Many of the world’s unbanked population have transitioned to online shopping and digital banking products during the pandemic. This rapid shift in consumer behavior raises questions for the future of cashless payments in 2021 and beyond.
This article was contributed by Marius Costin, Head of EMEA High Velocity and US Sales for PayU. It was originally published in ATM Marketplace.
2020 felt like a pivotal point in our society becoming increasingly cashless. When the pandemic first began, Western banks shut down most of their branches to prevent the novel coronavirus from spreading.
Months later, several European banks decided to permanently close branches based on shifting consumer behavior spearheaded by the coronavirus pandemic. As a result, an increasing number of consumers in the Western world now clearly prefer digital banking.
As an international payment provider, PayU understand that the debate surrounding the cashless transformation did not just begin in 2020. It’s also much more than just a Western market debate. In 2016, India’s government decided to withdraw as much as 80% of its circulating cash as part of efforts to reduce corruption. In a country that relied upon cash for 90% of transactions, this transition was far from simple.
Around the world, nearly 2 million individuals remain unbanked – more than a quarter of the global population. And while the pandemic has brought a rapid acceleration in demand for digital financial services, we still have a duty and responsibility to consider the pre-pandemic challenges of supporting and providing services for those who are not attached to a bank. Therefore, as we advance toward a cashless society, we have to ensure that these changes are done in a way that promotes financial inclusion. Government agencies, regulators, fintechs, and conventional financial services providers must work together to ensure that all members of society are being served.
While these challenges are not new, efforts to ensure equitable access to financial services have in some ways been pushed aside amidst many other challenges of the pandemic. As we look ahead to the future, fintech operators must keep this focus in mind, ensuring that digital payments and financial services are accessible and appealing to everyone.
There have been some noteworthy initiatives towards ensuring that the transition to a cashless society is inclusive and fair. After India’s 2016 “demonetization”, the Indian government launched its own app to facilitate digital bank transfers via smartphones without an internet connection.
The pandemic has brought similar innovations through the developing world. Kenya reduced mobile money fees during the height of the pandemic, with Pakistan and Ghana later following suit. It is important to recognize that these increases in digital payment transactions can be encouraged while still being inclusive of consumers who rely on cash. In Kenya, individuals can bring cash to M-Pesa agents and thereby deposit physical currency into a mobile money account. Similar cash-based online payment systems exist across many Latin American countries.
Developed markets can learn many important lessons from these emerging market leaders. Notably, each has found innovative ways to bypass traditional banking to cater to the needs of their market. Mobile money exemplifies financial inclusion because it increases increases access to digital financial services without leaving behind consumers who are dependent on cash.
All markets reflect the particular payment preferences of the people living in them. While credit and debit cards are rampant in Western Europe and the US, bank transfers, mobile wallets, and installment payments have overtaken credit and debit cards in several emerging economies. The best way to ensure that we do not exclude anyone when transitioning to a cashless society is to identify each market’s preference and create services and products that cater to those preferences.
Education is a frequently overlooked piece to this puzzle. To create a truly inclusive cashless society, we must educate consumers about the benefits of digital financial services. However, to achieve this feat, the effort must be collaborative. Governments must work with businesses and social sector leaders to implement solutions that best serve their constituents. Communities must understand their options and how it will benefit them to make use of alternatives to long-established systems.
The evolution and growth of e-commerce over the past year is a clear example of the economic possibilities in emerging markets as payments and financial services become increasingly digitized. Amidst the COVID-19 pandemic, after many countries issued a mandatory stay at home order and closed various shops and stores, online retail volumes increased by 74% globally. Merchants in many of our markets saw year-on-year revenue growth of more than 500% in April and May 2020.
We also saw concerted efforts by businesses, government, and civil society to promote the development of e-commerce throughout 2020. Colombia declared three tax-free shopping days which generated a total of $250 million in additional e-commerce sales on PayU’s platform alone. Romania and many other markets, meanwhile, saw massive increases in e-commerce sales as part of Black Friday 2020.
PayU offers over 400 different payment methods to a potential customer base of over two billion and is committed to working toward a world without financial borders where everyone can prosper. As we look for light at the end of the tunnel following the one year anniversary of the COVID-19 pandemic, the past year’s partnerships between governments, e-commerce platforms, and fintech companies have shown us just how much potential exists in digital payments and fintech to drive greater inclusion and prosperity around the world.