How Preserving Cash Will Ensure a More Equal East Asia

calendar iconMay 28, 2021


Cash has a key role to play in protecting consumers and building more inclusive financial systems, easing the digital divide and providing a risk-free, not-for-profit payment option whose benefits are greater than ever in a world of rising cybercrime. The World Economic Forum recently explored these attributes, and how they can contribute to more inclusive societies across East Asia.

Cashless payment methods have become popular in recent years, especially in South Korea, where only 14 percent of transactions currently use cash. With almost 100 percent of people owning a smartphone, and mobile shopping accounting for over 70 percent of online sales in 2020, it’s clear that while cash remains a popular choice, cash-free options are far more widespread.

The picture in China is somewhat different. Although around 52.1 percent of its retail sales are estimated to come from e-commerce in 2021 and, like Korea, it is a mobile-first country—with mobile payments and QR code scanning widely used, from big cities to rural areas—cash is still used for 40 percent of transactions.

At the other end of the spectrum, cash is used for 82 percent of payments in Japan. Both cash in circulation and bank deposits shot up during 2020, encouraging businesses and households to keep supplies of cash to hand. For many, cash is seen as a convenient way to avoid ‘wasteful spending’.

So how does cash relate to inclusive finance, across these countries and others in East Asia, which have quite different economic structures and social priorities? Yunzhong Cheng of the World Economic Forum explains that the underlying principle of financial inclusivity is ‘to ensure that all individuals and businesses have equal access to useful, affordable financial products and services that meet their needs’. Cashless options alone cannot serve this goal.

Excessive ‘cashlessness’ will lead to a new type of financial exclusion which deviates from the original intention of inclusive finance.
"Yunzhong ChengStrategic Partnership Lead, AsiaWorld Economic Forum

Digital technology can improve the reach of financial services—bringing coverage to previously-underserved areas—however it also introduces a ‘digital divide’ that risks excluding those without the necessary skills, access to technology and its accompanying infrastructure, and people who simply prefer not to engage with it. To meet the needs of such individuals—and others including juveniles, overseas tourists and the visually impaired—cash needs to be part of the financial system.

Cheng also notes, in the process of rapidly developing mobile payments, people’s right to privacy and their personal agency are being eroded. The involvement of different parties in a transaction—not always revealed to the consumer—and the use of their information are often not things an individual has control over.

There is a tendency to over collect consumers’ personal information, which may lead to the over mining of consumers’ contact information, consumption behaviours, biometrics and other data.
"Yunzhong ChengStrategic Partnership Lead, AsiaWorld Economic Forum

Cash is essentially a risk-free way of paying, while any cash-free payment will rely on market institutions that expose customers to operational, market, credit and even moral risks. Based on this, Cheng asserts ‘the option of keeping cash can enhance people’s sense of security’.

Although there is some competition between cash and cashless payment options, Cheng concludes they are ultimately complementary. One is not a substitute for the other.

When consumers are not sure about the security of mobile payments, choosing to use cash helps to reduce the risk of personal information and property security being violated.
"Yunzhong ChengStrategic Partnership Lead, AsiaWorld Economic Forum
Last Updated: May 27, 2021