Cash has been an integral part of our economy since Colonial Times. In fact, paper currency was first issued around 1690 by the Massachusetts Bay Colony to fund military expeditions.
While cash is certainly still king for many, there has been a major shift within the payment industry in recent years. In the 25+ years that I’ve covered credit cards, I’ve heard many references to our society moving toward a cashless payment system. These mentions have ranged from optimistic to skeptical.
However, the shift away from cash is more than just talk. Advances in digital infrastructure, including secure networks and mobile technology, have enabled widespread adoption of cashless payment systems, making digital transactions more accessible and secure. In fact, 84% of payments in the U.S. are projected to be digital in 2025, according to payment processor Clearly Payments. These systems encompass a variety of digital transactions such as online banking, mobile wallets, and card payments, offering customers fast, secure, and convenient options that enhance the overall experience.
While some consumers may resist this transition, using credit cards responsibly can help avoid financial pitfalls. Cashless payment solutions utilize technologies like NFC, biometric verification, and online banking to facilitate instant, secure transactions. Both consumers and businesses can benefit from these systems. Embracing this shift is key to thriving in the evolving cashless economy.
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Understanding cashless payment systems
Let’s start off with the basics, as there seems to be a lot of confusion surrounding this topic. Gerri Detweiler, a credit expert and author of “The Ultimate Credit Repair Action Plan,” explains that the most basic definition of cashless payments is simply that “you don’t pay for anything using coins or currency.” Megan Daniels, Founder of JourneyCurrencies.com, adds that going cashless is using any form of payment that is not physical cash. Cashless payments refer to digital transactions that do not involve physical cash, emphasizing their speed, security, and convenience for both consumers and businesses.
There are a lot of examples of cashless payments. You are probably familiar with the most popular types, which include checks, debit cards, and credit cards. However, there are several other examples, according to Daniels that may be less familiar to you. These include:
- Mobile and digital wallets accessed via mobile devices—such as Google Pay, Apple Pay, and Samsung Pay—are among the leading options for secure, contactless payments, offering convenience and enhanced security for everyday transactions.
- Peer-to-peer (P2P) transfer mobile apps, such as Venmo or PayPal, allow users to transfer money quickly and securely.
- Mobile apps for virtually any retailer where you shop, such as Walmart Pay, exemplify payment apps and mobile payment apps that facilitate seamless cashless transactions.
- ACH (Automated Clearing House) is offered by various financial institutions and is a digital payment method for electronic transfers.
- Online banking platforms enable users to complete transactions, pay bills, and manage their bank accounts digitally.
- Card payments, including both credit and debit cards, are widely used for in-person and online purchases, offering convenience and broad acceptance across merchants.
- Contactless payments, which use NFC technology for fast and secure checkouts.
- Mobile banking apps allow you to check your bank account balance, transfer money, and pay bills from your phone.
Cashless payment transactions include both in-store and online purchases, offering security, convenience, and speed. A wide variety of cashless payment methods—such as mobile wallets, card payments, online banking, and other digital options—are transforming how financial transactions are conducted.
Consumers now enjoy a growing menu of payment choices, including digital wallets, card payments, and contactless payments, ensuring there’s a solution to fit diverse needs. These digital payment methods are widely adopted across sectors, supported by robust payment systems and digital infrastructures that enable secure and efficient cashless transactions.
Overall, cashless payment systems are reshaping commerce by simplifying financial management and business operations while expanding options for consumers and businesses alike.
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Love earning credit card rewards, including cash back? While P2P transfers typically don’t earn rewards, the good news is that you’ll still earn them with each digital or mobile wallet purchase you make. Digital transactions and complete transactions are now facilitated by modern payment cards and digital infrastructure, making cashless payments more accessible and efficient than ever.
Which digital payment methods are best?
The plethora of options that are available today can be overwhelming. While there are similarities among all methods, there are definitely distinct reasons why consumers choose one method over another. Your best option will depend on your needs. Here’s a breakdown:
- Credit and debit cards: Like cash, cards are widely accepted, but also come with added consumer protections and rewards that aren’t offered when paying with cash. Card payments are accepted almost everywhere and are often integrated with contactless technology for added convenience and security. Using a credit or debit card is one of the most popular cashless payment methods for both in-person and online purchases.
- Digital wallets: Some consumers prefer digital wallets such as Google Pay, Apple Pay, and Samsung Pay because they securely store all their physical cards in one convenient digital space. These wallets enable quick, seamless payments using your mobile or wearable devices, combining convenience with enhanced security for everyday transactions.
- Mobile apps: Apps make it easy to send virtual cash quickly to friends, family, or small businesses. I love using Cash App, for example, to pay for my quarterly pest control service.
- ACH: You can use ACH at your local bank or credit union to pay bills directly from your checking account. Many consumers set up automatic monthly bill payments so they don’t have to worry about writing a check each month. Traditional banking services and other banking services enable digital payments and support efficient financial operations for both individuals and businesses.
- Other: Newer payment options involving QR codes and crypto wallets are gaining traction. For instance, I regularly use QR codes to pay for admission to my daughter’s sporting events since I rarely carry cash. These methods offer added convenience and are part of many cashless payment systems, transforming how we transact today.
When comparing cash payments and cash transactions to digital options, it’s important to note that cash payments are often slower and less transparent, making digital methods more efficient and easier to track. Digital payments also help manage cash flow and improve financial tracking for both individuals and businesses.
Choosing not to carry physical currency and embracing a cash-free lifestyle can reduce operational costs and cash management overhead for businesses. For businesses, digital payments streamline financial operations and cash management, making it easier to manage cash flow and improve overall efficiency.
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Debit cards don’t offer the consumer protections that credit cards do, particularly when it comes to fraud. While debit cards can help you avoid debt, it’s also important to understand the downsides of using a debit card.
What are the advantages of going cashless?
We have already alluded to a few obvious reasons why cashless payments are good, such as the safety and security of carrying a card vs. cash and the convenience of faster checkouts at your favorite retail store. However, let’s dive in a bit deeper into three other less obvious reasons.
Travel
Going cashless is a necessity when traveling in certain areas. Detweiler took a recent trip to Europe, which gives insights into this scenario.
“When I traveled to Norway last summer, I had zero use for cash. Every transaction-including the 1 euro fee for the toilet at the bus stop-required a card,” says Detweiler. “It was easy and convenient to pay for everything using a card or my digital wallet. Of course if I were relying on a single card and something happened to it, I’d be stuck.”
Keep in mind that most digital payment methods require reliable internet access, so travelers should ensure connectivity to use cards or mobile wallets abroad.
Accounting
Digital payments afford several accounting benefits. Many credit cards offer annual and/or quarterly breakdowns on spending based on various categories. For example, Detweiler describes one benefit she appreciates:
“I loved having a clear record of all my spending during the trip. With cash, it probably would have been a little harder to track how much each purchase cost.”
Digital payments generate transaction data that makes it easier to track and categorize spending. Additionally, mobile banking apps allow you to check account balances and monitor your finances in real time.
Rewards
As alluded to above, earning rewards for every dollar you spend is a big incentive to go cashless for many consumers. An Ipsos poll, conducted on behalf of Wells Fargo, found that 90% of adults who have a rewards credit card consider these rewards to be important.
Daniels concurs- she’s been “essentially cashless for years because it pains me to lose the potential rewards on any purchase by using cash over a good rewards card.”
She adds, “By using credit cards responsibly and effectively, you can get things like cash back, points, miles, gift cards, and so much more on things you have to buy anyway, like groceries. Even small purchases add up to big things.”
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Traveling abroad? Consider the many benefits of using a credit card to make purchases overseas, including cards that charge no foreign transaction fees.
What are the disadvantages of going cashless?
While I definitely am on the cashless bandwagon, I’ll be the first to caution consumers that going cashless does have its disadvantages and isn’t for everyone. Two of the biggest potential downsides are:
Fraud
Detweiler points out that one of the biggest risks is fraud, particularly when it comes to debit cards. If someone gets a hold of a debit card associated with your main checking account and wipes out your checking balance, it can create a huge hassle, even if you’re able to get your money back.
Unfortunately, security breaches for any type of digital payment do happen. Daniels adds that “anything digital can open you up to data breaches and phishing scams. Your money may be better protected, but your personal information may be more vulnerable.” Thankfully, credit cardholders are protected by zero liability policies. To help prevent unauthorized access and fraud in cashless payments, two-factor authentication and token-based authentication systems are essential security measures.
When it comes to privacy, digital payments generate transaction data that is stored and can be tracked by companies or governments. This makes data security crucial to protect your personal and financial information from misuse.
Overspending
Some consumers find cash to be a more effective tool for managing spending and budgeting. Studies indicate that people tend to spend more on average when using cards compared to cash. This shift toward a cashless system can make it challenging for those who prefer physical currency to maintain control over their budgets and manage their spending effectively.
Daniels explains that “While tap to pay is fast, it’s also easy to lose track when you’re not using actual cash. For some people, digital just doesn’t work. Envelope budgeting just doesn’t fit in a digital wallet and for many, this form of budgeting is essential to pay down debt or spend more intentionally.”
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Dr. Mary Ann Campbell, certified financial planner and “edu-tainer,” suggests that when going digital, you should be sure to check your transactions and balances frequently to safeguard against overspending and errors. She adds to “report mistakes quickly. Fortunately, phone apps (offered by the card issuer) increase the ability to do so.”
Future trends and final thoughts
The world of digital payments is never stagnant and has transformed the way we pay for things, with digital transactions and cashless transactions expected to become even more prevalent in the future. Even experts have a hard time keeping up with all the changes.
As a CFP magician who combines magic with a message – often using coins and dollar bills – Dr. Campbell is now having to modernize her routine just to keep up (her old “nickel-to-penny routine” gets more eye rolls than gasps!). I would argue that most of these changes are positive, but there are notable shortcomings, and you can’t just put your finances on autopilot if you go cashless. A cashless transaction can be both convenient and secure, but it also requires a robust digital infrastructure to ensure safety and reliability.
On a related note, the growth rate of digital payments will likely remain strong.
“This year the U.S. decided to fade out the penny, which is one of many signs that the way we handle money is changing,” says Daniels. “The last years have given consumers many new options for payments that many would not have conceived just 10 years ago. Last week, I saw someone pay for chips from a vending machine with their watch, then proceeded to have my physical cash eaten by that same vending machine!”
The importance of digital infrastructure and cashless systems in supporting the future of payments cannot be overstated, as they enable seamless, secure, and efficient transactions.
Despite such trends, cash is not likely to go away anytime soon.
“Some restaurants and retailers prefer cash to avoid the cost associated with accepting cards. The pandemic accelerated the move to cashless payments, but post-pandemic inflation may have slowed it a little,” notes Deteiler. “I’m seeing more restaurants that impose an extra charge for paying with a card, and more merchants who have a minimum purchase requirement for paying with a card. However, some businesses still need to accept cash to ensure inclusivity for all customers.”
As the shift away from cash continues, cashless methods and payment cards will play a major role in the evolving payment landscape, offering consumers a range of cashless payment options. In closing, Daniels sums things up well:
“Do I think cash will eventually fade out like the penny itself? Probably not. There are still real reasons people rely on physical money, like envelope budgeting, tech avoidance, or skipping card fees at small businesses. But the default is shifting. The go-to is moving from cash to cashless.”
