A while back I came across an 1844 US penny. It was solid copper and, at 11 grams, weighed more than three times today’s copper-plated zinc models. Imagine what it must have been like to carry around a pocketful of such coins, each weighing 11 grams.
Today, in a world increasingly dominated by digital communications and payment options, metal coins continue to weigh down pockets and wallets while payments made with coins and paper currency burden the pace and efficiency of commerce worldwide.
Cash still accounts for 85% of consumer payment transactions globally; primarily for low- and moderate-value purchases and payments by unbanked and underbanked consumers. While faster in some countries and business sectors than others, however, the move away from cash is inevitable and has been accelerating in recent years. To understand why, consider the forces propelling it.
First, cash is cumbersome and it is expensive. As David Wolman, author of ‘The End of Money’– the 2012 work that considered a cashless future – told CBS News: “It’s really expensive to move it, store it, secure it, inspect it, shred it, redesign it, re-supply it, and round and round we go!” It costs more to make a US penny than it is worth, and the movement of cash can be a costly chore.
Overall, the cost of cash around the world accounts for 1.5% of global gross domestic product (GDP) according to recent studies by Tufts University’s Fletcher School in the US and Germany’s Steinbeis University Research Centre for Financial Services.
Plus, on an individual transaction basis, the costs associated with processing electronic payments are a fraction of those associated with cash payments.
Second, cash is risky. Cash is not only costly to produce, move and store, it is exceedingly difficult to protect. Unlike most cashless transactions conducted by card, mobile phone or e-commerce, cash has no memory.
As a bearer-negotiated instrument, it bears little data beyond the present holder of the transaction, making it a favorite currency of criminals and a key reason that banking regulators and financial institutions are so heavily invested in strong anti- money laundering (AML) and know-your-customer (KYC) procedures.
The digital infrastructure around electronic payments and bank transfers, on the other hand, deters money laundering and various other types of illegal transactions.
Third, cashless payments are flexible, efficient and, increasingly, preferred. The desire for security and convenience among businesses and consumers alike is shifting payment behaviours and preferences. As a result, the dominance of cash is fading in both developed and developing markets, as cashless payment alternatives become more pervasive. The most notable of these include payments via mobile devices, e-wallets, direct debits and bank transfers.
Mobile payments, in particular, are reshaping the consumer-to-business (C2B) payment landscape, albeit at different speeds in different markets. In the US, for instance, studies by Visa show that Americans are twice as likely to carry a mobile phone than cash. Americans between the ages of 18 and 34 are four times more likely. These statistics point to key drivers in the adoption of electronic and mobile payments in the US.
Some interesting oddities also have emerged among mobile payment trends. Paying for a taxi ride via mobile phone, for example, is now as easy in Nairobi as it is in New York, thanks to Kenya’s M-Pesa mobile-money system. Nearly a decade after its launch in 2007, the mobile payments platform has transformed economic interaction in Kenya. In 2013, 43% of the country’s GDP flowed through M-Pesa.
M-Pesa’s success in Kenya demonstrates how providers can impact adoption of mobile money services around the world. According to the Global Mobile Systems Association (GMSA), in 2014 alone more than 250 mobile money services were operating across 89 countries. That figure includes more than 60% of the world’s emerging economies.
Given the range of electronic payment options and opportunities for streamlining payment processes and systems, businesses looking to migrate from cash to electronic receivables should consult experienced service providers. These experts can lend valuable insights on cash-to-cashless options and help determine the “must haves” for a company’s e-commerce solution.
Here are the essential points to consider:
1. Keep it simple
While payment technologies and the tools to initiate transactions are evolving, electronic payments must remain simple and accessible for consumers and offer business flexibility, both now and in the future.
When evaluating electronic payments providers, assess:
· The solutions they currently offer and their plans for tomorrow, plus
· The marketing tools they deploy to help overcome potential barriers to electronic payment adoption.
2. Keep it secure
Security is paramount. Any e-commerce solution that is adopted must be agile and resistant to a wide and growing array of threats. No-one wants to experience identity theft or the immense energy required to clear the name and credit status of a payer. Trust, confidence and provider experience are essential for any e-receivables system.
Therefore, it is critial to evaluate the e-commerce and mobile payments security initiatives that the provider deploys today and plans to deploy tomorrow, in addition to its AML safeguards.
3. Build it right
Ensure that the e-payments solutions being considered are robust enough to handle huge transaction loads. What’s more, the processing technology must ensure that transactions are fast, efficient, and accurate. Every transaction, regardless of size, should be traceable and retrievable.
Businesses also need to consider the region and country of their payers. Offering a limited but locally desirable payment method might be the best solution for sending the message, for example, that a business is in touch with payers’ payment challenges and want the payment process to be accessible and simple.
Ask providers about:
• Their track record of successful e-receivables systems implementations,
• The scope and strength of their local, regional and global reach, and
• Their transaction reporting offerings and capabilities.
Cash as a payment instrument is in decline and it has some time to go before it will be insignificant. Yet what was once insignifcant but has now become more significant is the expense of monitoring, managing and protecting cash as a payment instrument.
Regional demographics and payment behaviors, along with easy access to e-commerce tools, are driving e-commerce solutions from emerging to ordinary. While moving at different speeds in different markets, e-payments are quickly taking flight on a global scale.
Electronic payment alternatives, which are significantly cheaper to process than cash or cheques, are becoming virtually ubiquitous.
Having an experienced banking partner who can address specific business and marketplace needs is key to making the right choices today, for a more successful cashless receivables portfolio tomorrow.
The time to prepare for the increasing adoption of electronic payments transactions is now.
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