Consumers and businesses will someday transfer payments electronically. The shift towards a cash-free world has already begun. MasterCard Advisors, the professional services arm of MasterCard, recently released a report entitled “The Cashless Journey” that examines how 33 countries are making the transition to electronic payments.
Researchers measured the percentage of the value of all consumer payments, including utility, government, medical, loan, peer-to-peer payments for goods or services as well as merchant payments at retail point of sale that are currently carried out by means other than cash. They referred to that percentage as “share.” They also assessed the shift in cash share of consumer payments’ value between 2006 and 2011, the year of the most recent available data. The researchers termed this shift as “trajectory.” Their third point of examination was the future potential for conversion of cash payments to the electronic kind, which they dubbed “readiness.”
Michael Angus, group head, payment strategy and emerging payments, MasterCard, noted that the report revealed some unexpected findings. “Two countries outperformed basic readiness indicators,” he commented. China and Kenya were the two countries that showed a surprising level of readiness to go cashless. In China’s case, the government provided what Angus called “strong” leadership in encouraging the transition to cashless payments. Another factor is a high level of migration from rural to urban areas. Urban areas offer a greater access to electricity and banking, two very important components of readiness in a cashless society.
Angus remarked that the second country, Kenya, is well on its way to going cashless thanks to product innovation. Kenya boasts one of the most developed mobile payment systems in the world: M-Pesa. M-Pesa comes from a combination of the word “mobile” and “pesa,” the Swahili word for money. “A huge percentage of Kenyans use M-Pesa,” Angus said. He attributed its success to the mobile companies that launched the service and the Kenyan government, which is in favour of innovation in this sphere. Angus added that the government aided Kenya’s mobile carriers by creating regulations that protected consumers while giving businesses the freedom they needed to be profitable.
While China and Kenya exceeded expectations for cashless economic readiness, Angus acknowledged that there were a few countries included in the report that had not made as much progress as researchers expected. Japan, Germany, Taiwan and Spain operate at a level of 70% cashless payments. However, Angus explained that they are so advanced that the level should be higher than 70%. He suggested a possible explanation is that these countries do not have enough payment options that accommodate consumer preferences and habits. If services operated in those countries that did indeed take consumer tastes into account, the rate of cashless payments would rise.
Angus believes that this report offers important lessons to the financial services sector, governments and regulators and the payment industry. For countries that have not begun their cashless journey, the report highlights the high cost of using cash. The financial services and payment industries will find MasterCard’s study of interest because the cashless economy will have huge ramifications in this space. Moreover, financial services providers and the payment industry have the opportunity to shape this journey.
Ultimately, the world will go cashless. Angus predicted it could take decades more to achieve that goal. However, government leadership and innovative products could accelerate the journey for many countries.
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