A joint report by Citi and Imperial College London has shown the world is making progress toward a cashless society. However, there is reason for concern as the march has been slow and sporadic, a trend observed by the report despite efforts by NGOs, governments, and the private sector alike to promote digital money use.
Move to Digital Money Slow and Unsteady
The report, called the Digital Money Index, the fourth published thus far since its inception in 2014, ranks the “readiness” of 90 countries to adopt non-cash payments. It measures their readiness through the use of four distinct metrics: level of government and market support, financial and technology infrastructure, number of digital options, and the population’s propensity to adopt.
Citi claims that a digital money shift has the potential to transform economies by making payments faster, cheaper, safer and more transparent. However the report also shows only a two per cent shift towards digital money readiness. Even more telling is a widening gap between countries at the top of the index and those at the bottom regarding “readiness.”
Although countries at the top have seen an average improvement of three per cent over the past three years, those at the bottom have only seen a 0.5% rise over the same time period. On the other hand, even things at the top are not peachy-keen as both digital leaders and foot-draggers alike are struggling to bring unbanked and underbanked individuals into the digital fold. “Unbanked” means people who have no bank account whatsoever and “underbanked” are people who use alternative financial services outside of banks such as payday loan stores.
Weaning People Off Cash “No Trivial Matter”
Per the report’s foreword, there is a large amount of friction keeping many from adopting digital money. It says that while the efficiencies and cost savings to economies are “potentially staggering,” people are unwilling to make the switch because of millennia-old habits still embedded in many countries’ cultures.
The potential benefits of a digital revolution are numerous, the report noted, from combating corruption and making flows of money more transparent, to increased tax revenues — potentially by as much as $100 billion. There are so many benefits to transitioning from a cash based society to a digital one it’s a wonder why anyone is having trouble making the change at all.
But according to Citi, weaning people off physical cash is no trivial matter. Firstly, some countries lack the formal infrastructure to even support digital banking and financial services — countries categorized as “incipient” by the report. Secondly, another category of countries labeled “emerging countries” does have basic regulation and infrastructure, but also tends to have a large informal economy with a preference for cash.
Thus, technological barriers for incipient countries and sociological barriers for emerging countries exist for digital money adoption. These barriers exist in some shape or form in every one of these countries as the study shows more of a shuffling than shifting of countries in their comparative readiness to embrace digital money.
Where Banking Fails Cryptocurrencies Can Flourish
The one dominant bright spot of the report was the progress that India has made in its adoption of digital money substitutes of cash. Additionally, it saw its year-on-year score rise by almost 10% and its ranking jump nine places, thanks to a holistic approach that has seen advancements in regulation, infrastructure, solutions and adoption.
It also uncovered some other points of interest that provide a more optimistic outlook of the future. Mobile banking in India has increased by 125% between 2015 and 2016, along with some other significant changes such as wallet users increasing twofold during the same time.
Furthermore, where digital banking has failed to introduce cashless payments to developing countries, it’s possible that cryptocurrencies could prevail. This is especially true considering Bitcoin’s existing niche use case in the remittance market and the considerably smaller amount of infrastructure needed to use Bitcoin and other cryptos. In fact, It’s already gaining a foothold in these countries as it helps them avoid traditional gatekeepers like Western Union — freeing the poor from their expensive fees.
What do you think of Citigroup’s report? Do you think cryptocurrencies could help poorer countries move towards cashless payments? Let us know in the comments below.
Images Courtesy of Citigroup, International Remittance Advice, and Pinterest