paper, I note that the researchers said it doesn’t seem practical to “expect financial institutions and commercial properties to discount much more than they already do.” “. Now, that may have been true when the article was written a few years ago, but it’s clearly no longer true now, since bank branches and businesses in many countries are out of money liquid. And that’s a good thing, because as this Chinese study confirmed, there is a direct and measurable relationship between the amount of money available and the amount of crime.
Yes, you read that right. More money, more crime.
It seems that any amount of money is a problem. As research on armed robbers in the UK indicates, “even when the sum of money obtained was quite small (an element often touted in support of the irrationality of economic criminals), one must recognize that even seemingly small sums may be sufficient for the offender’s immediate needs. Consequently, the gains may be subjectively much greater than they appear”.
This tells me that as long as there is money in the till there will be robberies, but with the rewards of bank robbery and businesses falling, armed robbers, like everyone else, will follow the silver. This is why cash-in-transit (CIT) thefts are a preferred option across Europe, where countries that use ATMs significantly more have proportionally higher rates of CIT thefts than countries that use ATMs less. ATMs (see, for example, Sweden and Denmark). .
This relationship between money and crime is not limited to bank robberies and CIT thefts. A study of the U.S. Electronic Benefit Transfer (EBT) program – where benefit recipients are paid electronically and given cards they can use in stores instead of receiving cash – found that it “had also a negative and significant effect on the overall crime rate”. such as burglary, assault and theft”. The authors found a 10% drop in crime correlated with switching to EBT.
(That seems like pretty conclusive evidence, and it’s even compelling if you read the detailed document, which notes no impact on crimes that don’t involve the acquisition of money.)
In summary, then, it seems that Mr. Dorsey was right and that the reduction in cash via fintech means an increase in net well-being. The people who are trapped in a cash economy, the poor in particular, are the ones who are robbed, who have no insurance against loss, who are shaken.
We must therefore act to reduce the amount of money available, but that does not mean that we must ignore the fact that there are people who depend on money. The recent UK Royal Society of Arts (RSA) ‘Cash Census’ looked in detail at the use of cash in our increasingly digital economy. He found a clear “bell curve”. Around one in five people said they would “find it hard to get by” in a cashless society and half the population said it would be problematic for them if there was no cash. cash in society and around one in five people said they were happy to be cashless.
People who would struggle to cope should be the focus of industry attention. These are people who don’t have a bank account, people who don’t have a smartphone (and people who have trouble using it), people who have been scammed and no longer trust to online payments, people who cannot afford to interact digitally and we need to find ways to make a less monetary society work for them.
There is one particular case study that we should pay more attention to. In the UK, the limits of inclusion are being explored and tested through the use of apps to replace cash and card payments for parking. It fascinates me, partly because of the interesting intersection of anthropology and technology, but mostly because of the power of feeling it generates. In JG Ballard’s marvelous novel Millennials he wrote of Britain that “when the revolution comes it will be a matter of parking”. What a vision this man had!
I have a few parking apps (eg Ringo) on my phone and love them. The ability to walk into the station car park and then hop on a train and pay for seated parking is well worth 20p or whatever the extra. But I’m sure we’ve all experienced the frustration of pulling into a parking lot only to find out it needs a different app or there’s no signal or your phone has run out of battery or anything, so there is room for improvement in how they work. But the situation of people who don’t have a smartphone or who have one but don’t understand app stores or who have a smartphone and understand app stores but don’t trust their phone enough to grab the card details is very difficult. I read a newspaper article in which the author said that their 80-year-old mother phones them to pay for parking every time she goes shopping!
That’s why there’s a discussion about financial inclusion to be had and parking is a familiar mass-market use case to measure against. Should applications be simplified? Switch to voice interfaces? Force councils to keep machines that accept cash, no matter the cost? I’m not sure any of these solutions are worth the trouble, as they are workarounds.
When you think about it, parking and payments are both pretty boring, so why would a normal person want to know about it? If you look further into the not-too-distant future of 5G and digital cash, then there’s no obvious reason for any person, smartphone or app to involve such mundane transactions: your system on-board computer will simply display “Do you want to pay for parking?” When your car parks in a space and you nod, wink or whisper acceptance, the car will negotiate with the meter to agree fees and transfer the value.
UK car parks may not be a universal indicator of payments in the new economy, but they are a useful example to support the idea that nations need an inclusive strategy and it seems to me that a currency Well-designed central bank digital (CBDC) can provide some of the infrastructure needed here, especially if it extends to person-less Internet of Things device-to-device payments.
We have the technology, but we shouldn’t leave digital currency design decisions to technologists. This is why I have long argued that the transition to a cashless society must be planned to help groups who may be marginalized or excluded to share in the net social benefits of cashlessness, including including less crime.