Health and Healthcare Systems

This major issue needs to be resolved before we can become a cashless society

Card payment

COVID-19 has accelerated online cash trasnfers. What does this mean for racial inequality? Image: Quartz

John Detrixhe
Future of Finance Reporter, Quartz
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Health and Healthcare Systems?
The Big Picture
Explore and monitor how Social Protection is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Social Protection

  • COVID-19 has accelerated the use of digital payments.
  • But this move to contactless transactions has highlighted inequalities.
  • 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, according to a report.

The coronavirus pandemic has underscored society’s disparities in everything from health to employment and wealth. The crisis has also highlighted a lack of fairness in digital payments, which are quickly overtaking cash transactions. Central bank officials are looking at ways to make these transactions fairer and more inclusive.

Payment cards and digital wallets were catching on before the spread of Covid-19, but the shift has accelerated. Contactless cards and wallets got a marketing boost from the (overhyped) concern that cash could help spread the virus, and those worries prompted more stores to go cashless. Widespread lockdowns have given e-commerce a tailwind, another boon for digital transactions.

Have you read?

The downsides of a rapid shift to digital payments are well known—the elderly, poor, and people with handicaps can be especially unprepared. 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, according to a report published today by the Bank for International Settlements. Small businesses tend to bear the highest costs for card payments, and BIS data show that cash transactions remain cheaper to process for merchants.

Unbanked and underbanked people in US by race/ethnicity:

Unbanked and underbanked people in US by race/ethnicity
Those how are underbanked or unbanked, by ethnicity in the US Image: Quartz

“There is still a long way to go in terms of increasing access, reducing costs, and making the system more efficient,” Hyun Song Shin, head of research at the BIS, said in a phone interview. “The cost of payments is still quite high considering the technology advances that we’ve made, and the cost is borne disproportionately by the unbanked or underbanked, and on small businesses.”

Recent government stimulus programs have shown just how clunky and inefficient payments are in some countries. The US issued paper stimulus checks and direct deposits to Americans, but some of that money got tangled up in a system of middlemen. The difficulties came at a time when some were counting on that money for essentials like buying food.

The BIS report adds to the discussion between the central banks about how to modernize the payments systems for the digital world. An earlier publication from the institution focused on financial stability: More than a dozen countries are either researching, piloting, or, like China, have ongoing work in place for central bank digital currencies. As physical cash becomes less prevalent, consumers are becoming more reliant on commercial intermediaries like banks and fintechs. In a financial panic, consumers may regret not having as much access to physical notes and coins.

Today’s BIS publication points out that a modernized payment system could also promote financial inclusion. Some, such as the elderly and other groups, rely on paper money for budgeting and may not be comfortable going online to handle their finances. The poor and minorities are much less likely to have bank accounts. Transferring and exchanging money from one currency to another tends to be more expensive for those who can least afford it. And while more people than ever have banking and transaction accounts, these services remain far from universal.

A central bank digital currency—a form of electronic cash issued directly from central banks to consumers—could, the thinking goes, reduce some costs and reach vulnerable parts of society. India’s unified payments interface (UPI) and its Aadhaar biometric identity systems have shown that a government utility for digital payments can quickly reach a large population. In the US, the Federal Reserve plans to overhaul its payment system to install FedNow, which would provide for real-time transactions between banks. Central banks can foster competition among commercial players while promoting interoperability between systems, the BIS wrote.

But promoting new forms of digital payments will have trade-offs. A central-bank digital currency could undermine the commercial banking system by facilitating bank runs. At the same time, the need for privacy and anonymity has to be balanced against worries of money laundering and illicit finance.

As cash becomes less popular, one way to protect disadvantaged groups is to protect existing system for physical money. In the UK, a country that’s going cashless faster than most, the government says it is committed to keeping the infrastructure for polymer notes and metal coins from collapsing. BIS research suggests that central bank digital currencies and a government utility for consumer transactions could also play a role. These efforts could make transactions cheaper, easier, and more accessible for everyone.

Loading...
Loading...
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Health and Healthcare SystemsFinancial and Monetary SystemsTrade and Investment
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Half the world is affected by oral disease – here’s how we can tackle this unmet healthcare need

Charlotte Edmond

May 23, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum