As individuals and businesses move quickly to digital payments and move away from cash, a big question arises. If the switch to cashless hurts so much, who is responsible for ensuring that innovation does not come at the expense of inclusion?
Several stakeholders are involved. The Bank of England (BoE) regularly emphasizes the importance of financial inclusion. The BoE made this a key point of discussion with Sarah John, the chief cashier of the BoE, after a speech last year in which she said the future was “less money, but not without money. “
The BoE also reference financial inclusion in initiatives for central bank-backed digital currencies (CBDC) and cross-border payment services – although these are digitally focused programs and they seek to address the issue with digital services, not new ATMs or cash-based initiatives. An important distinction.
Card systems also play a role here. These programs increasingly recognize that they must protect the most vulnerable and their access to cash. In January, Visa launched a cash access program, which is all the more relevant today given the global pandemic.
Some programs also provide businesses with accessible card readers to reduce the expense of accepting digital payments, but the cost of transaction fees is typically higher than the cost of handling cash. This remains a major barrier to adoption, especially for micro and small traders.
FinTechs are playing an active role in solving the problem. A study by the Emerging Payments Association found that more than 60% of fintechwere working on some form of product or service to promote financial inclusion, either directly or indirectly, for example as part of an industry partnership.
Examples of this can be found in digital banks offering physical cards with ATM support and compatibility with contactless ATMs that allow consumers to quickly collect money with just one click. Also there are light banking products such as prepaid cards that allow users without a full bank account to access banking services.
However, a glaring absence in the fight for financial inclusion and the balanced approach to no cash is government.
The Chancellor pledged to protect access to cash in the spring 2020 budget. But that was before the impact of COVID was fully understood.
Since then, the government has actively encouraged citizens to pay digitally wherever possible, both in public service hardware and by allowing the contactless limit to increase to £ 45 (US $ 60).
As a result, the government’s position on cash is unclear and, on the contrary, it is currently promoting the lack of cash without a clear plan on how to tackle financial exclusion. And it remains to be seen whether the promise of the spring budget still holds.
While industry can help, it needs to be empowered or encouraged to do so. For many actors, the lack of cash presents an economic benefit that will outweigh the needs of those most affected by the lack of access.
Countries like Sweden have successfully implemented cashless programs led by their respective governments. But the UK government’s response has been too reactive. There is a promise to protect access to species, but broader government actions during the pandemic say otherwise. By sporadically making promises and introducing new rules, the government has reacted rather than leading, leaving many people confused.
FinTechs are creating new services that support the unbanked. But that same EPA study that highlighted how fintech drives financial inclusion also includes an important caveat. Almost half of fintechs admit that they cannot solve the problem of financial inclusion on their own and need government support to effectively tackle the problem.
It must be the government that takes the lead. And the delicate balance between innovation and inclusion will only be achieved if government and industry work hand in hand to achieve a long-term, strategic and shared goal.