With brick and mortar retailers increasingly getting their lunch eaten by e-commerce, blockchain looming and cryptocurrencies in the news daily, change has become the new normal for businesses globally. Cashless payments are becoming the new norm across Asia and Africa, and SMEs, merchants and others have to follow suit or get left behind by consumers.
Cash has a huge cost for the economy, government and consumers as well as businesses. Singapore alone spends upwards of $2 billion in managing cash and cheques annually. Cashless payments, also known as ‘going cashless’ are rising rapidly in popularity in Asia, in China particularly. So it is key for SME owners to understand what this trend means. Traditionally, payments are made using payment instruments such as cash and cheques. Cashless payments are not one instrument but rather an umbrella term applied to a range of different instruments used in different ways. There are various types of digital payment that enable cashless purchases for consumers;
- Internet banking
- Electronic fund transfers
- Electronic cash systems
- Online stored value systems
Globally more than $1 billion is being processed by the mobile money industry each day according to the GSMA. Paying for goods and services via cashless payment is being adopted at different rates across the globe. Adopting cashless payments is seen to be costly especially for SMEs and in many countries, unlike China, cashless payments have not yet become a part of everyday life. In Sub Saharan Africa, mobile money and subsequently cashless payments are becoming the norm. MTN, the largest MNO in Africa is planning an IPO in Ghana where it has over 10 million active mobile money accounts. In fact, MTN is so enamoured with mobile money they are letting prospective investors buy shares in their recently announced IPO with mobile money.
Part of their strong engagement can be attributed to the strong strategic partnerships they formed with SMEs, merchants (satellite TV and utility providers) and others to make sure that customer is able to gain more value instead of just POS payments. These partnerships give their customers and merchants more incentive to engage. Outside of China, Indonesia is the rising star of South East Asia due to a combination of the size of the market, a rising middle class, increased connectivity, and mobile phone saturation. Another factor that makes Indonesia an attractive prospect for e-payments is the relatively small proportion of banked adults in the country, with approximately only 35% considered banked. This high proportion of unbanked peoples makes the introduction of mobile financial services and e-payments an attractive prospect as an alternative to traditional pathways to financial inclusion.
Increasing Value and Decreasing Costs for SMEs
Looking at the bottom-line, what does this mean for SMEs? The costs of adopting e-payments rank high among reasons cash is still preferred by many SMEs but how long can this last? For merchants, fees charged by credit card companies are a key drawback to adopting cashless payments. A typical transaction fee of about 3% is imposed on merchants for accepting Visa and MasterCard payments. Another reason for the relatively slow uptake of cashless payments is partly due to supposed security concerns. Cash is already pretty much dead in China as the country lives the future with mobile pay with mainland Chinese stores and services are increasingly centred on mobile pay apps like WeChat Pay and Alipay.
It should be noted Chinese mobile payment volume was more than $6 trillion in 2017. However, the costs of operating these systems are decreasing and the friction between various players in the payments space decreasing. Governments, MNOs and other members of the payments ecosystem are increasingly working together on initiatives such as interoperability and strategic partnerships.
These types of actions are driving increased usage within users and making e-payments more attractive to non-users. We have reached a point where consumers have tipped the balance of power, so it is up to the business community ranging from SMEs, merchants, and larger retailers to provide the best experiences possible for customers. At the end of the day, every percentage point increase in cashless payments benefits everybody.