EVERYDAY we inch closer to a cashless society. Many dystopian futures envision societies where cash is no longer king, but instead “points” or “units” through our phone, fingerprint, iris or a chip under our skin are the primary form of payment.
Though not yet that advanced, more electronic, wireless and digital payment options such as Visa payWave, Mastercard PayPass, Samsung Pay, Alipay and Apple Pay are now launched.
Companies, tolls and public transportation are also jumping on the bandwagon and allow you to keep your wallet in your pocket, just like Starbucks, Grab and Uber.
Not to mention the rise of digital currencies such as Bitcoin, which cut the connection with any physical representation of value altogether.
The benefits are immensely clear. For the government, the cashless society makes tracking and collection of taxes much easier whilst committing fraud much harder.
Whereas cash payments can be made “invisible”, every cashless (digital) transaction has a digital footprint, making it much harder to “accidently” misrepresent revenues or GST.
For consumers, the benefits of paying with plastic or bytes lie in its ease of use and safety, despite the continuing trade-off between ease of use and anti-fraud and identity theft measures.
One day, this trade-off will be eliminated. Perhaps we will get chips under our skin in the end?
There are, however, some drawbacks to a cashless society.
Two stand out: our debt and our honesty.
According to the Department of Statistics, Malaysia now has 3.6 million principal credit card holders. Those cards have a staggering RM37bil outstanding, 7% of which is overdue.
Even though four out of 10 credit card holders pay their credit card debts in full, every month, 10% fails to make the minimum payment of 5% of the outstanding amount.
Research by Emma Runnemark, Jonas Hedman and Xiao Xiao has shown that there is an effect of payment method on spending habits.
In a nutshell, people are willing to pay more when they pay with a card than when compared with paying by cash.
Departing with cash from your wallet is mentally more painful, as you have to physically take it out and give away your hard-earned notes. Therefore, you are more considerate of your purchase decisions.
A swipe of a plastic card or a wave with your phone is considered much less painful. As such, the risk exists that as Malaysia moves to a cashless society, its already high household debt increases even further and more people get into troublesome debt.
Daniel Ariely researched the level of dishonesty by asking people to solve simple puzzles and allowed them to report the number of solved puzzles without verification by someone else in exchange for a reward per solved puzzle.
Although the finding that people cheated was not really surprising – it's human nature. What was interesting was that if people first had to report their scores to an administrator who would give them plastic chips which they would have to take to someone else who would convert them to actual money, people cheated much more!
Other experiments showed that people would take soda cans from a communal freezer, but not bank notes, though both had the same value.
Many people feel it is easier – and perhaps less morally offensive? – to commit insurance fraud by fudging numbers than to snatch a purse. Stealing a wallet seems more immoral than hacking someone’s credit card number.
The implication of these experiments is that the further something valuable is from actual cash – be it plastic chips or soda cans or insurance forms – the more people allow themselves to cheat or steal.
In that regard, a cashless society may make people more inclined to fudge, claim, lie and steal, then when they would be dealing with actual cash.
This is no reason to stop the trend towards a cashless society.
We should, however, acknowledge the drawbacks of no longer interacting directly with our money by developing specific policies which aim to curb crime and debt.
For example, digital crimes must be shown to be just as bad as crimes in the physical world, and the pain one feels from digital transactions could be somehow heightened, to ensure people carefully consider a purchase.
Mark Reijman is co-founder and managing director of https://www.comparehero.my/dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, personal loans and broadband plans in Malaysia.
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