The evolution of payment systems

A while back during a trip to one of Africa’s metropolitan cities, my curiosity for self-driven transportation got the best of me. With cash burning a hole in my pocket, I opted to lease a vehicle I hoped would simplify my travel. Excitement ensued as a neon sign of one of the well-known car rental companies shone bright in my peripheral. Without wasting any more time I strode confidently toward it. There was an air of confidence as I approached the counter of this Rent-a-car shop; the overwhelming thought on my mind was the car specifications - brand, top speed, seat fabric and extra room for my now inflated ego. “Your cash is no good here.” The reverberating statement took some time to resonate in my distracted conscience. The ultimate anticlimax to this minor action sequence in the story of my life. I inquired why the haste to decline perfectly legal tender. The store teller duly informed me that they only accept credit cards. This was a policy I wasn’t familiar with, and therefore sought more clarification. He went on to explain that cash, while legal, didn’t provide the company with the security cover they required to lease their cars. The literature provided further explained the importance of card payments, accessible in various locations worldwide. The concept of cashless transactions wasn’t new to me then, I just didn’t expect its relevance to be immediate. Unsurprisingly, this is reflected in the current payment preference for Africa today. With 9 out of 10 payments in cash, it’s fair to say that the transition into wide scale use of alternative payment systems, will not happen overnight. Adoption of cashless payment systems in developed countries has undoubtedly been a key aspect of economic growth over the past decade. But how relevant is it to developing countries and what case does it make for fast tracking growth? From a consumer point of view, mobile and card payments offer convenience, security and cost efficiency. One can now make instant payments using their cards, online or from their phones as opposed to enduring strenuous and costly trips to retailer outlets, banks, or government offices. Time and money saved here is quite considerable and can be invested in more productive ventures. Illustrating just how significant the opportunity cost is with cash payments. E-commerce has also provided consumers with an array of products and services, accessible at their fingertips. The implication here is globalization of our markets. Local companies must therefore improve product quality to survive. Businesses don’t have the luxury anymore to hide behind monopoly type markets. A positive outlook from a consumer perspective. Merchants on the other hand are able to offer their products to a wider audience, both locally and internationally. Supplier payments whether in Musanze or Moscow, are effected in a matter of minutes, and movement of cash is relatively secure through this digital platform. Government in turn benefits from a wider, refined and more transparent tax base. For citizens interacting with the Government, processing time of government related services is exponentially reduced through mobile and online payments, while cross border trade is vastly facilitated. Obviously all this sounds good on paper, but how practical is it? A deeply ingrained cash system would take a while to replace, not to mention the expenses involved in replacing the existing cash infrastructure. Additionally such a transition would require a massive shift in mindset and behaviour, as the majority of citizens and merchants currently prefer cash payments. My sentiments are that a cashless economy is the inevitable future. Its convenience, market accessibility, potential for revenue growth cannot be ignored by any growing economy. Important to note is that cashless economy doesn’t mean a complete absence of cash but rather one with minimum cash usage. For this to happen, the financial and public sectors must use creative means and ensure service availability to educate and encourage the public to transact on alternative digital channels. Government can also play its part by granting tax incentives to companies that adopt digital payment systems. With a cashless economy, everybody wins, consumers are guaranteed convenience and security, businesses benefit from boosted sales volumes and the Government enjoys a wider tax base. The author is the Head of Marketing and Corporate Communications - KCB Bank Rwanda. rw.kcbbankgroup.com

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The evolution of payment systems