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The risk of a cashless fait accompli

by Viktoria Dijakovic | Feb 14, 2018

Hamster_stuck_smallCashless advocates’ favorite marketing keywords for selling their solutions are “modern”, “frictionless” and “convenient”. But they could also add “profitable” (for the provider of the payment app, of course) and “insightful” thanks to all the data that they are able to collect on consumer behavior (which eventually also translates to profitability).

These are probably issues that the average consumer doesn’t think about when s/he downloads a digital payment app. Yet, there is definitely a war on behind the scenes, and it is clearly driven by profit.

In post-demonetized India, the Boston Consulting Group estimates that digital payments will explode as infrastructure improves, calling it a “$500 billion pot of gold”. The title is self-explanatory: those that will make the move first and gain consumer confidence will be the ultimate prize winners. Indeed, Facebook is waking up and realizing the urgency of making a move. Mark Zuckerberg announced the launch of a payments feature in India via the messaging app WhatsApp, addressed to its 250 million users in the country.

But who are the losers in this scenario? You, me and all the consumers in countries on-the-way-to-cashlessness. Because as cool and convenient digital payments may appear today, the question is: how will it all look tomorrow? Today, digital payment providers are fiercely fighting to gain users, and to get there, are employing attractive incentives and polished marketing strategies. But the day national banknote printing works is turned off for good, how will their behavior change? Because today’s digital payments are provided by private players, their objectives will remain unchanged: profit. And who can guarantee that the fees involved in using these apps won’t increase, possibly on the grounds that processing fees and network maintenance costs have risen. And not to be forgotten, our all-digital savings will be an excellent treat for liquidity-starved governments and commercial banks who will finally be free to impose negative interest rates to savers across the board without the fear of a run on the bank.

In a country where consumer confidence in their authorities and digital payments providers are high, this shift might not seem alarming, like in the case of Sweden. But regardless of the government in place, there should be a greater effort to inform consumers of the issues at stake to allow them to make an informed opinion about the shifting payments landscape, without putting them in front of a fait accompli. 


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