Payments via digital solutions and growth effects


The ease of conducting seamless financial transactions is probably the biggest motivation to go digital. For business transactions to take place, one will no longer need to carry huge cash, plastic cards, or even queue up for ATM withdrawals under the digital mode.
 
At an outdoor market in Lagos, a local vendor sells watermelon and oranges. Shoppers fill their baskets with [the watermelon and oranges] and wait to pay for the goods that they have selected, hoping that the line moves quickly under the mid afternoon sun. It is easy to imagine what happens next. The line stalls as a shopper rummages for her wallet and counts out the necessary cash to make her purchase. Of course, time ticks by, while the vendor counts the currency and distributes the correct change. Meanwhile, some customers may give up and leave, costing the store potential sales.
 
At the end of the day, the shopkeeper spends considerable time counting currency, reconciling the amount of money on hand with the day’s sales, preparing to make a deposit at the bank and preparing the cash on hand for the next day.He realizes he is short N1,600 and wonders if he accidentally gave incorrect change to a customer. In the evening, the shopkeeper walks through the busy market with a pouch full of cash, ever aware of the risk of theft.

Indeed, there are many reasons for the modern global economy to move away from a heavy reliance on cash. A unique study commissioned by Visa and conducted by Roubini ThoughtLab explains why the use of cash is time-consuming, inefficient, and sometimes risky.The research explains why cities around the world should consider moving toward digital payments, and demonstrates the potential benefits of their increased adoption to consumers, businesses, and governments across 100 cities worldwide.

In cities like Lagos, digital payment usage today is not very high. According to the research, 12 per cent of consumers are reportedly relying solely on digital payments in Lagos. In this city, which the report classifies as “cash centric,” consumers incur significant costs as a result of their dependence on cash.

The report indicates that an average consumer in Lagos spends nearly 22 minutes per month on cash-related activities, whereas in Stockholm, Sweden, which is a world leader in digital payments usage, the average consumer spends less than half that amount of time. Adults living in cash centric cities are spending on average nearly 3.5 hours managing cash over the course of a year, while those in digitally leading cities spend under an hour.

However, reduced time spent on banking activities is hardly the only benefit to consumers who rely more on digital payments. Automated electronic bill payments can help individuals eliminate late fees. When people carry less cash, they are less susceptible to cash theft.

Cash is costly to businesses, too. According to the report, businesses, on average, spend an equivalent of two per cent of their monthly revenue accepting non-digital payments. Businesses spend an average of 68 hours per week managing cash, and lose about an equivalent of four per cent (around nine per cent in Lagos) of their revenue per month to theft, counterfeit money, and cash register shortages.

Labour costs savings and a strengthened bottom line are just two of the ways in which firms may stand to benefit from increased digital payments usage. Roubini ThoughtLab’s research found revenues could increase by an average of 17 per cent when businesses begin accepting digital payments.For governments, tax evasion and crime are often the biggest costs of cash. The widespread adoption of digital payments may reduce crime and cut costs related to the handling of administrative tasks, running public transit and toll roads, and administering criminal justice.
 
Equally important, moving away from cash increases tax revenue thanks to a reduction in the informal economy. On average, governments of the cities the report studied could expect to save close to $710 million a year in administrative costs by making greater use of digital payments.A reduction in crime can potentially save the cities studied an additional $53 million per year on average.  Meanwhile, the potential increase in tax revenue for each city amounts to an average of $534 million per year. All substantial impacts for policymakers pressed for revenue.

As cities increase their use of digital payments, the positive impacts extend beyond financial benefits to consumers, businesses, and government. The shift to digital payments also may have a catalytic effect on the city’s overall economic performance, including Gross Domestic Product, employment, wage, and productivity growth.

The data suggests that combination of greater economic activity, lower crime and greater ease of living could make cities with increasing rates of digital payments more attractive to businesses, talent, and tourists.For governments to usher in a cash-less culture, it must undertake targeted financial literacy programmes to help bring the unbanked into the banking system and offer secure digital payment solutions to those that do not have bankcards. 

Support for innovative approaches to risk management should be encouraged and ensure that digital payments are key components to all “smart city” plans and strategies. Implementation of secured open-loop payment systems across all transportation networks.

Government must adopt a technology and innovation strategy and make secure digital payments an integral component of it. From mobile payments using scanned codes, to credit card transactions using biometric authentication, digital payments are now everywhere around us.With billions of connected devices such as watches, cars and fitness trackers now a part of our everyday lives, connectivity is only going to become more ubiquitous.
 
As communities and cities become less reliant on cash and better equipped to offer fully digital payment experiences, outdoor markets like the one in Lagos, and the shoppers who frequent them may not only become safer and more efficient, they could also strengthen their contribution to the global economy.

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