Advantages of a cashless society

In my previous article, we saw how cash was born out of the necessity of conducting economic activity on an equitable basis. Since then, the world has expanded beyond comprehension in all spheres – population, trade and commerce, range of goods and services, cross border activities, foreign workers. This situation has naturally increased the number of transactions and the need for exchange of cash for any goods and services.

Take the instance of remittance transactions. GCC countries have more than seven million expatriates as per recent estimates. Most of these have families back home who are supported through remittances every month. The annual remittance is upwards of $20 billion and almost all of it involves queues and cash.

A minuscule portion of this transaction is done through banks and may not involve physical exchange of cash, but still involves queues and physical visits.

Take the instance of normal utility payments. Every house has at least two utility services to pay for every month. More than half of the population in every developing country has GSM or telephone facilities. In the UAE alone we are talking about routine bills generated for telecommunication, utility and government services in the range of two million bills per month. All these bills will result in settlement transactions.

How are these organisations coping with this expansion of cash collection activities? Expanding collection centres and associated infrastructure are extremely expensive and have the potential of making the core business unattractive.

Every such organisation is doing its bit to embrace technology and minimise physical queues and cash handling. The primary compulsions for this being improving efficiency in collection, reducing cost of collection and rationalising associated back office activities.

As a result, we are seeing a host of self-service machines and mediums around us to make payments. Technology-wise, such self-service machines are an important step towards a cashless society. With more and more activities at retail and government coming under e-payment we can truly enter an e-finance era.

What can be considered a mature e-finance era? It is a stage where no money is required in hard cash and every possible transaction in our day to day individual and corporate life is done electronically. Once we achieve a mature e-finance model and cashless society, society derives immense benefits.

Can we list the qualitative benefits? There are plenty. The common man does not have to worry about theft or robberies. Shop-keepers, taxi drivers, cashiers, among others, will not have to worry about working odd hours. They are vulnerable to petty thefts in many countries today. We do not have to stand in long queues many times over.

Also, idle cash in hand is inefficient use of cash, as it does not earn us anything, particularly when we are in an era where our funds can earn money until the point we actually need them. Thus, our benefits are convenience, efficiency, better use of funds, less record keeping and a sense of security.

What are the benefits to corporate and banks? They will not have to handle cash with each transaction. It is quite a time-consuming task - with the counting and storing carried out by many people. Visits to banks will be reduced.

Insurance and associated security related costs will be rationalised with less physical cash handling and movement. Further, it gives people an opportunity to conduct their business from their locations without visiting the branches physically.

It is a saving of time and effort to both entities. The cost of a physical cash-based transaction to a bank is at least ten times that of an electronic transaction. The benefits are clearly in organisation efficiency, security and cost savings which result in more profitability.

At the federal level the benefits are numerous. Governments can enforce complete transparency in commercial transactions, reducing the gap between actual and stated expense and earnings of corporates or businesses. This reduces the scope of undeclared assets, black money, tax evasion, money laundering, among others. There will be no money being hidden anywhere.

A cashless society can enable government to drastically improve its tax management. Its effort towards monetary and economy planning will be more accurate since the base data for its planning will be much more reliable.

Today, most countries can only make an educated guess about how much of the money actually takes part in economic activity.

The next logical question is, how do we reach there? It is definitely an evolving process which takes a lot of effort and the willingness of many organisations all around. Governments, central banks and commercial banks have to play a proactive role in creating the infrastructure to enable electronic fund movement and strategise to increase its usage.

A beginning has already been made. We are seeing a lot of initiatives by government and central banks in the UAE and Qatar, which promises revolution in payment systems in the near future. We will discuss these in coming weeks.

The author is assistant general manager of Doha Bank.