The World Bank is pushing the G20 nations to increase digitized payments to the world's 2.5 billion unbanked adults, saying that less cash will mean more economic growth, more financial inclusion and improved empowerment for women.
A report the bank published with the Bill and Melinda Gates Foundation and the Better Than Cash Alliance urges the G20 governments to take specific actions to build necessary infrastructure and shift government payments to individuals to digital forms. The goal is both to reduce costs and corruption and to increase participation in the financial system, especially among the poor and people in rural areas.
The World Bank's recommendations will be on the agenda at the G20 summit in Brisbane, Australia, in November. The G20 has been officially trying to increase financial-system participation since 2009.
According to the report, only 23 percent of poor adults and 37 percent of women in developing countries have accounts at financial institutions, compared with about half of adults worldwide (and 89 percent of adults in high-income economies).
One major focus of the report is on government social-security and pension payments. Shifting from cash to smart cards cut distribution costs by two-thirds in South Africa, and a shift to mobile transfer reduced administrative costs by 20 percent.
Corruption comes into play, too. In India, payments made by smart card instead of by cash paid by a government official "results in a 1.8 percentage point lower incidence of bribe demands for obtaining the payment (compared to an incidence of 3.8 percentage points for manual cash payments: a 47 percent reduction) and the incidence of ghost recipients fell by 1.1 percentage points," the report said.
Users of electronic networks in Kenya and Rwanda were also able to withstand large economic shocks through a combination of savings and the ability of friends and relatives to transfer money to them efficiently, according to the report. All-electronic transfers also reduce the cost of cross-border remittances, which in some cases total more than formal aid payments between countries.
Along with the recommendation for shifting government payments away from cash, the study also highlighted the barriers to getting more people using financial institutions, especially in underdeveloped countries. A major barrier is infrastructure: While mobile phones (and mobile payments) are increasingly common, rural areas typically lack not only banks that make it possible to get cash out of the system, but even reliable electricity to keep mobile phones operating.
Banks also face challenges in meeting requirements for "Know Your Customer," anti-money laundering and counter financing for terrorists, especially for poor and rural potential customers who have no financial history and can't provide paystubs or proof of domicile. The report cites Mexico's tiered "Know Your Customer" approach as a way around those problems.
New-to-the-system customers will also require education in how to use ATMs, as well as programs to build trust to convince them that any money they save will be both safe and accessible. "A reliable cash-out experience is key to the success of digital payments," the report said.