How do cashless payments help the economy to grow? Today I’ll answer this question in detail. It’s a fact that the recent developments in the financial sector is requiring significant attention. There are changes that affect the ways of our lives in many different directions since the services are changing and we have to adapt to the new reality.
Cash has been the main source of payment for quite a significant time and a lot of people or even financial institutions were skeptical about the changes that caused the replacement of cash payments, but not entirely.
However, there have been some observations that the economies that are using cash intensively, their growth is slower and less beneficial. On the other hand, the economies that switched to the digital versions are boosting their economies.
How Cashless payments help the economy to grow
There are a lot of great examples of how companies have made successful growth while using cashless payments. Bangladesh’s bKash is a company that allows payments to be executed via mobile phones, which directly affected the financial environment in the country.
It is not due to the fact that there is more money coming into the budget, no, the reason is that the payment process is simplified, and sending and receiving money is less expensive than otherwise. As a result, we see the boom of online commerce, reduced amount of fraudulent transactions, and the growth of the economy,
However, we should not expect that soon, the cash will be replaced since it still remains the most commonly used method of payment and the ratio of cash to GDP of the global market was 9.6 % in 208, which is even more than the same number in 2011, which shows that the trend is not fading away, it is becoming even stronger.
One of the most important advantages of using cash is that people have an emotional connection to the notes, coins, and currency when they can touch them. It feels like a more valuable asset than when you cannot touch it and own the capital in the digitized form.
However, those who are benefiting from digital transactions and payments are the financial institutions, policymakers, or even merchants. There are several steps that they can take in order to increase the efficiency of the process, for example, the right infrastructure, incentives, or even the regulation to magnify the public confidence towards the cashless payment.
Challenges in the switch to digital / cashless payment methods
The digital payment method is quite attractive when it comes to reducing the costs of transportation, ATM servicing, security, or labor. A lot of financial markets are implementing their own payment methods to make the process easier since speed is very important.
This is especially true in the case of forex when the transactions should be made at a high speed and as efficiently as possible, and as a result, there are several MPesa Forex brokers which is a payment method implemented by certain brokerage companies and are already taking the niche in the global trading market.
Even though the developed countries are advancing in the switching process, for example, France, Belgium, Spain, and Germany there are still important barriers to overcome.
1. High cost of electronic payments
It should be mentioned that the fees and charges are quite significant. The British Consortium that observes the economic condition, released the data that the all-in cost of digital payments has been dramatically increased. This usually happens because most payment systems are either monopolies or duopolies.
2. Customer-Centric solutions
One of the main challenges that digital payments are facing is the lack of customer-centric solutions. They focus more on the technology rather than the user-friendliness. However, when there is a need to transfer the amount from one e-wallet to another, person-to-person solutions are still necessary and the assistance still has a big importance.
3. Government entities
Another important challenge, in this case, is that the government entities coordinate on a minimal level. The main reason for that is the lack of a high financial authority that would coordinate with the governments on a number of issues. The switching process is definitely lacking the proper governance, planning, and educating clients about the upcoming changes.
4. Trust in the electronic payment
It is fair to say that the trust towards the electronic payments is not sufficient from the client’s side, due to the possible threats such as cyber-attacks, fraudulent activities, etc. in the UK in 2018, seven major banks closed or reduced their operations due to the system failure. Some people even prefer to have control on their funds by themselves, the same happens in Japan when people prefer to make the payments in cash, even though the level of technical developments is very high, which is the opposite case of neighboring China, where digital payments are widely accepted.
When we talk about the fact that people do not have trust towards the technological payment methods, or the switching process is not planned properly, one thing that we keep forgetting is that a lot of countries and regions lack the technological development in terms of infrastructure, to even accept the digital payments. Major rural areas do not even have access to the internet, or if they do, in some cultures women are forbidden from having access to the internet.
Successful examples of how cashless payments helped the economy to grow
In 2016, at the G20 summit, one of the main discussion topics was the High-level Principles of Digital Financial Inclusion, that was outlining the importance of having proper access to financial services. There are several countries that have put a lot of energy, time, and capital into advancing them, thus have achieved progress.
For example, in Singapore, the major step towards cashless payment was made in 2017 with the implementation of PayNow, which is a real-time platform to execute payments. In the case of South Korea, the end-of-year tax credits were introduced for credits for up to 30%.
Sweden in this case is advancing even more and has made several important changes in order to fully eliminate the ATMs and their infrastructure. It had a surge effect on the tax receipts. On the other hand, the Reserve Bank of Australia has taken important steps to lower the digital payments that would help small businesses.
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