By Lori Ciavarella, Director of Operations for BillPro
The Danish government’s May proposal to reduce the use of cash has drawn interest around the world. The measure could take effect as soon as next year, giving retailers, gas stations, and eateries the freedom to stop accepting cash. The plan is backed by the Danish Chamber of Commerce, the country’s finance industry lobby, and many Danish consumers, a third of whom already use cashless mobile payments. The goal is to reduce business costs associated with cash management, such as security and employee time spent handling cash.
Some critics have voiced concerns about privacy, digital security and potential government intrusion in cashless scenarios, but going cashless offers social benefits in developed nations as well as in the developing world. Mobile payments as an instrument of economic development have caught the attention of policymakers and business leaders including humanitarian Melinda Gates, venture capitalist Marc Andreessen, and global development authority Jeffrey Sachs.
The growing consensus is that while cashless payments will make developed economies more efficient, they can dramatically improve some of the poorest countries by bringing more people—especially the extremely poor “bottom billion”--into the global economy, reducing remittance fees, enfranchising more women, and spurring small business development. In some developing nations, these changes are already underway.
Bringing the unbanked online
Banking is a luxury in countries with low per-capita incomes, heavily rural populations, and underdeveloped infrastructures. For example, in Malawi, fewer than 30% of women and 40% of men hold traditional bank accounts. Now women in rural Malawi can open mobile savings accounts developed by the United Nations Capital Development Fund. Shopkeepers in far-flung parts of the country use mobile devices to process deposits and withdrawals, so these women can securely manage their money without incurring high bank fees.
Providing easier access to microloans
Cashless payments can also facilitate microloans to improve homes and provide small-business capital. PYMNTS says this is particularly true in Kenya, where mobile payments pioneer M-Pesa has converted the formerly cash-heavy economy to one in which 85% of Kenyans use text-message mobile payments at least some of the time. Kenyans can use their mobile phones to purchase such items as solar panels on credit and then pay off the microloans on their phones as well.
Microloan charity organization Kiva is piloting programs to expand the reach of mobile microloans. Among the projects is a person-to-person mobile credit program in Kenya called Kiva Zip, intended to help endorsed borrowers raise money for business and home projects. Kiva also supports projects in Zambia, Indonesia, and other countries to help mobile-money agents set up shop.
Increasing safety by reducing cash-related crime
Bank robberies, attacks on bus drivers and home burglaries have moved Sweden close to cashless in recent years, with positive results. In 2008, there were more than 100 bank robberies across the country; in 2012, after most of Sweden’s major banks went cashless, there were only 21—the lowest number ever recorded there.
The risks of holding and transporting cash are high in developing countries as well. Writing for the New York Times, Melinda Gates describes the physical dangers associated with cash, including burglary, robbery on the road, and misuse of the money by other family members, all of which can be catastrophic for a poor family. People who save securely via mobile, like the women in rural Malawi, can plan for their futures without the constant threat of theft.
Violent crime reduction, economic inclusion, and capital improvements via cashless payments are just getting underway. Experts believe mobile payments can bring about much more positive change in the coming years.
Closing the economic gender gap
Gates notes that for women in developing nations to fully benefit from the digital-payments revolution, they need more cell phones. “In low- and middle-income countries, a woman is 21 percent less likely to own a mobile phone than a man… And where there is a gap in access to technology, there is also a gap in the use of financial services.”
Closing that gap, by getting mobile phones in the hands of 200 million women in the developing world, could spur more household savings and business growth—and it would deliver an estimated $170 billion new market to the mobile industry by 2020.
The insurance industry is moving into Africa with life, health, and business policies sold through the region’s growing mobile payments infrastructure. Apart from South Africa, the average insurance penetration on the continent is 1%, meaning almost all individuals and businesses are exposed to much higher than average risk. Cashless premium payments will allow more Africans to protect themselves against illness and disaster.
Making remittance payments go farther
Marc Andreessen is a prominent backer of a particular form of cashless payment: Bitcoin. In a New York Times opinion piece, Andreessen theorizes that the low- or no-fee nature of bitcoin transactions could save remittance workers and their families up to 10% on cross-border transaction fees. That’s a vast potential savings. Remittance workers sent more than $400 billion to relatives in developing nations in 2014, according to the World Bank. Besides the potential for savings via Bitcoin, mobile banking growth in the developing world carries the possibility of competition leading to reduced fees, another way in which more remittance money could reach home.
Enabling economic growth
UN Special Advisor Jeffrey Sachs called mobile phones “the single most transformative technology for development,” and mobile payments are indeed transforming the developing world. In Kenya, M-Pesa handles more than USD $19 million in transactions each day and has more than 20 million users. Boston Consulting Group analysts project that the mobile money market in Sub-Saharan Africa alone will reach $1.5 billion within the next four years. BCG also expects that as cashless payments evolve, millions of people will gain access to mortgage services, online shopping, and other tools to save time, save money, and live more secure, comfortable lives.
Lori Ciavarella is BillPro’s Director of Operations. A problem-solver by nature and an experienced business owner and manager, she is in her element helping businesses improve operations, manage change, and develop talent. Follow on Twitter @BillProPayments
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