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A dog peeks out from a sundries store in Manila, the Philippines, on October 6. Many consumers in underbanked regions rely on cash in their daily lives. Some use cash-based payments even when shopping online, according to PPRO data. Photo: Reuters
Opinion
Opinion
by Tristan Chiappini
Opinion
by Tristan Chiappini

Booming digital economy must still make space for cash, particularly for Asia’s unbanked masses

  • Lockdowns and cash hygiene concerns amid the pandemic have fuelled an e-commerce boom, but going completely cashless risks financially excluding many and limits revenue opportunities for merchants

With the pandemic, businesses and governments around the world are stepping up efforts to discourage cash in favour of digital and contactless payments. There is a compelling case for moving towards an innovative, digital-first, cashless society, especially in Southeast Asia, to empower small businesses and citizens to access the global digital economy. But going completely cashless may lead to some unintended consequences.

As the world continues its relentless march towards a cashless economy, e-commerce has capitalised on a coronavirus-led boom. PPRO’s transaction engine has seen online purchases across the globe increase dramatically this year: some – such as purchases of women’s clothing – we did not foresee, but others such as food and drink, up by 285 per cent, and health care and cosmetics, up by 160 per cent, were predictable. Overall, these e-commerce levels were not predicted for another five odd years.
In Southeast Asia, the trajectory of e-commerce and digital payments has been nothing short of explosive. With the region’s internet economy hitting US$100 billion for the first time last year, more than tripling in size over the past four years, the sky is the limit as Southeast Asia adjusts to a cashless new normal.
In Malaysia, sign-up rates for Maybank’s MAE e-wallet more than doubled after lockdown measures were introduced. In the Philippines, where cash has traditionally been king, the number of registered users on GCash, the nation’s largest provider of mobile money services, soared 150 per cent in the month from mid-March.
Shoppers queue to make payment on May 30, 2019, at a supermarket in Manila that accepts WeChat Pay. In the Philippines, only 1 per cent of retail payments were made electronically five years ago, despite 41 per cent of the population having internet access. Photo: Phila Siu
Pre-pandemic, there was a stubborn resistance to digital and contactless payments in this part of the world. In the Philippines, only 1 per cent of retail payments were made electronically five years ago, despite 41 per cent of the population having internet access. In Japan, mobile payments only represented 1 per cent of a US$5 trillion economy.
In Hong Kong, many merchants, down to the humble neighbourhood cha chaan teng, have upgraded their operations to accept digital payments and avoid potentially unhygienic cash. This could be as simple as a tapping a card on a payments terminal, as merchants take advantage of a recently launched Octopus Cards initiative to waive transaction fees for the first six months.
Early in the pandemic, China ordered banks to withdraw potentially infected cash from circulation and either destroy it or disinfect and store it for up to 14 days before returning it to the market. Other individuals have taken more dramatic measures – there are reports in South Korea of people disinfecting banknotes in the microwave oven, only to be left with charred bits.
A bank employee in Wuxi, in China’s Jiangsu province, examines burnt Chinese banknotes brought in by a woman who reportedly microwaved the money to disinfect it, Chinese media reported in March. The bank exchanged the damaged notes for new ones. Photo: Xinhua

There is no doubt that digital payments will become more entrenched and much faster than previously thought. In Singapore, the government has deployed 200 digital ambassadors to encourage stallholders in hawker centres and wet markets to adopt the Singapore Quick Response Code payment solution. Even multinational companies such as Citi and AXA are jumping on the bandwagon, rolling out a Dynamic PayNow QR Solution – using QR codes – to help policyholders pay their insurance premiums.

Like Covid-19, digital payments are going global – even as payment preferences become more local. Even before the pandemic, people around the world were leaning towards digital payments. Indeed, a BCG report projected that the proportion of Southeast Asian consumers using digital payment solutions will hit 84 per cent in the next five years.

But does the rising tide of digital payments lift everyone? Or are there people for whom these changes could lead to a deeper financial exclusion?

02:40

How mobile payments impact people’s lives in China

How mobile payments impact people’s lives in China
There are large ramifications of going completely cashless. Many consumers in underbanked regions rely on cash in their daily lives. Removing cash completely could disenfranchise more than half of Southeast Asia’s population; at least seven out of 10 adults are underbanked or unbanked – they have no access to credit cards or basic banking facilities.

The reliance on cash is not unique to Southeast Asia. Across Latin America, 38 per cent of shoppers are unbanked, and nearly one in five online transactions are completed with cash, as with Boleto in Brazil.

In Africa and the Middle East, only 50 per cent of consumers are banked, and 12 per cent have access to a credit card. In countries such as Kenya, where more consumers own a smartphone (60 per cent) than have a bank account (56 per cent), the prospect of an outright ban on cash payments could restrict access to their local economy, never mind the global economy.

E-payment is the latest in China’s long history of money innovations

Even in the US, about 6.5 per cent of households (14.1 million adults and 6.4 million children) are unbanked, exposing large numbers to any cash ban.

This is highlighted by the increase in e-commerce transactions completed using cash-based payments that the PPRO transaction engine has seen during the pandemic. Many consumers around the world continue to rely on cash-based payments, even when shopping online. At the checkout page, consumers are given a bar code, QR code or simple number sequence for their order. They take this “ticket” (either printed or on their mobile device) to a local convenience store or bank and pay in cash. At that point, the goods are shipped.

Cashless protocols restrict not only consumers’ access to goods and services, but also limit revenue opportunities for merchants. More than ever, we hear payments professionals cry that “cash is dead”. But while 2020 has provided the global economy with one great reason to reduce the acceptance of cash, the payments industry has billions of reasons to continue offering multiple options that cater to the needs and preferences of every shopper around the world.

Tristan Chiappini is vice-president and head of partnerships in Asia-Pacific at PPRO, a specialist for local payment methods and value-added services  

David Dodwell is on holiday

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