James Camilleri

Legal Officer, PKF Malta

James Camilleri is a Legal Officer at PKF Malta

The Cashless Banking Revolution

Wednesday 03rd October 2018

Anyone employed in a banking environment will know how time-consuming the physical handling of money is, and what a considerable part of the banking process it constitutes. Besides the manual process being laborious, there are security concern principles that need to be in place at all times, more so during the handling and transportation of physical currency. Armed robberies which may even result in murder are not only scenes of a movie, but to this day present a tragic threat to a banking institution. For the movement of physical money, it is common to resort to the engagement of specialised personnel and armoured vehicles – this, clearly, is an added expense to the banking industry.

In order to be certain of the exact amount of money present within the purview of the bank, employees need to be assigned with the task of counting the money being circulated within their responsibility accurately. Money can be counted by hand as well as by the use of specific machines. However, though the adoption of such machines is less labour-intensive, it cannot be said to relieve the bank of the chore of requiring the knowledge of the exact total currency that is or should be present. Over-and-above the maladies of physically handling money is the strain of having to lift large bundles of money that can give rise to work-related injuries, which in turn costs the bank in terms of sick-leave entitlement claims and, possibly, even lawsuits.

As it were, electronic credits do not have a physical presence and their movement is through the networks of information and communication technology (ICT). The need to count money manually or by machine is removed, as the computer software adopted is inbuilt with all the necessary functionality. Compare, if you will, the movement of physical money by means of bulletproof vans with the electronic equivalent available at the push of a button.

Sweden is a fine example of cashless banking. Riksbank, the Swedish central bank, concords that more people have access to payment cards than they do to cash. Besides, it points out 85 per cent of the population has an online banking facility. The circulation of physical currency has been diminishing year in year out, and the tendency is to seek digital forms of payment; that is, payment cards but also next generation technology like e-wallets and mobile payment apps. Cash transactions now constitute a lowly 2 per cent of the Swedish economy’s gross domestic product. The implications of this are that the payments industry will have to be reviewed, as less providers would be needed given one of the benefits of cashless transactions is to automate processes previously requiring human intervention.

The incumbent Governor of Sveriges Riksbank, Stefan Nils Magnus Ingves, points out, however, that due to a perpetual fear of a hypothetical financial crisis occurring, there is, as things stand, an indelible need for the presence of physical cash to remain available. Another important factor is that certain people accustomed to the conventional methods of payment will remain hostile to the digital revolution. The Riksbank Act says that '[b]anknotes and coins issued by the Riksbank are legal tender', yet retailers are under no obligation to offer the option to customers for paying in physical cash. The trend in Sweden is presently driven by Swish, an instant payment app developed by the seven most prominent banks in the country. The central bank is further considering the introduction of a government-backed virtual currency called the e-krona. Having said that, it is still in the early stages of development and the technical details have not been indicated. Besides, the central bank hasn't given its full support for the e-krona project, being cautious of the drawbacks of cryptocurrencies, for example, their lack of stability.

It can be said that several markets have made progress in the cashless journey by investing in technology-enabling advancements. Besides Sweden, Australia too is trying to go full-circle. Brazil has been slow to reap the benefits of putting the basics in place, while China and Kenya have combined the cashless-enabling technology with cash reduction incentives to speed-up the process. Finally, the German and Japanese markets have expanded before gradually reaching a standstill, notwithstanding their government's efforts of having the proper infrastructure in place.