Apple Pay is hogging limelight, Bitcoins are ruffling banks’ feathers and the whole financial industry seems to be turned on its head by the demands of today’s digital age. And the rising number of fintech challengers are eager to please, by bringing banking straight into people’s pockets. In that light there has lately been a lot of buzz around whether or not the paper currency with its 3000-year-old history could finally become a thing of the past.
It does seem obvious. Card payments are on a steady rise, having more than doubled in the EU since 2000 and so are the points of sale terminals at retailers. At the same time banks are closing ATMs1 and keeping one’s savings in a cookie jar is increasingly condemned. And of course – there’s the ever-expanding pool of people using NFC-equipped smartphones, which means a myriad of possibilities for fintech companies to come up with faster and more convenient ways to pay.
The benefits of an all-digital payment culture are appealing. Your cloud-based wallet is expected to be much safer from the prying eyes than the one you keep in your back pocket, for one. Digital payments also mean it’s easier for law enforcement organisations to not only track down money launderers, but anyone, who’s avoiding tax (think about paying a nanny or a plumber), since unlike cash, any payments in the digital system will be traceable. According to The Economist2, by moving to a digital-only currency, the U.S government would get an extra one billion dollars each year. With that, the possibilities of a fully digital payment culture are provoking interest among consumers, companies and governments alike.
But in this daze of a new and exciting digital banking experience, there’s one thing that can’t be forgotten. There’s still a population of 2.5 billion3 people in the world today who have little or no access to even the most basic banking services, like a secure bank account to store money in. That means this part of the world’s population, which includes 93 million people in Western Europe4 and 70 million in the U.S5 is operating in cash.
The reasons for this are various, ranging from poor credit rating to inability to prove one’s address (like expatriates), to a simple mistrust in banks. But regardless of the reasons, until over a third of the world population can’t access banking services the western world has had time to get used to since the 1940s, the idea of going cashless just can’t hold any water.
Of course, we couldn’t go cashless tomorrow if we wanted to. Yet comparing the rate at which the financial industry is fashioning more exciting and convenient services for people who are already in the system, and how much attention goes to finding solutions for the ones who would need to be in the system for them to be able to fully participate in the world economy, a reality check is in order.
It is absolutely exciting that payments are becoming faster, more convenient and even fun, but excluding a large amount of the world population from this innovation will only increase the gap between the banked and the underbanked people. True innovation lies in global scalability and there’s a great opportunity for financial institutions – or more precisely fintech innovation engines – to bridge the gap between the old and the new banking world, rather than increase it. Only then can we have the cashless topic back on the agenda.
- European Central Bank
- The Economist
- Banking the unbanked. Prepaid cards, mobile payments, and global opportunities in retail banking. Deloitte, 2012
- Europe’s Financially Excluded Unmasked in New Report, 2013
- Spent: Looking for change