Digital transactions and payments are on the rise on the Caribbean, but it is nowhere near to replacing cash as the preferred mode of doing business. We outline five reasons why that is the case.
Over the past year, due to the social distancing restrictions that were mandated, many organisations were required to limit the number people allowed in confined spaces. It thus resulted in controlled access into buildings, such as banks and government offices, and long queues outside, whilst people waited their turn.
Under those circumstances, more people were prepared to embrace the digital options that were available through which business or transactions could be conducted with organisations. With respect to banks, for example, more customers moved to online banking – which many banks have been promoting for routine transactions and to relieve the strain on the on-premises resources.
A recent article published in Jamaica, by The Gleaner, noted that due to the COVID-19 pandemic, there had been an increase in digital transactions, particularly electronic funded transfers, and correspondingly, a marked decline in the number cheques that had been issued. The trend appears to be continuing, and may signal that more Jamaicans are going digital for their financial transactions.
It is likely that similar trends have experienced across the region, as both banks and their customers were forced to leverage the digital payments and transactions facilities more than they had before. However, although those services might be convenient, the Caribbean region is nowhere close to choosing digital payments over cash. We outline five reasons why cash is, and is likely remain, king is the region into the foreseeable future.
1. Still of high rate unbanked and underbanked customers
However, and to a considerable degree, the Caribbean region is still a cash-based society. Estimates suggest that about half of the region’s population are underbanked or unbanked, and in Jamaica, for example, around 70% of the population are estimated to be unbanked or underbanked. To be clear, ‘unbanked’ means that individuals do not have access to the services of a bank or similar financial organisation. On the other hand, ‘underbanked’ refers to individuals who, although they have a bank account, considerable portion of their financial transactions do not pass through that account, and neither do they use many of the facilities and services available through traditional banks, such as for loans or credit cards. Instead, they rely heavily on alternative financial services, such as money orders, hire purchase arrangements, cheque-cashing services, and payday loans.
Individuals who are unbanked or underbanked tend to operate primarily with cash, and so businesses must still accommodate that way of doing business. In countries, such as Jamaica, where the unbanked or underbanked are in the majority, there is likely to also be a strong emphasis on analogue (or non-digital) modalities – that are not just limited to financial transactions and payments – that can support and facilitate cash-based transactions.
2. Weak interoperability between digital payments systems
All digital payments modalities are not created equal. Some might be more convenient and accessible than others, frequently, but they do not seamlessly interoperate with each other. For example, funds held in a mobile money account, or a mobile wallet, cannot be easily deposited into a bank account, or used to settle a credit card bill, or even to pay for the odd purchase.
There is still a very siloed approach to digital payment/transaction platforms, which it could be argued, weakens the entire digital payment/transaction system, by segregating customers by the digital financial service they use. Mobile money and mobile wallet facilities may be more heavily used by underbanked and unbanked individuals, but those facilities are not always as readily accepted by the more traditional or well-established businesses. However, when all other fails, cash will be accepted.
3. Weak POS infrastructure
Have you even been in the cashier, whipped out your credit card to settle your purchases, and one of two scenarios occur: either you are then advised that the ‘machine is not working’, or the attempts to process the payment are not successful. In either instance and to leave with your purchases, you may have only one option: to cough up the cash to settle the bill.
Across the Caribbean, and in many businesses the point of sale (POS)infrastructure is arguably weak. Traditionally, most customers conduct business in cash, and so although there might be digital payment terminals on site, its existence might have been considered discretionary, rather than essential. As a result, the resources to support digital payments may be skeletal at best. For example, in stores with multiple cashiers, there might be few POS terminals, with all of them connected to the same internet line.
4. High transactions charges and maintenance fees
Although using a credit card, debit card or wire transfer, are convenient ways of paying for services or sending money, for example, there tend to be charges associated with these digital/electronic transactions. Depending on the country, the transaction fee paid by sellers can range between less than 1% up to around 5%. Typically, debit card transaction fees are towards the lower end of that range, whilst those for credit card transactions are towards the upper end. Additionally, there would be maintenance fees payable for the POS terminals/systems that has been installed, which is an additional cost to the business.
Although those transaction rates might seem relatively low, the payment to the banks comes off the top, with the remainder being used by the seller to cover all of its costs. Hence sellers may more inclined to accept debit cards, due to their considerably lower transaction fees. With regard to credit cards, and again due to their higher transactions fees, sellers may institute a minimum payment/charge that will be processed. Depending on the threshold, sums below that amount would need to be settled in cash (or by cheque if permitted), which it could argued still perpetuates the need for, and use of, cash.
5. Digital adoption by businesses still low
Among micro and small businesses across the Caribbean region, which tends to constitute a large portion of the commercial sector, the adoption of digital payments services is still relatively low. A key reason as discussed above is the high fees and charges by the sellers to provide digital payment facilities to their customers. However, additional challenges may include
- not readily satisfying the eligibility criteria to secure POS facilities
- the limited availability of POS terminals, and
- the limited telecoms infrastructure that might be available at the business’ premises to support digital transactions or payments onsite.
In summary, and if digital transactions or payments is not an attractive to a business, or is not in great demand by tits customers, there is little incentive to jump through the hurdles to secure a POS facilities. As previously highlighted, cash is still widely accepted, and is likely to be maintain its status as king well into the foreseeable future.
Image credit: QuoteInspector.com
Very good article!!
Thank you for this. However, it is not possible to have successful digital transaction/e-government services without preparing the public to receive these services. This is one of the greatest failure (apart from greedy short-sighted bankers) that continues to hinder the process in the region – poor education (and I am not referring to marketing and social media campaigns). All this expenditure on technology with low literacy rates and knowledge-base to embrace this change is problematic. Regional citizens work with international firms but payment other than through these expensive wire transfers make our businesses non-competitive with other countries. We have a long way to go.
Trying to get the unbanked into a system that turns out to be more expensive than simply remaining unbanked is a uphill battle. It costs too much, too many hoops to jump through and then you get trapped in a “park at your own risk” EULA.