Why is cashless inclusion so difficult?

By Andrew Mitchell, Vice President, Development and Infrastructure Support, JCB International (Europe)

Early humans used bartering in lieu of money to buy goods, be it cattle or sheep, vegetables and grain. But today, one might be hard-pressed to use physical currency at all. Economists estimate that only eight per cent of the world’s money exists in the form of tangible coins and notes. The rest is floating in the digital ether.

India removed all large denomination notes from circulation last year and is exploring the idea of fiat digital currency.

The European Central Bank also ended production and issuance of €500 banknotes a year prior.

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We are witnessing a transition away from physical currency in favour of cashless solutions such as contactless cards and mobile payments. The benefits are certainly palpable: improved security for consumers; less physical cash to handle and fewer security measures for commerce and banks; superior tax transparency for governments.

The direction of travel is certainly the right one. But we risk sleepwalking into this cashless world at detriment to the world’s two billion unbanked adults — those without access to the services of a bank or similar financial organisation. And furthermore, are we really developing economies to drive the value of cashless transactions via smaller businesses that stand to benefit the most from not having to deal with cash?

As with most problems, necessity is the mother of invention, and technological strides are being taken to improve the lives of the unbanked. A great example of this is a new social innovation project called Greater Change, which enables donations by scanning a QR code, like the kind issued for online tickets. Passersby without change who wish to give money can scan the code using a smartphone and make an online payment to the person. It’s simple innovation like this that will ensure that, when the time comes, and cash is redundant, unbanked individuals will have access to useful and affordable financial products and services that meet their needs.

In an increasingly cashless society, we need to ensure there are such adequate financial services for all demographics, both consumers and retailers alike. But the way in which this varies nation-to-nation is remarkable. One might consider a country like Germany where 98 per cent of adults have a bank account, to be a trailblazer for financial inclusion.

But a whopping 82 per cent of transactions are made in cash in Germany. Likewise, in the Netherlands, which is considered 100 per cent banked, some 52 per cent of transactions use physical currency. Travel 700-odd miles north east to Sweden, and according to Riksbank, the country’s central bank, cash transactions will make up barely half a per cent of the value of all payments made in the country by 2020.

Sweden is a tour de force for cashless payments. It’s hardly surprising that PayPal recently acquired Swedish mobile payments company iZettle. It’s a great example of the payments company strengthening its presence in offline retail payments and justifies how fintech partnerships can help small businesses grow and drive financial inclusion for retailers by providing affordably simple, frictionless ways for consumers to pay.

But why is Sweden so far ahead in cashless payments, whilst Germany lags? Many say cultural nuances or socio-economic are factors for the uneven distribution of technology and whilst there may be more than a grain of truth to the stereotype that Germany’s curiously low cashless rate is embedded in a deep-seated public mistrust of sharing personal data; at its core, governments and central banks have the largest responsibility for propagating behavioural change.

To facilitate the development of a cashless economies, at JCB we realise the importance of a consistent dialogue with government institutions to reciprocally build our expertise about cashless networks. It’s been very satisfying for us to work with government institutions on the building blocks of domestic card schemes such as those we’ve worked on in Myanmar and Sri Lanka quite recently. Seeing the commitment of those countries to create low fee-model retailer markets and adaptable due diligence methods which enable mobile phone users to gain access to ad-valorem account services shows just how flexible we really can be in delivering cashless services and driving adoption rates.

So regardless of high “banked” ratios, sleepwalking into a cashless world could have the counter-effect of propping up cash-economies unless corporates encourage progress with all relevant parties. Whilst ensuring governmental buy-in, and encouragement of fintech enterprises as well as high levels of consumer and retailer interest are the critical milestones of a successful strategy – technological progress should ultimately only ever be measured by efficiency and benefit to the consumer.