Thought Leadership & Community


Digital Payments: Exclusive Or Inclusive?

By Madeleine Hillyer, U.S. Media Relations, World Economic Forum

The recent $35 billion sale of Worldpay, a leading digital payments processor, is the sector’s largest ever. The purchase , made by fintech group Fidelity National Information Services (FIS), shows just how rapidly the digital payments landscape continues to change.

This most recent Worldpay agreement is more than double its sale to credit card processing company Vantiv two years ago—a deal that came in at $10.6 billion. The size of this sale shows the increasing boom in the digital payments sector, a trend many expect to continue.

These growing sales are matched by an increasing use of digital payments around the world. Non-cash transactions are expected to accelerate at a rate of 12.7% through 2021, with Emerging Asia markets accounting for the largest growth areas.

As the use of digital payments methods expands, several companies have switched off of cash all together, often citing cost efficiency and the safety of their employees as the reason for the shift. These stores include restaurants, retail stores and even transportation options such as city bike-sharing programs.

Recently, cashless businesses have received backlash prompting certain policymakers, from Philadelphia and China for example, to take action. These governments have signed laws requiring businesses to accept cash as payment. Here critics of digital-only payments remark on the exclusionary effects of denying cash, explaining that those without access to a bank account are often unable to make digital payments.

Given that digital payments can bring convenience and safety, but also increase situations of potential exclusion, a question naturally arises: Does going cashless have more benefits or drawbacks for an economy and a society?

Benefits of Digital Payments

Safety is one of the largest benefits of increased digital payments. This goes for both the individual and business side of transactions. Individuals benefit from a reduced risk of theft by not needing to carry cash around and cashless stores similarly benefit from lower theft risks.

In particular, small and medium-sized enterprises (SMEs) benefit from the safety of digital payments. With limited security and employees, SMEs can be quite vulnerable when regularly holding large amounts of cash. With increased acceptance of digital payments, SMEs are much less likely to be targets of robberies.

Beyond safety, there are other digital payment benefits for SMEs, “If you are a small retailer and you’re in the formal economy, digital payments can help you expand your business,” says Drew Propson, Project Lead, Financial Services at the World Economic Forum, “By tracking your sales and information from different vendors, all of that data capture can help you manage inventory in new ways, and demonstrate creditworthiness, which can really help you grow your business.”

Accompanying Challenges

Despite the benefits of non-cash transactions, it is important to consider the challenges of a completely cashless economy.

“There’s the cybersecurity risk which is getting a lot of attention right now,” says Drew Propson “but there’s also an important infrastructure risk to consider.” The infrastructure needed for digital payments, like most infrastructures, is vulnerable to natural disasters and other unexpected catastrophes. Drew continued, “If all of your payments are done digitally and something wipes out the infrastructure needed to make these payments then you’ve put yourself in a very bad position.”

Though cybersecurity and infrastructure risks of digital payments are concerning, arguably the most talked about drawback is exclusion.

Exclusion is always a worry when discussing increased use of digital payments. Globally, about 31% of adults have no formal bank account. In the U.S., 6.5% of adults are unbanked and 18.7% are underbanked, meaning they have at least one formal bank account but still have to rely on services outside the formal financial system.

It can be very difficult for these unbanked or underbanked individuals to pay digitally with no formal bank account to link too—digital-only payments are often not an option for them. In some cases pre-paid cards can be purchased and used in digital-only locales, however this is not always an option—and certainly not a convenient one.

Thus, as increasing numbers of goods and services can only be purchased with digital payments, those who are already struggling to gain financial footing become further marginalized.

This disadvantage is difficult to overcome and the effects can be more widespread than one would think. Key goods and services such as foods and transportation are increasingly moving to digital payments, leaving those with no means of digital payment at a grave disadvantage.

Digital Payments and Inclusion

Despite very real exclusion concerns being discussed currently, digital payment offerings have brought millions of previously unbanked and underbanked individuals across the globe into the formal financial system. Nearly all countries have experienced increased inclusion over the past decade due to the development of new technologies that allow for innovative low-cost financial products and services.

Much of this inclusion has been achieved through the rise of mobile money. Mobile money options, or digital payments completed through the use of a mobile phone, are allowing financial access to many around the who were previously only able to use cash.

In Kenya, the use of mobile money started over 10 years ago and M-PESA, the country’s largest mobile money provider, has over 22.7 million subscribers today. “Digital payments have picked up very quickly in East Africa,” says Drew Propson, “Kenya in particular, with its use of mobile money stemming from the introduction of M-Pesa, has seen digital payments become the norm.”

Mobile money is also expanding throughout other countries. Somalia has recently increased its mobile payments greatly and mobile money payments in Somalia have actually surpassed the country’s cash transactions.

A recent World Bank study found that nearly 73% of Somalis over 16 used mobile money payments in the past month. This has been a boost to inclusion in a country where only 15% of people have a bank account but about 90% have a mobile phone. “There’s still quite a bit of cash being used in East Africa,” according to Drew Propson, ”but digital payments have really taken hold and are efficiently reaching people who were previously underserved.”

Overall, integrating digital payments into an economy can bring great convenience, safety, and inclusion benefits to individuals while also meeting the needs of growing businesses. But even with these benefits, going totally cashless has some very serious drawbacks to consider.

“Cash is still a really important second option in an economy. I think if we are going for completely cash-free right now we are asking for trouble,” says Drew Propson. “Looking at current risks to going fully digital, having cash as a back-up is key.”

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