The Global Journey from Cash to Cashless
Boosting Economic Growth and Advancing Financial Inclusion
Share of Non-Cash Payments
- Nearly Cashless
- Tipping Point
- Participating Countries
Even though much of the world's population has access to many different options for making payments without it, cash still persists. As a way of making payment, cash takes time to get at, is riskier to carry, and by some estimates, cash costs society as much as 1.5% of GDP. Electronic payments on the other hand have been proven to boost economic growth, while advancing financial inclusion. It is for these reasons that countries around the world are working to make their payment systems less dependent on cash.
The Cashless Journey Study helps to shape the conversation about consumer payment patterns across countries, around the globe. The information it provides has been designed to help understand the impact different factors, such as regulatory measures or financial inclusion initiatives can have on consumer payment patterns.
The cashless journey explores the evolution of consumer payment patterns in 33 countries from five regions, representing more than 85% of global GDP, taking in both developed and developing nations, using a single methodology.
SOURCE: MASTERCARD ADVISORS ANALYSIS, BIS CPSS, MCKINSEY GLOBAL PAYMENTS MAP, WORLD BANK STATISTICS
In examining consumer payment patterns around the world, we find that nations fall into one of four stages in their cashless journey. They are:
- Inception: Countries just beginning their cashless journey. Many of these countries are still building the infrastructure necessary to move away from cash.
- Transitioning: Countries at this stage have created the requisite infrastructure to go cashless, and are shifting share of consumer payments, often quite rapidly.
- Tipping Point: Countries at this stage of the journey have moved most large consumer payments to cashless methods, but significant use of cash may still persist at retail point of sale. They are at the point where consumer preferences will drive future share shift.
- Nearly Cashless: Countries at this final stage of the journey have moved the vast majority of the value of consumer payments to cashless methods. Many countries at this stage are seeing growth of use of cashless solutions for low value payments, such as PayPass.
United Arab Emirates
Kenya is one of the fastest changing markets of those included in the Cashless Journey Study, and much of this shift from cash to cashless has come as a result of innovation and uptake of new payment solutions. M-Pesa has allowed Kenyans of all income levels to use their mobile phones to make payments. By eliminating the need to have a bank account to go cashless, M-Pesa has provided Kenya with a "shortcut" to broader adoption of cashless payment methods.
- A high score for Trajectory indicates that cash share of the value of consumer payments in Kenya was significantly eroded between 2006 and 2011.
- A low score for Readiness indicates that many of the typical prerequisites for consumer shift away from cash for payment are not in place in Kenya.
- The fact that cash share shrank despite a low Readiness score suggests that other factors that are not observed in a typical cashless journey (such as technological innovation) are having a strong impact in Kenya.
United Arab Emirates
The United Arab Emirates is another interesting example of countries at the outset of their cashless journey taking steps to accelerate its progress. In the UAE, government initiatives are rapidly driving up rates of financial inclusion. By mandating electronic payment of wages through solutions like basic and inexpensive deposit accounts and payroll cards with debit payment functionality, the Emirati government massively increased the base of potential cashless payers in that country at the stroke of a pen.
- A rapid expansion of cashless payments in UAE can be seen in its high Trajectory score.
- With its similarly high score for Readiness, indicating most, if not all, of the typical prerequisites for going cashless are in place, this rapid movement to cashless should be expected to continue in the coming years.
- Many of the initiatives we see driving change in UAE today are quite recent, so we would expect the cashless journey to be moving even faster in the next 2-3 years.
Brazil offers an instructive example of countries in the Transitioning segment. As one of the fastest growing economies in the world, rapid urbanisation and a fast growing middle class are driving changes to consumer payment patterns at all income levels. Brazil has the infrastructure in place for continued expansion of consumer cashless payments, however accelerating this change will require an ongoing commitment to consumer education among payments providers, a similar commitment to financial inclusion from banks and government.
- A higher than average Trajectory score suggest that cashless share of the value of consumer payments shifted observably between 2006 and 2011.
- Key obstacles to going cashless in Brazil include financial inclusion levels and a large informal economy.
- Overcoming these obstacles will require expansion of acceptance to smaller merchants and ongoing communication of the benefits of electronic payments to merchants and consumers.
Germany offers an example of countries whose cashless journeys we are describing as being at a "Tipping Point", or the point at which consumer adoption will drive the move to cashless. Germany has state-of-the-art payment systems in place for consumers, and its Readiness score suggests that there are no macro-economic barriers to broader adoption of cashless payments, however the cashless journey in Germany appears to have stalled, as indicated by its low Trajectory score. Germans' preference for using cash at point-of-sale is well documented, and primary research suggests that much of this has to do with custom and habit.
- Research into the underlying factors that drive this behaviour can help to shape new solutions specific to the needs of German consumers.
- Education initiatives on the benefits of paying electronically may help to spur a shift in consumer behaviour.
Australia offers an example where all participants in the payments industry have invested in the requisite infrastructure to ensure optimal solutions for consumers. With a Readiness score among the highest of all countries studied, there are no roadblocks on the final miles of Australia's cashless journey. The vast majority of the value of consumer payments has already gone cashless in Australia, and cash is now rarely used for high value consumer payments. Because of this success, Australia's low Trajectory score now reflects how further reductions to cash share are coming slowly, through the adoption of cashless solutions for low value payments.
- Cash accounts for a relatively small portion of the value of transactions, but still accounts for a majority of the volume (or number) of transactions, suggesting solutions for high volume/low value payments are required to continue the cashless journey.
- Collaboration with merchants in accelerating the uptake of low value payments solutions like PayPass in Australia, and new pricing schemes will help to further accelerate this change.