Earlier this week, Bank of America CEO Brian Moynihan said the banking industry is moving towards a digital, tech-focused, cashless model. Moynihan, backed up with teams of expert financial advisors, believe banking institutions have more to gain than anyone from a pure operating costs perspective and that cashless operations would be cheaper and more efficient than traditional methods. At first, my reaction to this was one of sympathy for the world’s most underdeveloped nations – those countries that still rely heavily upon cash or even barter as tender. Will this mean they are further segregated from their more developed counterparts? Or would the lowered operational costs that come hand in hand with a digital economy see their unprecedented inclusion in the global economy?
According to MasterCard, cash still accounts for almost 86 percent of global consumer transactions today, nearly 300 years since it became accepted as legal tender. One could therefore say with near-certainty that we won’t be seeing its total demise anytime soon. However, we are seeing the rapid growth of digital transactions as apps such as PayPal, Venmo, Apple and Square Cash grow in popularity as mobile payment platforms. In 2009, China saw over two-thirds of ecommerce payments made using cash-on-delivery but today this has been superseded by mobile payments. Vietnam – a country where until recently cash was the only form of tender accepted by most shops and restaurants – has seen digital wallet and mobile app transactions increase by over 120 percent in recent quarters, as mobile payments and technologies like QR codes become more mainstream. In fact, Vietnam’s mobile wallet payment segment is expected to increase at a CAGR of 23.0 percent in value terms from 2018-2025.
But who will stand to gain the most if the world continues to move in this direction? And will the move to cashless hurt or help developing nations?
Harvard Business Review, in collaboration with the MasterCard Center for Inclusive Growth
projects that the countries set to gain the most from the migration to a cashless society are the U.S., Netherlands, Japan, Germany, France, Belgium, Spain, Czech Republic, China and Brazil, while Poland, Russia and countries with large populations such as India, Indonesia, Mexico, Nigeria, Egypt, and the Philippines would first need to take major steps toward improving their digital readiness. It makes sense that those countries that are highly digitized already are in the best positions to benefit from going cashless: which makes me wonder whether rural or remote parts of Africa, Asia or South America which are lacking in digital infrastructure have any hope at all of keeping up.
Somaliland is one example of a country in sub-Saharan Africa going cash-free because it has to. In the self-declared republic of East Africa, rising inflation has seen the population resort to hoarding wads of cash in order to cover basic transactions such as the buying of groceries. It is not uncommon to see cash hauled around the streets in wheelbarrows, and so it isn’t hard to understand why mobile banking has seen huge growth in this country in recent years. Despite high levels of poverty most Somali people also own mobile phones, meaning the payment platform Zaad has become incredibly popular in that it is preferable to counting out large sums of money using wads of cash. Compared to the global average of 8.5 payments per month in mobile transactions, Somalis make roughly 30 payments per month. In fact, it seems that contrary to popular belief mobile money is transforming entire economies in developing countries, and one in 10 African adults have an active mobile payment account today. What is happening is that developing countries are achieving what their developed counterparts are setting out to achieve digitally with far less sophisticated technology.
Take for example a dairy farmer in a small, remote African village. With a simple mobile text, he can receive payment for his milk and then use that to buy further supplies or pay his staff. The infrastructure required in really very simple: he must simply have access to a phone for texting. These simple mobile money transfers are gaining huge popularity in the world’s least developed parts, offering cheaper, faster and safer ways of conducting transactions for people who very often don’t have bank accounts. All that is required is a simple cellphone. And with mobile phone ownership up in many parts of the developing world this offers hope and promise for a new, booming, digital economy. In 2014, there were 103 million active mobile bank accounts, compared to 30 million in 2012 – a sign of just how quickly people are gaining access to mobile technology.
It seems we are hurdling towards becoming a cashless society faster than we think, and perhaps it could be to the benefit of the world’s developing countries. But what we must keep in mind is what the move to digital means for the millions if not billions who still rely on cash, and how to ensure the transition to going cashless is as socially inclusive as it can possibly be.