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Cash is the enemy

For Financial inclusion to be a reality a number of critical factors need to be in place. There is little or no doubt that the benefits of financial inclusion far outweigh the enormous downsides of an unbanked population. We need government support. We need support from the banks, the telcos, the retailers, the fintechs, the card associations

  • it does not help when European Central Bank executive board member Yves Mersch ... gives a spirited defence of cash, praising its ability to facilitate privacy, equality and security, insisting there is "no viable alternative". This type of thinking and public statement takes us backwards - at speed.
  • It does not help when progressive regulators promote a risk based approach to KYC with various levels to faciltiate access and none of the banks make use of the various exemptions. 
  • It does not help when the Telcos do not open their USSD gateway to the banks so that they can promote financial inclusion amongst the vast majority of the population who have feature phones. 
  • Digitalisation is not the preserve of the smart phone owners
  • Setting up Digital Only Banks for the middle and upper end of the market (owners of smart phones and users of APPS) does not help
  • it does not help when the playing fields are not level and different rules exist for different players offerng the same products and services.
  • It does not help when big players use their positions of power and their size to prevent other players who have a genuine desire and passion for financial inclusion.

Cash needs to be eliminated or at least reduced  - urgently. The cost of cash for economies and individuals is huge. Safety and security issues are rife. One can lose your life for 20 bucks - so much for "cash is free" when it carries the highet cost of all. Cash cannot be traced hence the preferred means of money laundering, funding terrorist activities and other illegal. illicit  and dark activities. Make bank accounts accessible to all  - a birth right and then all transactions have a full and traceable audit trail. Why are mobile money operators so concerned about making it easy, cheap and convenient for users to access cash. Make it cheap/free to fund the mobile bank accounts and to transact through this account and expensive to draw cash. We have to change behaviour to a cope in a digital world. We have to have the merchants on board accepting digital payments. As ecommerce and on line shopping explodes, we have to provide the mass market with the digital payment mechanisms to be active participants. Government has to take a stand and refuse to accept and disburse cash. 

We have a long way to go and no single entity can achieve the goal of inclusion on their own. It is going to take a collaborative effort from everyone - and everyone can share in the benefits.

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Comments: (13)

Behzod Sabirov
Behzod Sabirov - Sanscrit LLP - Almaty 16 February, 2018, 04:271 like 1 like

Quite an opinion which I nevertheless like, but the total money digitisation must be balanced with the rights for the private life of each individual. If a regulator uncontrollably controls (sounds so-so) one's whole life then we may end up with a global North Korea.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 16 February, 2018, 04:562 likes 2 likes

In an era where banks have been fined billions for enabling money laundering via EFT, and cryptocurrencies facilitate crime totally electronically - blaming cash for crime is totally reality-defying. 

A Finextra member
A Finextra member 16 February, 2018, 11:131 like 1 like

Biased and badly written nonsense, akin to saying 'If we install a tracking device, a government controlled CCTV cameras in every home, and place everybody under home arrest pre-emptively, we will eliminate crime'.

'Cash cannot be traced hence the preferred means of money laundering, funding terrorist activities and other illegal. illicit  and dark activities. '

Seriously?! What about the HSBC 2012 fine of 2012 for violation of AML regulation in Mexico? Was that cash as well?

The Dark Web and Silk Road - cash as well?

Global wide-scale tax evasion using off-shore locations? Cash as well, surely - worldwide, drug trafficers, warlords, dictators and tax evadors are known to travel to Belize with suitcases full of cash, of course.

Articles like this are making us sleep walk into a Global North Korea.

David Godfrey
David Godfrey - ACI Worldwide - Watford 16 February, 2018, 12:11Be the first to give this comment the thumbs up 0 likes

I agree with Brian. The statement by the ECB was I thought unhelpful and strange. There are many societal benefits to reducing the dependance on and usage of cash. Will it totally end all forms of money laundering? Of course not...could it help to reduce the black market economy and tax evasion? Yes, I really believe so. None of the proponents of cash seem to be able to explain why countries such as Denmark and Finland seem to be able to get along quite so well with such little usage of cash and such widespread usage of electronic payments.

As to the point made about HSBC...well...they were caught, and hit with massive fines to the tune of almost $2Bn!

For those that are "pro cash", how do you recomend tackling the black market economy and the tax evasion associated with it?

A Finextra member
A Finextra member 16 February, 2018, 13:32Be the first to give this comment the thumbs up 0 likes

On behalf of the 'pro-cash' lobby: we propose to tackle all crime by the same means HSBC were caught, and in the same way any other crime is investigated and tackled: Good police/investigative work, regulation and proportionate measures that do not infringe on people's liberties and choice.

As a counter question: how do the 'pro-surveillance' people propose that we tackle offshore tax evasion, the dark web, terrorism and all other social ills?

How do we make our payment systems less vulnerable from hacking by rogue state actors such as North Korea, Russia or possibly even China? If Fake News was a problem in the US Elections, how will we guard against Fake Money?

And how do we ensure a functioning means of payment during natural catastrophes such as earthquakes, hurricanes, war, flooding, and the electricity grid being disrupted by the same rogue state actors?

 

David Godfrey
David Godfrey - ACI Worldwide - Watford 16 February, 2018, 13:42Be the first to give this comment the thumbs up 0 likes

Fake Money? Surely cash is very easily "faked" (counterfeited).

I'm not proposing being "pro-surveillance". I'm proposing to reduce the use of cash to end the ability of the black market to function quite so easily and thus to reduce the tax evasion associated with it. The time for "Good police/investigative work, regulation and proportionate measures" is surely long past...if that was going to solve the problem, it would have.

Assuming natural disasters that disrupt the electricity grid, how will ATMs work? How will people get the cash that you believe will be their saviour? I'd personally think in such circumstances, cash will be also a) less important because there is nothing to spend it on b) increase the risk of looting or theft from those that have the cash.

However, it is very easy to stand up temporary cell towers and distribute low-end smartphones and solar chargers.

A Finextra member
A Finextra member 16 February, 2018, 14:17Be the first to give this comment the thumbs up 0 likes

This is no different to saying:

The time for Democracy/Nuclear Disarmament/Legal System is long past because we still have social problems, nuclear weapons and crime.

It is so ill conceived and not properly thought true that doesn’t deserve to be debated.

Of course, there is a problem with counterfeit cash, but the scale of the problem is magnified when dealing with electronic cash as the only means of payment, which is presumably controlled, censored and tracked by Governments.

Yet, you never answered the question – how do we tackle tax evasion today and is it a bigger problem that tax is evaded in cash or offshore locations?

Where is it a bigger problem – in developed economies or in emerging markets?

I would recommend this reading on the use of cash in disaster relief efforts:

http://www.cashessentials.org/news/news-details/2016/11/08/cash-is-critical-to-disaster-response

In summary – I am not necessarily against the reduction of cash, which comes naturally as market forces drive its reduction, but against Government intervention in that direction. I also do not buy a single bit the argument that all tax evasion and crime would be eradicated. It would be just a different type of crime, committed by different people, and sadly, on a much larger scale. As technology enables efficiency for its users, it also enables efficiency in crime.

A Finextra member
A Finextra member 18 February, 2018, 13:36Be the first to give this comment the thumbs up 0 likes

It is clear that anomynous digital currencies do not have the physical limitations of cash to be used for criminal activities and which is also an important reason for their popularity. Having said this, that does not mean that cash is 'innocent' with respect to enabling crimininal activities. There is one key advantage of cash. You can lit your fire with it if you need to hide in a cold shelter (for the ones who have seen Narcos).

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 February, 2018, 16:04Be the first to give this comment the thumbs up 0 likes

The currently unraveling $1.8B fraud at India's Punjab National Bank happened entirely via SWIFT, the mother of all electronic payment methods.

David Godfrey
David Godfrey - ACI Worldwide - Watford 18 February, 2018, 16:33Be the first to give this comment the thumbs up 0 likes

@Ketharaman how much is lost each year to criminal activity associated with cash? Black market tax evasion, counterfeit notes, etc. etc. The situation at Punjab National Bank you mentioned is no different to giving someone your debit card and password and then complaining when they clear out your account, or giving them your wallet full if $100 bills, it's not a fundamental problem with the concept of electronic payments

Also, and maybe slightly O/T but I'd disagree that SWIFT is a payment method, it's simply a messaging network that facilitates access to many different payment networks...by itself it offers no clearing or settlement capability.

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 February, 2018, 18:291 like 1 like

@DavidGodfrey: I don't know the exact figures but I can bet that the amount lost to criminal activity associated with electronic payments is 10X more than that associated with cash. If SWIFT is not an MOP, neither is cash - as someone who lived in India in November 2016, I only know too well how suddenly sovereign guarantees can be revoked. Besides, the point is moot: The PNB scam involved no cash and that's the real point - fraud can happen with any way you pay and not just when you pay with cash.

Lu Zurawski
Lu Zurawski - ACI Worldwide - London 19 February, 2018, 11:32Be the first to give this comment the thumbs up 0 likes

To paraphrase Kenneth Rogoff (a former chief economist of the International Monetary Fund) don't we need to encourage a "less-cash" society, not necessarily a cashless one?

If Rogoff's calculations for cash-based tax evasion are correct (e.g. 3% GDP leakage in the US), the economic penalty globally for continuing to promote cash may be a touch higher than the amount lost due to criminal abuse of electronic payments. But then again, I don't know the exact figures.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 21 February, 2018, 11:481 like 1 like

To paraphrase Al Capone (a former Mafia Don), you can get a lot more done with cash and cashless than with cashless alone. 

Since I'm a payments tech professional, I have a vested interest in the growth of cashless / lesscash. However, IMO, silly, reality-defying and headline-bait posts like this are the enemy in the drive to achieve that outcome. I've shared some alternatives in How To Really Kill Cash.  

Brian Richardson

Brian Richardson

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This post is from a series of posts in the group:

Financial Inclusion

The financial services industry has much to contribute to the UN and World Bank goal of full financial inclusion by 2020. This group will focus on industry contributions, ideas, barriers and enablers.


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