Eighty-five percent of the world”™s transactions are still in cash ”“”“ so it wouldn”™t appear that we are on the way to a cashless society. But cash is expensive, in terms of production costs and the time and effort spent to access it. Experts from MasterCard Worldwide, as well as an author and a researcher from Tufts University recently convened to talk about whether cash is on the way out, as well as virtual currencies and new frontiers in mobile payments.
One sign that the days of cash may be numbered is the growing use of debit cards. Carlos Menendez, MasterCard”™s group executive for global debit, said this year in the U.S., the amount of money spent using debit cards is projected to exceed the amount spent using credit cards for the first time. “This is because debit is subbing for cash,” he said. “People are more willing to use debit cards for 10- to 15- dollar purchases. We”™ve seen 10 to 12 percent growth yearly for the past four to five years in debit cards worldwide. Debit is bigger than credit worldwide.”
But cash is still bigger than both, with noncash transactions making up only 15 percent of transactions around the world. “In Russia, 93 percent of transactions are cash, that”™s also true for Mexico and the Mideast,” said Ann Cairns, MasterCard”™s president for international markets. “In the UAE it”™s 90 percent. It”™s a tremendous opportunity for us, but you can”™t just move in. If you”™re really going to replace cash some place, you have to understand how their economy operates.”
Giving Russia as an example, she said “Russians go to a hole-in-the-wall ATM, then cross the street to a kiosk to pay a bill. To come up with an electronic way for them to pay their bills would be very valuable.”
Cairns said making government payments electronic around the world, for example, would reduce the number of intermediaries necessary to process a payment and the costs associated with it, thus insuring that more money goes to the people who really need it.
She also said many Asian economies present opportunities for moving into the noncash world, “But we do see lower levels of adoption in places like Vietnam. Sometimes it”™s easier and cheaper to move into places like that and set up an infrastructure than change an existing one,” said Cairns, singling out sub-Saharan Africa as the region with the fewest noncash systems in place. “So when we go there, we use satellites instead of land lines.” Finally, giving a roundup of where things stand globally with regard to noncash systems, she said “e-commerce is huge in Asia and also prepaid cards loaded with money. Young people like them. Mexico, Venezuela, Brazil don”™t like cash. They like electronic payment for the Internet.”
Kenya is an example of a country where noncash transactions took hold easily and quickly. The mobile payment service there is called M-Pesa ”“”“ the “M” is for mobile and Pesa is Kiswahili for money ”“”“ run by a subsidiary of the telecom giant Vodafone. It is not a bank, but a service much like PayPal, though a user need not be connected to the Internet. David Wolman, one of the panelists at the MasterCard event, wrote in his book “The End of Money,” that the benefits of this service have been staggering to the people of Kenya. In that country, many workers send money home to families in more remote locations. They may spend two days on a bus to do it or pay someone else to. But with M-Pesa, all someone has to do is go to a local shop ”“”“ 23,000 are members of the network of M-Pesa agents ”“”“ hand over the cash they want to convert and send, and then type in the appropriate codes on a cell phone. The recipient gets a text saying that money has been flashed to his/her account and then goes to a local shop to redeem the cash.
In the U.S., a top priority for the government with regard to going cashless is ending the use of paper checks to pay benefits of various types. Walt Henderson, the director of the EFT (Electronic Funds Transfer) strategy division at the Treasury, said at the conference that the move from paper checks “is going well. The aim is for them to be gone by March 1, 2013. From 11 million benefit checks we”™re down to 6.8 million, and they”™re going to be a tough group. We”™ve been picking the low-hanging fruit for a long time. But a government check takes a dollar to produce, an electronic transaction costs 10 cents. That”™s a billion dollars in savings for the taxpayer over 10 years.”
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