Despite the advances in electronic payments, the lion's share of transactions are still executed in cash. By some estimates this represents 85% of global transactions. A majority of global citizens do not have bank accounts and do not have a way of transacting electronically. Even in some developed gulf countries with modern banking infrastructure the number is significant.

Some people still like the sound of notes rustling in large wads or the smell of old paper notes – not us. Give us the convenience, traceability and easy accounting of electronic money. Paper cash does not fit in the digital economy. Not that long ago transactions were only executed face-to-face. That is no longer true.

People want the convenience of transacting with whom they want, when they want, even when they are not physically present to complete the transaction. The data below is from the world payments report and the UAE monthly monetary survey (2016).

Most transactions globally still happen in cash

 

The use of cash presents several challenges for all stakeholders in the payment system. The stakeholders most impacted are governments, consumers, and merchants. Governments have several reasons to fear cash. The reasons range from the cost of cash to the anonymous nature of cash. These factors have a trickle-down impact of the economy. Cash is expensive to print, secure and transport. That cost of generating cash is borne directly by governments, while the cost of handling, securing, and transporting cash is borne by all participants. Cash by its nature is not traceable. Governments have no visibility into transaction flows when cash is used.

Often, cash is used to evade paying taxes, or conduct nefarious transactions. At times these nefarious transactions could have a security impact ranging from money laundering to terrorist finan cing. Additionally, governments are losing out of a potentially large income stream by facilitate electronic transactions directly.

Recently many governments have invested significantly in domestic switching infrastructure to process domestic ATM transactions. These investments in payment infrastructure could be used to drive innovations in cash.


4 Letter Word

Cash has it's challenges, while still prevalent its not designed for todays World

 

Stakeholder View

Key challenges of cash

 
 

Central Bank View: At the heart of this ecosystem are central banks. They have been tasked with the mammoth challenge of keeping economies running and managing risks. The operational burden of managing cash is a distraction and a cost they would rather not have to deal with.

At the same time, central banks need to set the tone through regulations and regulatory frameworks.

The two greatest challenges for central banks today are relevance and managing risk. Governments are also concerned about cost, revenue and security.

 

Bank View: Banks continually participate in transactions with each other. Such transactions have to be recorded in each system and then reconciled. Settlement between banks can be costly and time consuming. Delays in settlement may further delay the ability of banks to settle. Banks still rely on transfer services such as RTGS and SWIFT.

 

Unbanked customer view: Unbanked customers have been fully excluded from electronic payments. Mobile money helped ease some of that burden and allowed unbanked citizens to conduct electronic transactions. However, these have their own challenges including the fact that they are costly and unregulated. Cash as it is designed today does not allow digital transactions.

 

Underbanked/ banked customer view: While banked and underbanked individuals have access to financial services and electronic transactions they are not without concerns. Underbanked individuals generally have access to atleast a debit account. Many times, this is driven by regulatory mandates. However they continue to be concerned about account security and exposing their bank accounts. Additionally, they have no way of transacting with unbanked customers other than cash.