There are two banknotes in my wallet. Freshly withdrawn from the ATM almost six months ago, their crisp edges have remained untouched ever since. They are relics from a pre Covid-19 life, when physical cash did not represent the potential spread of virus and payment by digital wallet was convenient, not a lifeline to the outside world.
We have seen a wave of speculation that the arrival of Covid-19 signals the end of cash, prompted by an undeniable rise in the popularity of digital payments as a result of lockdown restrictions and government advice against the handling of physical currency.Â
Pandemic pressure
There is clear evidence of an accelerated decline in the use of cash since the start of the Covid-19 crisis. In the Middle East and Africa alone, surveys report that nearly two in three customers (64%) said that the pandemic has led them to use less cash, and 81% said they will continue to use contactless post-pandemic.Â
The increased use of card-not-present transactions, or ‘push payments’, has been highlighted by the rising popularity of digital wallets both regionally (for example, BWallet and BenefitPay) as well as globally (for example, ApplePay and SamsungPay). Other digital payment mechanisms have trended globally including the use of Unified Payments Interface in India, which reached an all-time high of 1.34 billion transactions in the month of June.
This is not the first time the use of cash has been affected; the introduction of plastic cards in the 1990s and the more recent arrival of online payment gateways and smartphone apps have both resulted in a steady trend away from notes and coins. However, the pandemic has accelerated the decline at a remarkable rate, testing the agility of businesses and consumers who were quick to offer alternative payment options. Prominent delivery services, such as Deliveroo and Talabat, responded to the crisis by introducing entirely ‘contactless’ drop-offs, and many stores have removed the transfer of physical currency altogether, with ‘no cash accepted’ signs displayed in shop windows and at cash registers.
Low-income option
Despite the growing threat to the popularity of cash, it remains an essential and preferred method of payment for many due to its familiarity, ease of use, anonymity and security. The Central Bank of Bahrain has reported a consistent rate of ATM cash withdrawals over the course of the pandemic, with a reduction in the volume of transactions of around 10%.
Cash remains the chosen mode of payment for many – particularly low-income and blue-collar workers. And while the pandemic has pushed digital payments into the spotlight for the majority, I do not believe cash will become obsolete in certain parts of the world.
A cashless economy will require the creation of financially inclusive payment solutions to capture the elusive unbanked and underbanked cash-reliant population on the outskirts of mainstream banking systems, who are traditionally paid in cash for their labour and lacking the financial and digital literacy to access available alternatives.
Covid-led barriers to physical transactions have amplified the potential of the digital payments landscape. Many customers who were pushed by the pandemic to switch to digital may not return to using physical cards or cash, thus driving demand for the widespread adoption of digital payment solutions.
Survival tool
Once viewed as a competitive advantage, digital is now essential to survival across all sectors and is at the forefront of financial services.
The health crisis has accelerated digital literacy and the use of digital wallets and mobile transactions at the point of sale including facial recognition, QR codes and nearfield communication or contactless, with even humble markets and corner shops supporting digital payments. This transformation of commonplace payments has created an expectation that services will provide digital payment options.
The demand for digital is not new. Digitisation has been on the agenda for banks and financial institutions for years, but it has been a slow and sometimes difficult journey to convince more traditional industry players that the train has arrived. The pandemic has acted like a catalyst, a wake-up call, signalling the final boarding call for those who have not yet invested in a digital strategy.
Partnerships between the regulator, banks and fintechs are key to capitalising on the opportunities presented by the pandemic and its impact on the payments ecosystem.
A clear example of successful collaboration between regulator and banks is the planned introduction of tokenisation in Bahrain, which has been spearheaded by the Central Bank of Bahrain, Benefit and ila Bank, the digital mobile-only bank backed by Bank ABC, and will enable tap-and-go mobile payments in Bahrain.
Affecting all areas
Even the infrastructure of currency has been affected by Covid-19. Traditionally conservative regulators are fast-tracking their switch to digital and several banks are exploring central bank digital currencies as a potential solution to distribute funds as part of economic stimulus measures, even in many parts of the Middle East where digitisation is in its infancy. The Central Bank of Bahrain had already backed the adoption of digital currencies by announcing its plans to pilot the toolkit developed by the World Economic Forum in January 2020, and plans for an experimental joint digital currency between the UAE and Saudi Arabia have also been announced.
Moving the financial ecosystem online requires a robust assessment of risk and heavy investment in information and cybersecurity. Just as business continuity planning has risen to the top of agendas during the pandemic, cybersecurity, fraud prevention and risk management measures are essential going forward to secure the future of digital payment services. This is another area that benefits from enhanced partnership between financial institutions, regulators and fintechs to harness the potential of advanced machine learning and develop innovative solutions for data protection and fraud detection.
The Covid-19 crisis has highlighted the value of current advances in payment technology, proving that customers are well informed and adaptable, and that through collaboration of service providers we can provide safe, frictionless and convenient payment mechanisms. By further developing the payments ecosystem and building an open, interoperable platform, we can seize the opportunity to access undeveloped markets and transform traditional banking services.
One clear example of this is the growth of the ecommerce sector since the pandemic hit. The as-yet untapped ecommerce market across the Middle East represents excellent long-term potential, with reports that the industry is flourishing and growth rates ranging from 90% to 500% mainly across the food and beverage, health and education sectors.
The future now
So, what does all this mean for the future of the payments industry?
I believe that we are now presented with a golden opportunity to innovate because we have seen only a tiny fraction of the future potential of payment solutions. Payments will become further embedded into customer journeys than ever before. With greater penetration of smart appliances and machines (for example, the Internet of Things) enabling automated payments between devices without human intervention using smart contracts, artificial intelligence enabling deviceless biometric payments on customer side such as voice and face payments (already begun in China), and even brain-computer interfaces, disruptive ‘futuristic’ payment solutions may become the norm sooner than expected.
The line between our digital lives and our physical lives is blurred, and Covid-19 has made the virtual life a daily reality for many. The payments ecosystem must mirror the digital migration of our population and offer more intuitive and seamless payment options.
Cash will categorically not disappear, but as consumers embrace convenient, secure and frictionless payment options, there are limitless opportunities for financial services providers who lean into the trend and embrace the potential of digital.
Sael Al Waary is the deputy group CEO of Bank ABC and chairman of the advisory board of ila Bank.Â
