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The benefits of a cashless world

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Photo by Jonas Leupe

Money as a concept is almost as old as human civilization. Out of all the items commonly found in any individual’s pocket, cash is easily the one thing that has been in use for thousands of years. For good reason: money is portable, easily transferable, and it does its job of acting as storage of value quite well.

But times are changing. The Bangko Sentral ng Pilipinas (BSP) recently signed a memorandum of agreement with the Philippine Payments Management, Inc. with the aim of establishing the required infrastructure for a new retail payment system that would promote the use of cashless transactions in the country.

The new national retail payment system framework could see financial transactions in the Philippines transition from cash and check-based payments to electronic fund transfers and e-wallet disbursements. Another goal is the broadening of financial inclusion through the coverage of more unbanked and underserved areas through alternative and cheaper avenues for settlements. Cash, it seems, is due for an update.

Cashless and electronic transactions, which are increasingly becoming the norm in the Western world, present a massive opportunity for the continued growth of the Philippine economy. Mainly, these opportunities lie in the reduction of costs and the improvement of security of the exchange of goods and services.

But as of the most recent estimates by the BSP, the volume and value of electronic payments in the country make up a ‘negligible’ one percent of all financial transfers. The BSP hopes to raise that number to as much as 20% by 2020 through the new system.

According to a 2017 study published by Visa titled “Cashless Cities: Realizing the Benefits of Digital Payments”, Manila could stand to gain as much as $8.6 billion through the adoption of a cashless payment system.

The report, which analyzes the use, acceptance and cost-benefit impact of physical versus digital money in 100 cities all over the world, estimated that increasing digital payments across the 100 cities could result in total direct net benefits of US$470 billion per year.

“Consumers across the 100 cities currently spend an average of 32 hours a year — nearly a full work week — on cash-related payment activities,” Visa wrote in the report.

“Greater adoption of digital payments is estimated to reduce this figure to 24 hours a year, saving consumers in the 100 cities an average of over $126 million per year. When other benefits of digital payments are taken into account, such as reduction in cash-related crime, these savings could increase to $278 million per city, equivalent to about $67 per adult per year.”

For Manila, these benefits translate into a further $2.5 billion in business revenues, $11.6 billion in savings due to less paper processes, and about $100 million in time saved for consumers.

“From handling invoices and receipts to counting and transporting cash, businesses spend a huge amount of time processing paper. Digital payments, such as contactless cards and e-documents, create significant savings by handling these tasks in far less time,” Visa wrote.

The government could also potentially gain an additional $300 million in increased revenues due to higher sales, as well as $900 million in savings due to cheaper digital payment systems.

Visa has previously revealed its interest in increasing its presence in the Philippines by offering new and more affordable means of cashless transactions tailored towards the country’s unbanked sectors.

“We think electronic payments is good for the economy. It’s good for people. If you bring it down for the people, it’s great because it’s convenient, it’s more secure and it’s a great way to manage your budget,” Visa Country Manager for the Philippines and Guam Stuart Tomlinson had told BusinessWorld. 

He noted that for this to happen, however, there needs to be a change in the perception of the mass market towards electronic payments and the financial technology industry.

“If we think about a country like the Philippines, we’ve got hundreds and millions of small businesses… so we’re sort of developing innovative ways to try and make cost of acceptance much lower for both the bank and the merchant. So basically, on our innovation front, we’re turning the cellphone into an acceptance device,” he said.

“When you get down to that sort of mass market, they want ease and convenience so we try to build innovative use cases around using the mobile phone for electronic payments… We’re working on this with the central bank, we’re working on this with our clients — which are the banks and the telcos — tempering new and innovative technologies to make them cheaper, easier and more convenient for the consumer, for the infra[structure] plans, which are the banks, and for us, Visa, because we’re the network so we can help sort of promote the thinking, innovation and technology,” Mr. Tomlinson said. — Bjorn Biel M. Beltran