T&T relies heavily on cash for transactions, but the need for contactless solutions due to the pandemic in conjunction with the improved safety, transparency and efficiency of cashless modalities are paving the way for a less-cash society.
This according to a recently-released report titled, “The Way Forward: Cash Transformation and the Digital Economy,” which was done by RBC Royal Bank in partnership with the Oxford Business Group which provides
in-depth analysis of the innovations underway across the country’s financial services sector and focuses on key data relating to T&T’s socio-economic landscape.
According to the report, the country’s fiscal, monetary and social response to the pandemic was swift and comprehensive, noting that $2.6 billion of liquidity was released into the commercial banking system as a result of these measures.
It also noted that the banking and service sectors responded with comprehensive measures to adapt to the new normal such as the reduction of in-branch transactions and the promotion of digital platforms for all non-cash transactions.
Further, the report also noted that together, ATMs, call centres, and online or mobile platforms were able to view account balances, transaction history, and personal or business credit card account information, send money to RBC and other local banks, make bill payments, send domestic and international wire transfers. According to the report, the transition away from a cash-based economy is gradual, but the pandemic has helped to accelerate the process.
It noted that 21 per cent of the population was unbanked and relied on cash transactions to purchase goods and services in 2020.
It also noted that the value of card transactions only accounted for 14 per cent of GDP in 2018, adding that many smaller businesses do not have the technology to process card payments.
However, the report said that while T&T’s fintech ecosystem is still nascent, important steps are being taken to boost awareness among the population of the benefits of digitalising transactions.
For instance, it said digital transactions using chip and PIN, tap and two-factor authentication have helped reduce the population’s cybersecurity concerns.
Additionally, one key driver going forwards is likely to be the adoption of digital payments by the public sector as several ministries are in the process of doing so, including the Ministry of Works and Transport and the Ministry of Finance.
Further, additional policy backing from international institutions such as the Development Bank of Latin America are also helping to drive the agenda ahead. The report also advised that a broad set of policies from diverse actors are crucial to further boost digital adoption in the economy.
It also urged that attention must be paid to the equitable distribution and access of digital services, adding that continuous improvement of broadband access and mobile phone penetration will ensure all citizens enjoy the benefits of a digital economy.
Moreover, it said incentives and support for small and medium-sized enterprises is crucial to ensure this segment can transition alongside larger corporations.
“Customers’ expectations have drastically changed with the advent of new technologies and the global nature of economic trade. Banks and fintech firms will continue to see stiffer competition as customers demand real-time services and online platforms that are secure and easy-to-use,” the report said.
Deverson Warner, director of cash transformation, Caribbean Banking, RBC said electronic transactions enable faster, more convenient and easier reconciliation when compared to cash transactions, adding that there is greater transparency in terms of tracking and, as a result, increased accountability.
“Consumers and businesses also have greater security since there is no handling, storing or exchanging of bulky physical banknotes, especially for larger transactions,” he said.
Furthermore, Warner explained, if security is breached, electronic funds are easier to recover than cash, noting that businesses can now operate 24/7 with less administrative costs due to digital transactions. Switching from cash to cashless payments is also better for the environment.
According to Warner mining and transporting coins emits CO2, while the manufacture of polymer and traditional banknotes release CO2 into the atmosphere.
The move to a cashless society, he added, helps businesses conduct transactions in a safer, less risky and more environmentally friendly manner, resulting in higher customer satisfaction.
Warner also noted that since the onset of the COVID-19, consumers have increasingly shown a preference for convenient and contactless payment options.
He explained that significant growth in online purchases for essential goods is driving more customers to demand businesses across all sectors have an e-commerce component for contactless transactions.
“Indeed, the pandemic has accelerated the use of electronic payment solutions and reignited the debate over a cashless society, or at least a less-cash society.
“Alongside more and more consumers wanting fast and convenient payment solutions, governments and regulators are seeking to drive financial inclusion and reduce cash usage with the help of innovative non-bank payment and transaction service providers such as WiPay and MasterCard’s Bank in a Box,” he further explained.
On the drawbacks of a cash-based society, Warner said cash carries a cost that affects individuals, businesses and governments.
For instance, he said individuals who do not use a payment card or service may pay more for their cash transactions with extra fees and travel costs.
They are also more vulnerable since having cash in hand makes them susceptible to theft.
Warner said businesses handling and depositing cash attract two inescapable costs— time and money. He explained that human resources are required to prepare the cash register, reconcile cash payments and prepare the deposit at the end of day.
Also, depending on the size and type of business, security may be required. According to Warner theft and human error have been estimated to be responsible for losses of four to five per cent of sales in some industries.
In addition, he said as more retailers realise the benefits of customer data, they are seeing first-hand that cash does not facilitate the capture of consumer behaviour data. According to a study published in May 2016 by credit company MasterCard, excess dependence on cash transactions in the economies of both T&T and Jamaica was slowing economic growth by stimulating informality, increasing fraudulent activities and limiting financial inclusion.
The study, titled “Evaluating the Social Cost of Cash” by Friedrich Schneider of the Johannes Kepler.
University Linz in Austria, argued that the T&T economy could grow by an additional 3.5 per cent if the country increased its electronic payments by 30 per cent over a four-year period.
It added that while cash was once a positive driver of economic growth, it has now become a constraint and generates additional costs.