Cashless economies – what does it mean for emerging markets?

TOSIN ENIOLORUNDA

Tosin Eniolorunda, the co-founder and Group CEO of Moniepoint Inc., Africa’s leading fintech and second-fastest growing company – as ranked by the Financial Times, has led the digital payments drive in Nigeria; and is prioritising financial happiness and inclusion across Africa.

As digitalisation develops across most business sectors – the world is moving progressively to more cashless societies. But what does this mean, in practice, in emerging markets? Where technology is often playing catch-up and there is more cash reliance.

This is how a developed market observer may analyse the challenge for emerging markets, yet this traditional view isn’t necessarily reflected by realities and customer attitudes on the ground. 

One only needs to glance at Nigeria’s recent experience to see strong and growing demand for cash alternatives. Various trends are converging to make cashless payments convenient and imperative for customers and businesses.

It is little understood that cell phone penetration in many African countries has been relatively high. Mobiles allowed millions with no previous prospect of obtaining a personal landline to suddenly have phones for personal and business communication, via shared district networks. In Nigeria and other countries, the result was people owning more than one phone to access the different networks as they opened up. 

As smartphones developed, communications advances multiplied. With the further introduction of apps and digital financial services – the smartphone liberated the process of moving money, and paying or taking payments.

Over time, those with online access to bank accounts – via smartphones, tablets and laptops – became used to online transactions: ordering, buying, subscribing, making payments or sending remittances. Similar familiarity spread to app use, especially on phones. The data it yielded – once analysed – has turbo-charged the eligibility and checking process for bank and credit cards, loans, and paying directly by phone. This has been revolutionary as the digitalisation of financial systems is empowering the many who previously had to rely on cash – as there had been no alternative.

This is all changing now, with further proof in the response of the Nigerian public last year to the withdrawal of high-value banknotes. This led to a massive uptick in digital payments while allowing us to diversify our business model, which was hitherto agency banking but evolved into a direct business banking service, and then providing a direct-to-consumer offering to the general public.

More people were suddenly forced to accept new ways to buy, sell, pay and be paid without cash. The cashless society was being tested in real time – and found that it could be made to work.

One remarkable trend was the general acceptance of bank transfers as a valid and reliable means of payment; so much so that gig workers, market women and Mom & Pop store owners are now no longer averse to customers paying via transfers. This works its way through the ecosystem so there is less expectation, and hence less dependency, on customers or suppliers to need cash to transact everyday business.

Another effect of less cash reliance has been the improvement in financial inclusion – as financial data gathered by apps allows businesses to take on customers previously underbanked. With the informal market responsible for the bulk of everyday transactions – over 90 percent of businesses are responsible for 80-90 percent of all customer-to-business payments – it was imperative we gave attention to this new sector.

Point of sale (POS) terminals have also reduced cash reliance. Businesses could reliably accept payments themselves, as an alternative to agents. More businesses have their own terminals and are using them for digital payments. The spin-off for employment in POS technical support services has been another bonus.

The sudden need to respond to demonetisation gave us the confidence to recruit more senior executives – to drive new teams as we expand beyond Nigeria and introduce easy digital financial transactions to other emerging markets. While each market is different – the experience is the same. People are hungry for reliability and ease of use in making digital transactions – and not having to carry large amounts of cash personally.

As cross-border digital payment systems are introduced, the growth for individual countries augments. All emerging markets can, as with boats in a harbour, rise with the tide of digital services – without having to invest in physical infrastructure that previously held them back. Small businesses in villages are suddenly empowered to make goods, and get them to market, while online ordering systems open up global markets.

Naturally, with such success come growing pains. Mature companies now give more attention to prudential functions, compliance, internal audits and fraud detection – building greater customer trust.

The process is irreversible. While cash won’t fully die anytime soon – the growing reliability and safety of digital transactions means cash use in transactions will inexorably decline. 

In many ways, being an emerging market makes less cash more liberating, and more beneficial than in developed economies.

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