The new generation of cashless societies
The 'cashless society' where all payments are digital, is fast becoming a reality. But what is a cashless society, and how can the disparate payment and collection needs of consumers, small businesses, corporations and public sector be accommodated?
Evolving payment cultures
A cashless society is not simply one in which coins and notes are replaced with electronic instruments, whether contactless cards, mobile wallet etc. but manual payment instruments such as cheques are also eliminated. Given that cash and cheques are used in different ways, the issue is therefore how to accommodate the wide variety of business cases for cash and cheques, and offer consumers, businesses and public sector entities the tools and confidence to 'go digital' in payments and collections. For example, while consumers increasingly welcome the ability to use more convenient and secure means of payment instead of cash, small owner-managed companies may be uncomfortable moving away from a handwritten signature on cheques.
There are also significant differences between countries and cultures. In Sweden, for example, many retail outlets no longer accept cash, whereas in Germany, 90 percent of consumers regularly use cash. Across Europe as a whole, according to a recent survey1, 21 percent rarely use cash and 78 per cent expect to reduce this further. Thirty four percent of consumers in the United States and 34 percent in Australia do not routinely carry cash.
In other parts of Asia, cash continues to predominate, not least due to a high proportion of the population that is unbanked. In China, for example, only 79 percent of the adult population have bank accounts, equivalent to 234 million adults who are unbanked, and 12 per cent of the world’s unbanked population. In India, only 53 percent of the adult population holds a bank account, but 58 per cent of these are unused, according to the World Bank's Global Findex. This illustrates that many parts of Asia face different challenges to developed markets that have a higher proportion of banked population, and therefore access to other payment tools such as debit and credit cards. Instead, banks, fintechs and regulators need to look at innovative ways to offer consumers and businesses with secure, convenient digital payment tools and boost financial inclusion.
Driving cashless societies in Asia
In many respects, parts of Asia have been pioneers and archetype for the shift towards cashless societies, even though each country has a very different starting point, and indeed different drivers of change.
China is the furthest advanced in adoption of digital payments, and in the way that payments have become an integral element of the mobile experience. Between 2014-2016, only a decade since it was established, Alipay (launched by online marketplace Alibaba Group and founder Jack Ma) was the largest mobile and online payments platform in the world, with 450 million users and control of just under half of China's online payment market. In 2017, WeChat Pay, an element of social media app WeChat, launched in 2011, overtook Alipay (source: Tencent) with 600 million WeChat Pay users. In 2016 alone, 3.2 billion red envelopes were sent over the Chinese New Year holiday via WeChat Pay, with 409,000 sent at midnight on Chinese New Year.
This revolution not only in technology but also payment habits, have been largely driven by private enterprise, while regulators have given these companies the space to innovate and grow. Rather than government putting pressure on payment users to move to cashless payments, users have a choice of payment methods, but are consciously opting for mobile payments, a testimony to the quality, convenience and security of the user experience.
As in other countries, it is taking longer for rural areas to embrace new technologies, but there is a gradual trickle-through effect as digital payments and collections become ubiquitous in urban centres.
India has also been a traditionally cash-intensive society, both amongst businesses and consumers, and to a large extent, this remains the case. However, while payment digitisation in China has been largely driven by the private sector, in India it is the government that has been proactive in creating the technology and culture change required. Although digital payment initiatives are at an earlier stage than those in China, the outlook is very positive, despite controversy over actions such as the abolition of high denomination notes.
According to a recent study, mobile payment volumes amongst consumers reached 20% in 2016 and are expected to top 57% by the 20222. IMPS (Immediate Payment Service), a mobile interbank payment service, in which DBS is an active participant, was launched in 2010. UPI (Unified Payment Interface), a mobile account transfer system, was built on IMPS, enabling users to transfer funds using virtual payment addresses rather than requiring full account details. These initiatives have been supported by robust authentication methods, such as biometric identification.
DBS is playing a leading role in the mobile payment, and mobile banking revolution in India. For example, in April 2016, DBS unveiled digibank, India's first mobile-only bank, which brings together a comprehensive suite of ground-breaking technology, from biometrics to artificial intelligence (AI), to deliver an entirely new experience of banking. For example, account opening can be done at an extensive network of DBS partner outlets, including cafes and retailers across India, without the need for paperwork. Instead, customer authentication is done purely using the Aadhaar card, a biometrics-enabled ID which has been issued to over 1 billion citizens in India, the world's largest biometric identification programme.
India also differs from China in that cheques are used extensively by businesses. While there is still more work to be done in encouraging digital payments amongst business users, electronic payment methods are growing rapidly, with more than a five-fold increase between 2011 and 20153.
"DBS continues to play an active role in promoting and enabling digital payments amongst businesses in India, from SMEs through to large corporations. For example, we have partnered with Tally Solutions, a leading accounting platform in India, to integrate digital payments. This allows single-click transmission, mobile approvals, easy payment tracking, instant advice to beneficiaries and industry-leading security, therefore providing businesses with the assurance and convenience that they require to move to digital payments."
Navinder Duggal, Group Head of Cash Product Management, DBS
Other Asian economies
Singapore and Hong Kong were amongst the world's most advanced economies in digital payments a decade ago. These cities have since fallen behind fast-developing countries such as China. A recent Monetary Authority of Singapore/ KPMG report noted that cash in circulation in Singapore is equivalent to 8.8 percent of GDP (compared to 4.4 percent in Australia and 2.12 percent in Sweden) while annual cheque usage is 12.7 cheques per person, per year (compared to 7.1 in Australia). This study estimates that the social cost of cash and cheques is around 0.5 percent of GDP, or around $2bn per year, largely attributed to the cost of securing cash (both in transit and storage) and processing cheques. However, the relative size of Singapore and Hong Kong, and the cultural acceptance of highly efficient digital payments means that these markets can move quickly. For example, Singapore’s FAST was one of the first instant payment solutions globally, and MAS is committed to ongoing innovation in the financial services sector in line with Singapore's Smart Nation objective. This includes, for example, support for mobile payment apps, including DBS’ PayLah! and a streamlined regulatory infrastructure for payments. Furthermore, banks, technology companies and the regulator are working together to develop a Central Addressing Scheme (CAS). This will allow FAST payments to be made using only a recipient's mobile number, NRIC number or Unique Entity Number, as opposed to having to request and maintain payee bank account information.
Major emerging economies in Asia, such as Indonesia, Malaysia and Taiwan are also witnessing good progress towards cashless societies in tandem with the growth of e-commerce and the use of e-wallets for transportation, food and beverages etc. This is particularly important for governments and civic authorities given rapid urbanisation in these countries, so we are likely to see concerted efforts towards digitisation to support the smart cities of the future.
Creating a cashless culture
Creating a cashless society relies not only on changing business and consumer attitudes in isolation, but on understanding the ecosystem as a whole. For example, if a consumer uses cash to make a purchase at a small retailer, the retailer has no choice other than to use cash to pay its suppliers and so on. Therefore, the first driver of cashless societies is to offer a convenient and attractive consumer offering, which will then 'trickle down' throughout the ecosystem.
The second driver is the need to understand and address the reasons why users prefer manual instruments such as cheques. While in some cases, this is an issue of personal preference and familiarity, which inevitably takes time to overcome, the priority for many businesses is not simply the efficiency and security of the payment itself, but also the quality of remittance information that accompanies the payment. Consequently, electronic payment solutions offer a viable and attractive alternative to cheques only if they are supported with high quality remittance information that allows payments to be identifies and reconciled easily, as DBS' partnership with Tally in India demonstrates.
Another hurdle is that a company that pays supplier invoices or salaries by cheque will not hold settlement instructions for their suppliers or employees, and the scale of the task to obtain this information is substantial, particularly as this information is not routinely included on invoices in many countries. Therefore, we expect to see more initiatives such as UPI in India, where virtual account details (such as mobile phone numbers) are used to identify the beneficiary.
While different countries are taking different pathways towards a cashless society, momentum continues to grow, as governments, banks and technology companies collaborate to create new digital paradigms for the exchange of value to increase financial inclusion, and enhance security, efficiency and transparency of payments.
"Banks such as DBS that bank the full ecosystem, from consumers through to small businesses and large corporations and public sector entities, are best-positioned both to understand and accommodate the needs of each participant. DBS continues to be at the forefront of initiatives to facilitate cashless societies, supporting frictionless trade and boosting economic growth."
Navinder Duggal, Group Head of Cash Product Management, DBS
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