Our leaders are summiting for a weeklong retreat to assess their performance in implementing Vision 2020 in preparation for the more ambitious vision 2050; on their agenda, may they also discuss how to speed-up the process of divorce from our costly marriage to cash.
A major act before government went on retreat was on Wednesday morning when the National Bank of Rwanda Governor, John Rwangombwa, presented the monetary policy and financial stability statement, capturing the state of the economy in the previous year.
“What kind of Rwanda do we wish twenty five years from now?” I asked, during a conversation with myself, Wednesday night, as I reflected on the Governor’s statement.
On my long list of wishes was one where I hoped for the completion of the process to divorce from our costly marriage to hard cash. But can Rwanda really achieve a cash-free economy in twenty five years from now? No. It is impossible. But it’s nearly possible.
From the Governor’s notes on Wednesday, we learnt that while Rwandans are steadily embracing cashless payments, as a country, we are still a long way from achieving a cashless economy, a mantra that has gained momentum in recent years, a good thing.
To build a cashless economy, hard cash presented in form of coins and notes, as a medium of exchange must be replaced by alternative tools to facilitate transactions between service providers and their customers and gradually build a cashless society.
This calls for destruction and construction of certain financial infrastructure. We must destroy all forms financial infrastructure, albeit gradually, currently slowing the move towards a cashless society; consider Automated Teller Machines (ATMs) as an example.
Developed in the early 60s, the ATM was inspired by a need to replace or back-up human bank tellers in facilitating customers to withdraw cash, especially after banks’ normal working hours.
Since the first ATM was installed by Barclays Bank on 27 June 1967 in UK, today, there are over 3 million of the cash-spewing machines around the world; 400 of them are here in Rwanda. But for a technology device, 50 years is too long a time to live. The ATM must be killed.
Ironically, before the birth of the ATM, an American inventor named Luther George Simjian had created what he called “prior art device” his 132nd patent (US3079603) filed on June 30, 1960 and granted on February 26, 1963.
Simjian’s devise was rolled out as an experiment in 1961 under the name ‘Bankograph’ by City Bank of New York, designed to accept customer cash, coins and cheque deposits.
But customers rejected the innovation and after just six months, City Bank dismantled the Bankograph. We can say that the Bankograph was the right innovation at the wrong time.
Yet in recent years, as countries accelerated the drive to a cashless economy, demand for cash-dispensing ATMs has been dwindling, giving way for deposit taking ATMs, precisely marking the return of Simjian’s Bankograph rejected 56-years ago by New York’s bank customers.
Rwanda loses nothing by killing the cash-dispensing ATMs to replace them with deposit-taking versions; in fact Central Bank should consider asking banks to stop installing new cash-spewing ATMs and invest more in deposit taking versions and other cashless tools such as POS machines.
Fortunately, this is a direction that leading financial institutions are already taking by rolling out ATMs with deposit accepting functions; this is a good start to a process aimed at ultimately killing automated teller machines.
We can be encouraged by the small growth in the number of new ATMs which increased by only 5 percent from 380 ATMs in 2015 to 400 ATMs in 2016.
On average, a bank spends US$20,000 to buy an ATM; that money could buy over 30 POS machines at a cost of about US630.
With a POS machine, one doesn’t need to withdraw cash from the ATM. Instead, one simply uses their debit card to swipe or insert in the POS to make a digital transfer of payment. There were 754,384 active bank issued cards as of December last year.
A total of over 660,700 payment transactions worth Rwf41.5 billion were done on POS machines in 2016 compared to 373,000 transactions worth Rwf26.6billion in 2015; the volumes and values are still low compared to ATM transactions, but this is the kind of payment practice to promote.
To kill the ATM, we should start by stopping writers of BNR’s Monetary Policy and Financial Stability Statement that refer to the debit card as an ‘ATM card’ (page 68) and embark on marketing the debit/credit card as a payment device rather than an ATM card to withdraw cash.
The cost of calling the debit card an ATM card was quite outstanding in 2016 where these cards carried out 8.18 million transactions (cash withdraws) amounting to Rwf406billion compared to Rwf354 billion in 2015.
To effectively kill the ATM, we may need to consider passing a new policy that requires all licensed service centers /shops to own a POS machine and ban cash payments above Rwf500.