The World’s ‘Cashless Sweet Spots’
A new Center-supported study published by the Harvard Business Review identifies the countries that could benefit the most from accelerating the transition from cash to digital money.
by Bhaskar Chakravorti, Ravi Shankar Chaturvedi and Benjamin Mazzota
Read an excerpt below:
“Cash, according to a recent MasterCard study, accounts for nearly 85% of global consumer transactions. Cash has stubbornly resisted going the way of digital extinction. Paper currency is ubiquitous. It is also untraceable and universally accepted (except in some circumstances, usually involving very large payments). For many users, cash equates to a sense of security and for many it is a sense of independence from government oversight. The rise of cyber-crime and growing concerns about the ability of public agencies to look through digital records will add to the unwillingness among many to let go of paper money.
The migration to a cashless society is far from being either uniform or universal. Whereas most Swedes are embracing a cashless future, along with an unlikely peer group, that includes both Somaliland and South Korea, some of Sweden’s neighbors, in response to EU’s increasing regulations on restricting cash usage, are demanding a “constitutional right to pay in cash” fueled by concerns around negative interest rates and a perceived loss of privacy that comes with digital money.
For some countries, the transition has been very rapid and at a scale that is without precedent. In 2009, over two-thirds of all e-commerce payments in China were cash on delivery. Thanks in no small part to the mobile wallet wars among the BAT – Baidu, Alibaba, and Tencent – mobile payments today account for over 70% of all e-commerce transactions in China.
These irregularities in the migration to cashlessness raise several questions: Which countries have the greatest to gain from the migration to a cashless society? Which countries are most prepared in terms of their digital readiness? Understanding the answers to these questions will enable decision-makers, innovators, and investors in both the public and the private sectors to locate the world’s “cashless sweet spots” and allocate resources to unlock value trapped by transaction costs and frictions inherent to cash-intensive societies.
We wanted to know the answers to some of these questions so we analyzed the cost of using cash using a database extending across 154 countries. We approached the question from several angles, to derive costs to key constituents in the economy:
- Assess the costs to banks of maintaining ATMs (for all 154 countries);
- Create a score for the cost of cash to consumers (for 72 countries for which there is data availability), combining the actual costs of getting cash, including transport to get cash and ATM fees;
- Compute the “tax gap” — an estimate of the proportion of money owed to the fiscal authority of the government, but goes uncollected due to unreported and under-reported cash transactions — as a proxy for the revenues that governments forgo because of a cash economy.”
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