How has 2020 elevated the cashless conversation?

The year is far almost over yet 2020 already feels like a transformational period for the move to cashless societies.

At the start of the pandemic, European banks closed hundreds of branches to limit the spread of COVID-19. In September, this evolved into four British banks announcing permanent extensive branch closures, citing a shift in customer behaviors from over-the-counter to online banking. In short, the pandemic has cemented digital as the number one channel of choice for large portions of the European population.

Marius Costin, head of EMEA high velocity and US Sales at PayU

What's particularly interesting, though, is that these closures followed the Financial Conduct Authority's stark warning to British banks that every time they close a branch or ATM, they need to provide an analysis on the impact on customers' access to cash.

The pre-pandemic debate

As a global payments provider, we know that removing cash isn't just a debate in Western markets, and it's not exclusive to 2020. India's government made a decision in November 2016 to decommission 86% of the cash in circulation in an attempt to reduce corruption. As a country that used almost 90% cash at the time, you can imagine the confusion this caused. In total, a staggering 1.7 billion people around the world remain unbanked and, therefore, dependent on cash.

While 2020 has seen fantastic innovation as demand for digital financial services surge, we as an industry have a responsibility to remember the pre-pandemic challenges of supporting those without financial access as we advance towards cashless societies. The entire ecosystem has a part to play in making sure financial exclusion is not exacerbated by the recent changes. It must be a collaborative transition, with governments, regulators, financial services and fintech providers all playing an active role.

This certainly isn't news to the financial sector, but the problem has taken a backseat in a tumultuous year. As we look forward and develop new solutions that fit a changing landscape, we need to keep this context in mind, ensuring that digital payments are accessible and appealing to everyone.

Promising progress

There have been some noteworthy initiatives to making the move to a more cashless society a fair and balanced transition. The Indian government, for instance, launched its own BHIM app after its demonetisation, which facilitated electronic bank transfers via phones without internet connections. Kenya, on the other hand, reduced the fees of mobile money to use it as a public health tool during COVID-19.

In recognizing that the use of physical cash can transmit coronavirus, communications company Safaricom implemented a fee-waiver on mobile phone-based money transfer service M-Pesa to reduce the physical exchange of currency. Pakistan and Ghana followed suit with similar moves, and both have since reported booms in the popularity of digital payments.

Mobile money is a perfect example of how digital services don't have to oppose existing behaviors. Consumers who still rely on cash in Kenya, for example, can take it to M-Pesa agents to deposit into a mobile money account.

Developed markets could learn a lot from emerging markets such as India and Kenya. Each has bypassed traditional financial infrastructure in order to suit the existing behaviors and needs of their markets. Indeed, to do so, each market has played the lack of structure to their advantage, and shown brilliant innovation as a result. By creating a solution that taps into the reliance on cash and the absence of banks, mobile money epitomizes financial inclusion.

A tailored approach

Every market demonstrates different payment method preferences. While debit and credit cards are prevalent in the US and Western Europe, installment payments, bank transfers and mobile wallets overtake these in some emerging economies. At PayU, we alone offer over 400 different payment methods to a potential customer base of three billion.

A core part of mitigating the possible exclusion of cashless societies will be identifying existing preferences and building products and services to match. If we wait for every individual to begrudgingly settle for existing options, innovation and inclusion will grind to a halt.

One of the most important, and often overlooked, pieces of the puzzle in this is education. To create a truly inclusive cashless society, consumers need to be educated about the benefits of financial services. This requires a united approach. Sectors must collaborate. Governments need to work with businesses to best serve their communities, ensuring that those communities not only understand what is available to them, but also how they can access it and how it will truly benefit them. Arguably, this is the only way in which we can truly hope to eradicate financial exclusion.

Collaborating for economic recovery

The growth in e-commerce over the past six months is a palpable example of the benefits users can reap from embracing digital payments. After countries mandated the closure of shops and markets, online retail grew by 74% in transaction volume, and this is showing few signs of abating. As a result, some e-shops across our markets saw year-on-year revenue growth of 500-1000% during April and May 2020.

Again, governments have collaborated with platforms and payments providers to broaden the appeal to hesitant consumers. In Colombia, for instance, the government introduced a number of VAT-free days to entice consumers to spend. As a result, we saw sales volumes at least seven times that of usual levels on the VAT-free day compared with a regular day. In total, e-commerce was up 282% in Colombia compared to activity before the lockdown started.

As a company, we are dedicated to creating a world without financial borders in which everyone can prosper. These collaborations between government, fintechs and e-commerce platforms have shone a valuable light on how effective our joint efforts can be in reaping the benefits of digital payments, while supporting financial inclusion. As uncertain times continue, we must not become complacent, but keep driving positive change together.