When did you last use an ATM? Or pay for something in cash? The chances are that, for many people, the answer is months ago – perhaps even before the pandemic. Innovation in electronic point-of-sale technology means that paying digitally is now the norm, even at the market, coffee takeaway or corner shop.

In March 2020, the World Health Organisation warned that banknotes might spread the virus; transaction limits on contactless payments were raised in many countries in response, and combined with a sharp rise in online shopping during lockdown, caused cash transactions to plummet.

Data shows that ATM transaction volumes in the UK are more than 60% lower in 2020 than they were in 2019, with businesses increasingly refusing to accept it at all. Other European countries have seen a similar trend, with transactions in Spain falling by 90% year-on-year at one point. Furthermore, nearly a third of U.S. adults said they typically make no purchase using cash during a week.

The long-term trend towards cashless societies was already underway but timelines have been hastily redrawn (before the pandemic, UK Finance was predicting that cash would make up less than 10% of payments by 2028 – a target already broadly met by China). The growth of electronic payments and mobile payment apps, and the willingness of younger generations to use digital payment processes, made the decline of cash inevitable. Only the timeline was up for debate.

Are we heading towards a truly cashless society? Certainly, it is the aspiration of a number of countries, notably Sweden, Norway, Denmark and Finland. Cash accounted for just 1% of the total value of all payments in Sweden as long ago as 2016, and the Bank of Finland predicted that the use of banknotes would end by 2029. Sweden’s Riksbank has already launched a pilot project to develop a central bank digital currency, the e-krona and other countries, including the UK, are exploring similar initiatives.

The data, though, is ambiguous. Some countries have reported that many people hoarded cash during the pandemic, and it appears that while circulation of coins and small value notes did fall, the circulation of large denomination notes increased.

The fact that the instinct of many people to hang on to paper money at a time of crisis is interesting, and a comment on their level of trust in banks and the financial system. Their money feels safer if it’s physically in front of them (or stuffed into their mattress). It’s this fear that the financial sector must address if digital payments are to be widely accepted.

The key to a cashless society is trust. It is no coincidence that Nordic countries are among the most advanced in terms of the widespread use of digital and mobile payments; Nordic populations have a higher level of trust in financial institutions than many other countries, as well as a willingness to embrace technology.

People will be more willing to rely entirely on digital payments if they trust the banks, and increasingly fintechs, that run the system. That means that payments must be as secure as possible, fraud minimised, and that the capacity and speed of transactions needs to meet the expectations and growing demands of consumers.

Two ways in which financial institutions and payment service providers (PSPs) can build trust in their payment processes and technologies include:

1. Ensuring payments go through first time, every time, and without delay – by investing in robust payments data and APIs that help to minimise errors.  By getting this right, transactions can reach their intended destination without meeting any friction or causing any concern to the customer.
2. By implementing automated technology for KYC and AML screening that enables payments to be processed efficiently, while reducing financial crime risk. Accurate and efficient screening processes encourage greater confidence in banks and PSPs – as well as in the financial system as a whole.

These elements not only build trust in institutions, but also improve the efficiency of the payment process, and are therefore critical to digitisation and the evolution of faster payments.