The words ‘cash-less economy’ are increasingly featuring in conversations around the financial sector development.
They are not only used by gurus and top brains in the financial sector, banks use them in marketing while experts invoke often them in their analyses.
In practice, several indexes show that there is increased uptake of cashless payment systems with mobile money platforms the largest facilitator.
In a recent survey by Finscope Financial Inclusion, it emerged that cashless payment system had the largest role in the much celebrated milestone of reaching 89 per cent of the population financially included.
In principle, we all agree that the benefits of a cashless economy go beyond easing the load carried when walking around with a wallet full of bank notes.
Most people have experienced the convenience of paying for products and services without having to queue or presenting a ‘bordereau’ as proof of payment.
Traders are increasingly becoming aware of perks such providing convenience for their clients in an era when competition is getting stiff.
Traders have also experienced the improved bookkeeping and accounting that cashless payment systems provide.
For the larger economy, there is a growing understanding that a cashless economy will see more money retained in banks which, in the long run, could reduce the cost of borrowing.
However, despite all the potential perks and impacts, the levels of uptake remain wanting. Despite the increased rollout of cashless payment system, not very many have embraced this form of payment.
Previously, the low uptake had been blamed on lack of awareness campaigns by enterprises and traders on the ‘power’ of the cards they carried in their wallets or their mobile money accounts.
In response to that line of thought, the Ministry of Trade and Industry urged some service providers last year to roll out a campaign targeting car owners urging them to pay for fuel with cashless means.
But, as most keen observers will tell you, after a few weeks, it became no more than a trend that died almost immediately.
In conversations with traders who are putting away their point of sale machines which facilitate cashless payments using debit cards, you will realise that most of them are dropping out because, in the long-run, they are finding it expensive to embrace the development.
Most of those who are going back to using cash as the only mode of payment, the percentage charged by banks for debit cards payment is a cost they are keen to avoid.
You cannot blame the banks, they are in business.
It’s not uncommon to see signs in shops that point out that debit card payments are only allowed for payments beyond a certain level say, Rwf10,000, meaning if you are buying a loaf of bread and litre of milk at your nearby canteen, cash is your only option.
A way to give more enterprises reasons to use the systems other than reading to them perks is offering incentives.
What if we had tax rebates for the enterprises using cashless payment systems to cut on their transaction cost which is about one or two per cent of the value of the transaction?
With such incentives, more traders would likely be enticed to embrace cashless payment systems.
Is it not a little odd that the lack of incentives for uptake of cashless payment systems has caused those who take it up to incur extra costs in transaction costs?
India has tried it. In a move to reduce dependence on cash based systems, their government is offering small tax rebates to merchants who report that at least half of their transactions were made through cashless payments.
That has, in turn, led enterprises in the country to embrace point of sale machines which are now cheaper and get pay bill numbers of mobile money payments encouraging clients to use them.
I understand that it might seem a little odd to get to the point of offering incentives to traders for them to do the right thing. But the impact of a cash-lite economy to Rwanda is probably more important.