This does not mean that there have not been challenges. Over the past couple of weeks, a number of events around the globe could be early signals that payments will be facing choppy waters in the future.
These events underscore the major shortcomings of payment systems: financial inclusion; fairness, resilience; privacy.
Take financial inclusion. According to the World Bank’s Global Findex database, 1.7 billion adults lack a transactional account with a financial institution and in 2017, nearly half (48%) of the world’s adult population had not made a single digital transaction in the previous twelve months. Over 200 million micro, small and medium-sized businesses also lack access to basic bank accounts and adequate financing. Contrary to a common perception, cash is not just a payment mechanism for the vulnerable and the unbanked. Cash is and should remain a vital part of the transition from exclusion to inclusion.
What about fairness? According to the Bank for International Settlements Annual Economic Report, Black Americans are less likely to have bank accounts than other groups in the US, and the same is true for poor people in Europe. Small businesses tend to bear the highest costs for card payments, and BIS data show that cash transactions remain cheaper to process for merchants. The Findex database shows that women are over-represented amongst the unbanked: 980 million women or 56% of the total do not have a bank account. In some countries women are not allowed to open a bank account.
Resilience has been severely tested throughout the pandemic. Banks have escalated their business continuity planning by dispatching staff to disaster recovery sites and enabling people to work from home. In many countries, governments have declared that the delivery of cash constitute essential economic activities and have been exempted from lockdown measures. But the sheer scope of the crisis and the number of people under lockdown has also led authorities to limit the quality of streaming services such as Netflix or YouTube to prevent the broadband services from crashing.
And what about privacy? One might think that privacy has been relegated to the bottom of the list of social priorities as lockdown policies deprived billions of their most fundamental rights: travel, work, meeting friends and family… However, it is noteworthy that coronavirus-tracing apps which have been presented by authorities as a key weapon to defeat the virus, have been met with a cool reception in most countries. In Singapore, only 20% of the population have downloaded the app. In Germany, 14% of the population downloaded the app in a week, in spite of a broad marketing campaign. In France, 3% of the population downloaded the app three weeks after it was launched. Norway suspended its use over privacy concerns. In India, which is the only democracy where the app is mandatory, privacy activists mounted a legal challenge. In Spain, it has been reported that the government had accessed consumption data of companies and citizens through credit and debit cards , to monitor the evolution of the pandemic.
Cash provides financial privacy thanks to its anonymity. A healthy democracy needs financial privacy and this is increasingly recognised by authorities worldwide. An International Monetary Fund paper on Central Bank Digital Currencies concludes: “In designing money, national authorities already face a trade-off between satisfying legitimate user preferences for privacy and mitigating risks to financial integrity.” It remains to be seen whether CBDCs can offer the same financial privacy as cash.