Small money, large profits: How the cashless revolution aggravates social inequality

Abstract

The replacement of cash by cashless alternatives carries huge potential to aggravate social inequality. Governments struggle to manage these dynamics since they must keep a delicate balance between the formation of strong players and the provision of inclusive payment options. Studying the political economy behind the payment industry is crucial to understanding how digitalization has transformed payments. To this aim, we look at the history of the payment industry in two cases: the USA and the euro area. In the USA, the cashless revolution gave rise to an oligopoly of two extremely successful credit card companies, which, however, resulted in a banking system that does not serve the needs of at least one-fifth of the population. In the euro area, the population has access to affordable financial services; however, neither the private nor the public sector has been able to provide the infrastructure to integrate European payments.