Cashless Cities: Realizing the Benefits of Digital Payments

by Ellen Richey 0

Have you ever fumbled through your wallet at a store, struggling to find exact change? Perhaps you passed by a merchant entirely because the store only accepts cash. Have you ever worked in a shop and had to spend an hour or more counting the money, reconciling the receipts and balancing the cash drawer at the end of a shift?

While cash continues to play a role in markets around the world, the digitization of commerce and payments has the potential to provide solutions to these everyday frustrations, while creating significant economic benefits for consumers, businesses, and governments. A recent Roubini Thoughtlab study, commissioned by Visa, argues for movement to digital payments and examines how cash can be time-consuming, inefficient and sometimes risky, among other reasons.

The study, “Cashless Cities: Realizing the Benefits of Digital Payments,” analyzes the use, acceptance and cost-benefit impact of physical versus digital money in 100 cities worldwide. It explores why cities around the world are moving toward digital payments—including an increase in accessibility and new technology—and demonstrates the potential benefits of increased adoption to consumers, businesses and governments.

The study demonstrates that greater use of digital payments could directly benefit cities at all stages of digital maturity. In fact, the study estimates that reaching an “achievable level of cashlessness” – defined as an entire population of a city moving to digital payment usage equal to the top 10% its users in that city today – across the 100 cities examined could result in total direct net benefits of up to U.S. $470 billion per year. These benefits would be derived from many factors, ranging from time savings by consumers on banking-related activities, to increased sales revenues for businesses, to reduced government administrative costs.

According to the study, digital payments may make it easier (and safer) for consumers to shop, bank and travel in addition to helping businesses increase revenues and cut costs. They can also enable governments to more accurately collect taxes, manage business and reduce cash-related crime. Although it might seem counterintuitive, the study finds multiple instances where cash is more costly than digital payments. For example, cash and checks can cost businesses 7.1 cents of every dollar received compared to 5 cents of every dollar collected from digital sources.

For those who don’t have a bank account—especially in developing countries where the equivalent of one U.S. dollar often carries high purchasing power—the cost of cash may be even greater. Unbanked consumers across the 100 cities spend an estimated average of $7-$15 a month on cash withdrawal activities like check cashing. By reducing their reliance on cash, each unbanked consumer may save an estimated $84 to $180 per year, on average.

So, what’s next? What can cities and governments do to help gain the benefits of digital payments? As a starting point, here are five steps that policymakers and other stakeholders can take to better facilitate this movement:

  1. Phase out cash and check payments to and from the government by adopting an all-electronic payment and disbursement system – meaning all government benefits, relief funds, tax disbursements, collection and other payments made to and from government institutions are shifted to digital format.
  2. Promote a clear, innovation-friendly regulation framework.
  3. Ensure that digital payments are a key component to all “smart city” plans and strategies.
  4. Implement secure open-loop payment systems across all transportation networks.
  5. Undertake targeted financial literacy programs to help welcome the unbanked into the banking system and offer secure digital payment solutions for government benefits to those that do not have bank cards.

From payments using scanned codes to payments using biometric authentication, billions of connected devices such as smartphones, watches, cars and fitness trackers are now able to send (and receive) payments. The study shows that as communities and cities become better equipped to offer fully digital payment experiences, their businesses and economies could grow – allowing their populations to benefit.