One of the projects we have been working on for a client involves looking at the relationship between cash and electronic payments in different markets. It’s not germane why or what we concluded, but I would like to open up some discussion around the topic. If you look at (for example) the US figures, you do see growth of e-payments at the expense of cash.
…the increase in the number of card payments (47 billion) and ACH transactions (13 billion) overcompensated by far the decrease in check payments (19 billion). Some of this growth may be due to Americans replacing cash payments with electronic instruments. This is suggested by the fact that debit and prepaid cards showed the strongest growth among electronic payment instruments and they are predominantly used for the same purpose as cash payments, i.e. smaller-value POS transactions.[From Deutsche Bank Chart in focus]
Deutsche Bank go on to conclude that
…a growing preference for electronic payments as an alternative to cash payments is not the sole driver of cashless payment growth. Changes in population, economic activity and regulation are also likely to influence transaction numbers.[From Deutsche Bank Chart in focus]
I think that the “economic activity” category deserves more attention. You can see the effect more clearly in a country such as Kenya, where for most people there are only two payment choices: cash or M-PESA. A raft of economic activity is now floating on the M-PESA river of money, businesses that simply could not exist in a cash-only economy, so it is always interesting to try and understand why. The Journal of Payment Strategy & Systems had their Autumn issue dedicated to financial inclusion issues under the guest editorship of my old chum Kosta Peric from the Gates Foundation. It’s a good read for any of you interested in the topic, but I particularly want to draw your attention to the paper ‘The Unbearable Lightness of Digital Money” by Gianluca Iazzolino and Nambuwani Wasike from the Centre of African Studies in the School of Social and Political Sciences at the University of Edinburgh and the Financial Sector Deepening Trust in Nairobi.
I found their approach to understanding the social, cultural and economic factors around electronic money uptake and their view that a “rational calculative approach” is not adequate to understand people’s decision making (something I learned back in the days of Mondex). One clear message from their work is that different groups will have different reasons for wanting to shift from cash to digital alternatives. One man that they quote, for example, came up with a very specific use case that I’m sure we can all understand.
If you go drinking, it’s better to use M-PESA because it’s safer. Maybe you get drunk and lose your money. If you find yourself unable to dial the number, it means that it’s time for you to go home.
This kind of non-rational, non-calculative approach helps to explain the dynamic in the country, where mobile money is replacing cash but cards are not. Central Bank of Kenya statistics show a decline in the use of credit and debit cards, despite the number of Kenyans holding them rising. There are more than ten million debit cards in Kenya (and around 160,000+ credit cards), but only four per cent of Kenyans use credit and debit cards for shopping.
Electronic payments in Kenya are developing rapidly. Iazzolino and Wasike point to the approach of cashlessness in Kenya, highlighting the example of a local entrepreneur looking to expand his retail operations.
Such is his confidence in the fact that digital payment will soon gain momentum that he is set to open a furniture shop in Karagita in the near future which will do without cash.
They finish by talking about the embedding of “financial devices” in social structures, remarking that “how cash, payment cards and mobile money are used and what they stand for are entwined issues”, using the case study of chama gatherings where people want to seen pooling money. I’ve just read Bill Maurer’s new book How would you like to pay? and this has further reinforced to me the need to think more about the social context of payments to help our clients evolve their strategies around retail payments. I was thinking that this might make a good discussion topic for Tomorrow’s Transactions 2016 (a date for your calendars: it will be 20th/21st April). What do you think?