e-Finance: Need for a cashless society

E-payment, e-cash, e-commerce, digital economy, online shopping – these are the buzzwords of the new commerce world. Every organisation is doing something to be a part of this phenomenon.

Corporate response to this phenomenon are many - excitement, caution, concern, belief, disbelief, passion, indifference, doubts and so on. Are we really into a new way of conducting business and payments? Will it work? Will it remain a fad or will it become standard?

While most of us can make out what these buzzwords mean, it is important to understand how commerce evolved over a period of time. Let us understand the motivation and compulsions behind transformation in commerce in various periods of time. Only then can we appreciate the promise of the e-finance era which we have already entered.

In ancient times, the needs of people were very basic and individuals fulfilled these themselves, be it something to eat, something to cover themselves or shelter against rain, cold or heat. Then people started living in communes.

Slowly, needs started expanding and could not be fulfilled by the people themselves. Thus, the first civilised form of economic activity was born - barter.

People exchanged their surplus goods for the goods they needed. For example, a person having surplus rice could exchange it for meat with someone who had surplus meat and scarce rice.
This, however, had serious problems when the surplus and scarcity of two persons did not match.

Then they had to look for a third person and so on. As the needs increased, bartering in its existing form became unworkable. There were logistic inefficiencies. There were problems in matching the needs of two people. The exchange rate for one good vis-à-vis another was totally unpredictable.

There was a need for a mechanism whereby a common resource could be used for different activities, and the concept of a common item as 'money' was born. The initial form of money was gold which brought some meaning to economic activity.

While the concept of gold as a monetary standard was sound, its practical implementation had some serious disadvantages. People had to carry large amounts of heavy material with them and there was always fear of theft.

To mitigate these advantages, people started depositing their gold with goldsmiths and collected their receipts. The receipt itself started being accepted as money for all economic activity and, thus, the concept of paper money was born, and the goldsmith took on the role of banker.

There was further evolvement in banking when the banker decided to inject more money into the market by lending. In this way, the bank could play a pivotal role in increasing the economic activity of its region and also make some money. The banking and financial system has since come a long way to its present status of central bank and commercial banks.

During this long journey, some other developments have also taken place. For example, trading has extended beyond country boundaries, the roles of central bank and commercial banks have become well defined and commercial banks have started expanding their activities beyond lending to local people. It achieved an important role in facilitating cross-border trading.

With population explosion and exponential increase in trading, cash handling reached very high levels and became extremely time consuming. Wear and tear of cash, forgery, possibility of theft, among others, were other dimensions to be addressed.

The situation started begging for an efficient solution whereby the exchange of goods and services could be conducted without need for physical exchange of cash.

During this period, computing technology was making a quiet revolution with more and more industries embracing it to improve their operational efficiency and accuracy. While application of technology in the field of banking and finance occurred later than other industries, further developments and adoption during the last two decades have continued at very high speed.

Certainly, a cashless society appears a possibility today, with more and more transactions in our day-to-day life being conducted without physical cash changing hands.

For a normal person, one can see the changes in many things he has started doing without using physical cash, such as paying telephone and electricity bills via the ATM, swiping his debit or credit card in a supermarket, purchasing his book via the Internet, standing instructions or post-dated cheques towards his loan instalment or rent.

All this eliminates the risks and hassles of physical cash handling, in addition to saving enormous time. The beginning has already been made.

If one asks whether we are fully into the e-finance era or cashless society, the answer is not yet. There are very promising developments which have taken place, and which are taking place. But there are issues to be resolved. There are concerns of consumers to be addressed. There are barriers to be removed.

In summary, there are lots of challenges and we will discuss them in coming weeks. The ultimate aim of e-commerce and e-finance has to be the creation of a cashless society.

The author is assistant general manager of Doha Bank.