What does 2021 look like for the ATM industry? Due to the pandemic, people who had never done digital banking switched to online shopping out of concern for their health. Will these customers ever come back? Marius Costin, Head of EMEA High Velocity and US Sales at PayU shares his thoughts and insights on the subject.
The year is almost over, but 2020 already feels like a transformation phase for the transition to cashless societies.
At the beginning of the pandemic, European banks closed hundreds of branches to limit the spread of COVID-19. From this, four British banks developed in September, which announced permanent extensive closings of branches and led a shift in customer behavior from stationary to online banking. In short, the pandemic has cemented digital as the number one channel for large sections of the European population.
Marius Costin, Head of EMEA High Velocity and US Sales at PayU
What is particularly interesting, however, is that these closings followed the strong warning from the Financial Conduct Authority to UK banks that every time they close a branch or ATM they must provide an analysis of the impact on customer access to cash.
The pre-pandemic debate
As a global payment provider, we know that the elimination of cash is not just a debate in Western markets and will not just happen until 2020. The Indian government decided in November 2016 to shut down 86% of the currency in circulation to reduce corruption. As a country that was using almost 90% cash at the time, you can imagine the confusion this caused. A total of 1.7 billion people worldwide do not have a bank account and are therefore dependent on cash.
While 2020 has seen fantastic innovations with increasing demand for digital financial services, we as an industry have a responsibility to remember the pre-pandemic challenges of helping people without financial access as we move towards cashless societies. The entire ecosystem helps ensure that recent changes do not exacerbate financial exclusion. It has to be a joint transition, with governments, regulators, financial services and fintech providers playing an active role.
This is certainly not news to the financial sector, but the problem has taken a back seat in a turbulent year. As we look ahead and develop new solutions that fit a changing landscape, we need to keep this context in mind and ensure that digital payments are accessible and attractive to all.
There have been some notable initiatives to make the transition to a more cashless society a fair and equitable transition. For example, after the demonetization, the Indian government introduced its own BHIM app, which enabled electronic bank transfers to be made via phones without an internet connection. Kenya, on the other hand, has cut fees on mobile money to be used as a public health tool during COVID-19.
Realizing that using physical cash can transmit the coronavirus, communications company Safaricom introduced a fee waiver for the mobile phone-based money transfer service M-Pesa to reduce physical currency exchange. Pakistan and Ghana followed suit, and both have reported a boom in the popularity of digital payments since then.
Mobile money is a perfect example of how digital services don’t have to defy existing behavior. Consumers who are still dependent on cash in Kenya, for example, can bring it to M-Pesa agents to deposit into a mobile money account.
Developed markets could learn a lot from emerging economies like India and Kenya. Both have bypassed traditional financial infrastructure to accommodate the existing behaviors and needs of their markets. In fact, every market has taken advantage of the missing structure and has shown brilliant innovations as a result. By creating a solution that takes advantage of the dependency on cash and the lack of banks, mobile money embodies financial inclusion.
A tailor-made approach
Each market shows different payment method preferences. While debit and credit cards are widespread in the US and Western Europe, installment payments, bank transfers, and mobile wallets are overtaking them in some emerging markets. At PayU alone, we offer over 400 different payment methods to a potential customer base of three billion.
A key element in curbing the possible exclusion of cashless societies will be to identify existing preferences and develop appropriate products and services. If we wait for each individual to be reluctant to settle for existing options, innovation and inclusion will stall.
One of the most important and often overlooked pieces of the puzzle is education. To create a truly inclusive cashless society, consumers need to be educated about the benefits of financial services. This requires a common approach. Sectors need to work together. Governments need to work with companies to best serve their communities, making sure they understand not only what is available to them, but also how to access it and how it will really benefit them. This is arguably the only way we can really hope to end financial exclusion.
Cooperation for Economic Recovery
The growth in e-commerce over the past six months is a tangible example of the benefits users can get from paying digitally. After countries mandated store and market closures, online retail sales grew 74% in transaction volume, and this shows few signs of slowing. As a result, some e-shops in our markets saw sales growth of 500-1000% year over year in April and May 2020.
Again, governments have worked with platforms and payment providers to expand the appeal to reluctant consumers. In Colombia, for example, the government introduced a series of VAT-free days to encourage consumers to buy. As a result, we recorded at least seven times the usual sales volume on the VAT-free day compared to a regular day. Overall, e-commerce in Colombia increased 282% compared to activity before the lockdown began.
As a company, we are committed to creating a world without financial boundaries where everyone can thrive. These collaborations between government, fintechs and e-commerce platforms have shed valuable light on how effective our joint efforts can be to take advantage of digital payments while supporting financial inclusion. In uncertain times, we must not become complacent, but rather continue to drive positive changes together.