The Digitalisation of Cash: Key Impacts on the Developing World

Economics, Quick Reads
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Development in the third world is rarely incremental. Instead, countries are often able to skip a stage in the course of development usually taken by an economically advanced nation. A good example is the telecommunications industry in Nigeria. As of March 2020, there were 189 million active subscribers to mobile phone service providers, equating to 93% of Nigeria’s population.  At the same time, just 107,491 active subscribers were registered to fixed landline providers, or 0.05% of the population. In the United Kingdom, the picture is very different. As of September 2019, there were 31.7 million fixed landlines, equating to 48% of the population. Nigeria has largely skipped landline phones altogether, and instead is now almost wholly reliant on mobile phones.

The same principle can be applied to the banking systems of India. Before 2016, a large proportion of the population had no bank account whatsoever, and furthermore many accounts were inactive. Cash was king, but this was all to change. In April of 2016, the National Payments Corporation of India introduced the Unified Payments Interface (UPI), an instantaneous inter-bank payment system, allowing Indians to send money across the country completely free. The service is now used by 155 banks, making the market fiercely competitive, much like that of the challenger banks in Europe. India has revolutionised its financial system. Of India’s population aged 15 and over, 80% are registered to a bank account. That is 13% above the world average. Despite the effects of coronavirus, in May of this year alone official figures show 1.23bn electronic payments were made. Saurabh Tripathi of the Boston Consulting Group predicts that UPI will account for 59% of transactions by volume within two years. The aim of all this? Financial inclusion. Bringing all those without active bank accounts into the financial system is a crucial step in India’s development in growing the formal economy.

Given the success of India’s domestic system, it has been hinted that the National Payments Corporation could internationalise the system, to help facilitate the remittances of ex-patriate migrant workers, of which India has over 25 million. The World Bank estimates that it costs a global average of $14 to send $200 to the worker’s native country. These payments are rarely instant. If India were able to make these payments immediate, and reduce fees, it is thought remittance payments would increase dramatically, as would the attraction of working abroad. India is already the greatest recipient of remittances in the world, totalling US$79.5bn in 2018. The NPCI is currently in talks to bring the UPI system to the United Arab Emirates and Singapore, both of which host large populations of Indian migrant workers.

Digital payments and high mobile phone penetration have also given rise to a small revolution in Kenya’s agricultural industry. Cellulant, one of Africa’s largest digital payment service providers, launched Agrikore last year. The service connects smallholder farmers with large commercial customers through a digital platform, operated from a mobile phone. First, a catalogue of available produce is created and distributed to potential buyers. Once an order is placed, an algorithm splits the request by capacity and proximity to the buyer. Farmers are notified by message and are requested to prepare a certain volume of product, to be ready at a certain time, at a certain price. If a farmer accepts the offer, transport and quality checks are automatically arranged all through the same platform. All payments are made via the Cellulant digital wallet. The modernising of Africa’s agricultural industry, set to be worth US$1trn by 2050, addresses three problems that have long held back Africa’s development, says Cellulant’s co-founder: low productivity, poor access to buyers and opaque pricing. Agrikore attempts to break down all three barriers using Cellulant’s tried and tested technology to let rural communities reap the benefits of increased connectivity.

Globally, 1.7bn adults still lack a bank account. The World Bank has repeatedly described financial inclusion as a significant obstacle towards the eradication of poverty and has launched initiatives to lower the unbanked population. For the companies behind these transformative systems, the sky is the limit. Take Pakistan, home to one of the largest unbanked populations in the world.  Just 21% of adults are thought to have bank accounts, leaving 100 million unbanked. Remittances from Pakistan’s large diaspora communities amounted to US$15bn in 2017. By taking lead from India, Pakistan could bring about change to the financial system to improve the quality of life enjoyed by citizens, and particularly the families of migrant workers. Moreover, Pakistan’s large agricultural sector could adopt a similar system to the one employed in Kenya, enabling it to push development even to the most rural parts of the country. While the switch from cash to digital payment services is by no means a cure for poverty, it represents an unprecedented opportunity to connect a population financially, which in turn can be used as a platform to address social and economic challenges. In November of 2019, Google wrote to the United States Federal Reserve, encouraging it to consider a system similar to India’s. This time, it seems the West is playing catch up.

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