But, the creation of digital identities raises concerns around how these are managed and protected. Many warn against putting IDs entirely in the hands of governments. Mike Cowen, head of digital payments and labs for Mastercard in the UK, Ireland, Nordics and Baltics, suggests “degrees of validation,” with information pulled from different public and private sources, dependent on the level of authentication required. “If no one entity is the owner of your identity, you own your identity and it is supported from multiple sources,” he says.
Getting this right is critical to overcoming the trust barrier that is deterring some consumers from fully engaging in the digital economy. Despite the proliferation of digital banking options, customers surveyed for our recent series of reports on open banking told us they are wary of sharing data with financial institutions and uncertain of the need for, and benefits of, online banking. Stronger cybersecurity measures and regulation are obvious measures to help build trust. However, we have found that it’s often those markets with the toughest laws, such as the UK, that have most skeptical customers. The ability of financial institutions to inspire trust through innovation in cashless solutions may be a more effective way forward.
A globally connected cashless society is still a long way off
Would a cashless economy be truly global – allowing for transactions to flow seamlessly across borders? The evidence suggests this may not be easily achieved.
We see some countries connecting their real-time systems to allow cross-border transactions, but a worldwide account-to-account automated clearinghouse (ACH) for US$689b of annual global remittances1 is likely years – or decades – away.
Meanwhile, the potential of cryptocurrencies, such as Bitcoin, to create a global digital economy has yet to be fulfilled. And attempts by tech giants such as Facebook to establish their own global digital currency are facing barriers, including consumers’ willingness to use them and the wariness of central banks. Bank of England Governor Mark Carney has stated that Libra must be “rock solid” from day one, while US Federal Reserve Chairman Jerome Powell has warned Libra raises “many serious concerns regarding privacy, money laundering, consumer protection and financial stability.”
A future digital economy must be safe and fair
Cash is costly for banks and a burden for governments combatting the black economy. However, while a cashless society makes sense on many levels, there are hazards in pushing for transformation too hard and too fast. Digital systems must be safe and, critically, fair. Financial inclusion is a global imperative that can be enabled by cashless options that help build a better working world, while unlocking new growth opportunities for banks.