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Cash's lockdown hurts financial inclusion

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Since the start of the pandemic, businesses around the world have drastically changed their operations to protect employees and customers. One significant pivot is discouraging the use of cash in favor of digital and contactless payment methods.

On the surface, moving away from cash seems like the safe, obvious thing to do to curb the spread of the virus. Also, the idea of zooming toward an innovative, digital-first, cashless society is indeed compelling.

However, going completely cashless may lead to some unintended consequences. The world has been forced online, causing a surge in e-commerce with online sales seeing a 45% increase in Q2 of 2020. From PPRO’s transaction engine, we’ve seen online purchases across the globe increase dramatically in 2020: E-commerc purchases of women’s clothing are up 311%, food and beverage by 285%, and health care and cosmetics by 160%.

Alongside a shift to online shopping, 46% of Americans have turned to cashless payments in the wake of COVID-19. And this U.S. figure reflects a global trend. For example, cash transactions have dropped by over 50% in the U.K. since the outbreak. In Italy, the volume of cashless transactions has skyrocketed by more than 80%.

Pre-pandemic, there was resistance to digital and contactless payments in the U.S.; just 3% of card transactions in the U.S. were contactless in 2018, versus around 64% in the U.K. and up to 96% in South Korea. Now, however, merchants and consumers in the U.S. have adopted a digital-first mindset.

Many U.S. merchants have upgraded payment terminals to accept contactless cards or digital payments – like Apple Pay and Google Pay – to avoid potentially unhygienic cash. CVS recently announced the addition of contactless payments PayPal and Venmo via QR codes across 8,000 U.S. locations. This digital form of payment is already wildly popular in other regions like Asia, where e-wallets like Alipay and WeChat Pay make up 46% of all online transactions.

Early into the pandemic, China implemented new strategies regarding physical currency to curb the spread of the virus. Banks were forced to withdraw potentially infected cash from circulation and ordered to either destroy it or disinfect it for 14 days before it could return to the market.

More recently, the U.S. has faced a coin shortage. The U.S. Mint, which produces coins, has been working at a limited capacity to ensure the safety of its employees. Combined with consumers avoiding exchanging at banks and brick-and-mortar stores, the U.S. expects a monthly gap of 2.3 billion to 3.5 billion coins for the rest of the year. This shortage has forced many retailers to limit payments to either contactless methods, cards, or in some cases, exact change.

Even before the pandemic, people around the world were leaning toward a preference for digital payments. Indeed, 53% of US and 45% of UK consumersbelieve cash will be a thing of the past in the next five years.

Yet, while COVID-19 has seemingly propelled the world into a digital age and left cash in the rear view, there are large ramifications of going completely cashless. Many consumers in underbanked regions still rely on cash in their daily lives.

We must take into consideration how removing cash could disenfranchise over a quarter of our society; 26% of the global population doesn’t have a bank account.

Across Latin America, 38% of shoppers are unbanked, and nearly one in five online transactions are completed with cash. In Africa and the Middle East, only 50% of consumers are banked, and 12% have access to a credit card. In countries like Kenya, where more consumers have a smartphone (60%) than a bank account (56%), the prospect of an outright ban on cash payments restricts access to the global economy. Even here in the U.S., approximately 6.5% of U.S. households (14.1 million adults and 6.4 million children) are unbanked, exposing a large number of consumers affected by any ban on cash.

Many consumers around the world rely on cash-based payments, even when shopping online. At the checkout page, consumers are provided with a barcode for their order. They take this barcode (either printed or on their mobile device) to a local convenience store or bank and pay in cash. At that point, the goods are shipped.

Cashless protocols not only restrict access to goods and services for consumers but also limit revenue opportunity for merchants. While 2020 has provided the global economy with one great reason to reduce the acceptance of cash, the payments industry has billions of reasons to offer multiple options that cater to the needs of every kind of shopper around the world.

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Cash Digital payments Financial inclusion Latin America Africa
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