Over the last decade, the world has gone digital. Communications, entertainment and commerce have moved online—bringing significant benefits to consumers, businesses and economies.
In this new digital society, payments are more important than ever—providing the foundation for new experiences and business models. With this explosion of connectivity, digital payments are growing exponentially as well.
It took 60 years for Visa to reach 3 billion accounts, but we’re now on the cusp of a true revolution that will see this number explode. Hundreds of millions of new connected devices are coming online and they’re all ways to pay or be paid. The Internet of Things is expected to reach 20 billion devices by 2020 and these connected devices will be able to facilitate a range of commercial experiences, including payments.
However, alongside the digitization of commerce and payments, cash continues to play a large role in certain sectors and markets around the world, which could potentially hinder economic growth in these communities and industries.
To better understand the impact cash can really have on economic growth, Visa commissioned economics consulting and research firm, Roubini ThoughtLab, to analyze the use, acceptance and cost-benefit impact of physical versus digital money in 100 cities across the world. “Cashless Cities: Realizing the Benefits of Digital Payments” is a unique study that quantifies the net benefits that cities, their residents and businesses could realize by significantly increasing the use of digital payments.
The study demonstrates that economies that are moving toward digital payments and away from cash, could benefit substantially. The study estimates that reaching an “achievable level of cashlessness”—defined as the entire population moving to digital payment usage equal to top 10 percent of users in that city today—across the 100 cities examined, could result in total direct net benefits of up to US$470 billion per year. These benefits are derived from many factors, ranging from time savings among consumers from cash-related activities, to increased sales revenues among businesses, to reduced government administrative costs.
There are many instances where cash is more costly than digital payments. The study found that cash and checks cost businesses 7.1 cents of every dollar received compared to 5 cents of every dollar collected from digital sources.
Unbanked consumers across the 100 cities spend an average $7 to $15 a month on cash withdrawal activities like check cashing. By reducing their reliance on cash, each unbanked consumer could save an estimated $84 to $180 per year, on average. Furthermore, the study shows the greater adoption of digital payments could lead to a reduction in cash-related crime, which benefits not just consumers, but also governments by reducing criminal justice costs.
The shift to digital payments could also have a catalytic effect on the city’s overall economic performance, including GDP, employment, wage and productivity growth. The study predicts the combination of greater economic activity, lower crime and greater ease of living could make these cities more attractive to businesses, talent and tourists.
We’ve seen what immediate and long-term benefits could stem from the greater adoption of digital payments. So, what now? What can cities and governments do to help usher in a more cashless future? The study sets out 61 actions in a detailed roadmap for policy makers. Here are just five immediate and actionable steps they can consider taking to reduce cash reliance:
- Undertake targeted financial literacy programs to help welcome the unbanked into the banking system and offer secure digital payment solutions for government benefits to those who do not have bank cards
- Phase out cash and check payments to and from the government by adopting an all-electronic payment and disbursement system, meaning all government benefits, relief funds, tax disbursements, collection and other payments made to and from government institutions are shifted to digital format
- Promote a clear, innovation-friendly regulation framework
- Ensure that digital payments are a key component to all “smart city” plans and strategies
- Implement secure open-loop payment systems across all transportation networks
The report is also supplemented by an online data visualization tool, which can be used to explore the benefits of a more cashless world.
From mobile payments using scanned codes to cards using biometric authentication, billions of connected devices such as smartphones, watches, cars and fitness trackers are now able to send (and receive) payments. The data shows that as communities and cities become less reliant on cash and better equipped to offer fully digital payment experiences, their businesses and economies could grow, allowing their populations to benefit and thrive.