Why giving up cash may be too expensive for developing countries

Published on September 15, 2018

Why giving up cash may be too expensive for developing countries



    The Foreign Policy publication has published a lot of material with a story about the problems that China is experiencing due to the mass distribution of contactless payment technologies. Today, in the Middle Kingdom, payment by telephone has become so popular that even street musicians accept money, and many retailers refuse to give change when paying in cash.

    In practice, it turns out that despite all the comforts of such a scheme, for many citizens it carries with it big problems.

    Technology and class gap


    According to World Bank Global Findex, there are about 200 million people in China who do not have access to the financial system - that is, they do not have a bank account. This is a common problem in many developing countries, where citizens often have no documents, or receive only cash income and do not feel the need for a bank account.

    In addition, studies show that up to 70% of rural residents in China do not use the Internet and do not need smartphones. Older generation users who find it difficult to master new technologies fall into the “risk group”.

    However, the proliferation of new technologies can make the lives of such people more difficult, since contactless payment systems imply the presence of accounts and bank cards - they are then connected to mobile payment systems. If such applications become the default payment method, then hundreds of millions of people around the world simply will not be able to pay for goods and services. This can have a serious negative effect on the economy of individual regions.

    Perspectives


    Chinese companies Alibaba and Tencent learn from the experience of American business - they advertise their products as socially significant. At the moment, their goal - those users who are physically connected to the banking system, but do not use contactless payments.

    In particular, Alibaba works separately with older users - in marketing materials, the company appeals to respect for seniors, which can also be expressed in helping elderly relatives with setting up mobile payments. As part of this campaign, Alibaba has released a guide to working with the Alipay system, which is written in the style of a child’s letter to parents.

    The size of the market and the size of the Chinese population is such that technology corporations will have enough users for a long time. They will not feel the loss of the fact that someone from rural areas will not use the application. However, if, as a result, the economic activity of these citizens decreases, it is unlikely that the state will be satisfied. And then we can expect including new initiatives in the field of regulating contactless payments.

    In this matter, the authorities of developed countries are also active. For example, in Sweden there was a heated discussion about the desirability of a full transition to non-cash payments. Local politicians are concerned about the country's dependence on payment instruments that are not fully controlled by the state.

    In this case, in the event of a serious international crisis and a hypothetical restriction of access to these tools, people in the country may experience difficulties in paying for their basic needs and receiving money. The Swedish parliament conducts an internal analysis of the legislative initiatives proposed by the central bank - the deputies consider all possible difficulties associated with both the use of cash and the rejection of them.

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