The Great Unbanked will emerge if cash is phased out recklessly

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We have been told that a rising digital tide floats all boats. The flurry of digital services provides us with flexibility and choice, particularly when it comes to managing money.

Today, there are approximately 12bn debit card transactions every year, which I expect will double over the next three years.

No doubt the rise of electronic payments, with more merchants offering services, is a big boost for the consumer who hates making the ATM pit stop in a taxi, or the business wanting to reduce the costs of handling cash.

Read more: Dream on, the UK is not going to be a cashless society any time soon

But as cards displace cash, there are potentially unintended consequences for financial inclusion.

Take the London bus. Should you brandish coins to pay for the journey, you’re out of luck. Only a card will do.

And for the unbanked (those without a bank account) or the underbanked (those with limited use of one) the rise of a cashless society poses a problem.

There is still a big group of people who operate outside of traditional financial services. Even in the UK, there are 1.5m adults that remain unbanked, according to the Financial Inclusion Commission.

Traditionally banks haven’t prioritised the unbanked, viewing them as having limited commercial potential, and being expensive to serve. But most service providers now mark financial inclusion as a priority.

The benefits are clear. Inclusion is good for society – it can boost economic growth, provide protection from risk and provide incentives to save and support, to start and grow businesses.

Read more: Bye-bye bank notes? Here's how prepared the UK is to go cashless

As technology advances, so too has the ability of banks, and fintechs, to target the unbanked in a way that, until recently, was simply not possible.

For instance, China’s Alibaba now uses customer commercial transactions to establish credit records and conduct small and medium sized enterprise lending.

But as we go cashless, society risks excluding the unbanked even further. Those dependent on traditional forms of currency could become disengaged from mainstream commercial life and emerge as a new unbanked class.

This means that as we manage the transition to cashless ways of doing business and living everyday life, innovations must be brought in for the unbanked as well.

The technology is already here. Since the unbanked are not entrenched in the old-fashioned banking routines of branches, ATMs and credit cards, they are more likely to embrace digital banking on their phones.

In Kenya, for example, M-Pesa uses a simple text message to allow people to send and receive money, resulting in almost half of Kenya’s GDP now flowing through the system. Established players like Orange and Telefonica are trying to replicate that success in markets from Latin America to Southeast Asia.

Today in the UK, the payments industry, through the Payments Strategy Forum, is driving innovation here, such as a new “request-to-pay” service, whereby consumers control how and when they pay their utility bills.

An example could be for pay-as-you-go electricity, often used by the unbanked, but typically more expensive than a fixed contract due to the high cost of collection. But if payment could be made through a phone app using APIs direct to a bank account, at a very low collection cost, this could give the user access to cheaper electricity.

Read more: Dream on, the UK is not going to be a cashless society any time soon

Nevertheless, cash is not going away any time soon.

Cash circulation is, paradoxically, on the up. And as we welcome a new Jane Austen-emblazoned £10 note next month, there will always be people who rely on cash, or simply prefer using it.

It is therefore important that cash is preserved in society, and that cash transactions are integrated into new digital processes.

This dual approach can ensure financial services remain accessible and avoid the risk of disenfranchising consumers.

We are navigating new ways of processing payments, but cash is still in our sails.