Data Point. A world where cash isn’t king

What does it take to unseat cash from its position of ‘king’? A potpourri of ideas, going by a recent report from MasterCard, ‘A Progressive Approach to Financial Inclusion’. The report measures and analyses the adoption and degree of usage of financial products — savings, credit, cash and non-cash payments and insurance — in 30 countries.

You find that there are indeed many roads to the pinnacle of full inclusion. Take the case of Mexico. The country moved up in the inclusion matrix from “Early Days”, which means low penetration to the “Transitioning” stage, where there is higher adoption of financial products. This was helped by a creative programme — Boletazo — a public-private partnership programme with two main components. The attraction is a lottery system that enters every card transaction into a raffle for prizes and the programme also deployed Point Of Sale (POS) terminals at no cost to the merchant. These measures have perked up consumer purchases using cards. Philippines — another success story — however focused on receiving inflows such as salaries and remittances. This worked well as the middle class placed high trust in banks.

But countries such as the UAE are hitting some bumps in the road to inclusion. Similar to Philippines, it made great strides in receiving inflows through a mandate to use salary cards for receiving salaries of immigrants. But people withdrew most of their money as cash rather than using payment products, hurting progress in inclusion.

The experience in Kenya, which blazed the trail for mobile payment products such as M-Pesa, also sounds a note of caution. These payments products are only being used for limited flows and have not significantly penetrated large dollar value items such as salary disbursement and at POS.

Even countries that are advanced in the inclusion pyramid have a long way to go. For one, the global insurance penetration is still low.

And cash usage is high. In Japan for instance, where 98 per cent of adults own a payment product, only 14 per cent of consumer purchases are non-cash.

The high cash usage is due to the preference for cash along with extensive and inexpensive ATM networks. In the US, a large population — nearly 10 per cent all adults — still remain un-banked.

The financial exclusion that is concentrated at the lower income tiers makes the country lag other developed nations in terms of payments adoption.

These experiences offer ample thoughts for countries such as Indonesia, Bangladesh and India, which are embarking on the path to inclusion. Bangladesh is banking on microfinance institutions that offer a savings product, which also serves as a payments product to make cash withdrawals. In almost all countries, payments product adoption exceeds that of other products. For example, in Kenya at least 40 per cent of adults only have a payments product and no other financial products. The case of US is not very different – payments are the only access available to at least 20 per cent of adults. You should also bridge the gap between having the product and using it. The report notes that “using” payments products can serve as a “conduit for consumers to adopt other products”. But why bother with inclusion? The payoffs can be huge: South Africa expects to save $400 million in administrative costs over five years by shifting disbursement of social grants from cash to cards.

India, for its part, is now issuing proof of identity — a necessity to get a payment product and a baby step in the long road.