Heavy Cash Use Indicates Financial Exclusion

Across the four Cost of Cash countries, there is a consistent gap between the percentage of adults who reported saving money and those who kept their savings at a financial institution. Even in the US, where 67% of adults maintained some form of savings in 2011, only 50% kept their savings in an account at a financial institution. The difference is even larger in Egypt, Indonesia and Mexico, where less than half of savers have access to a financial institution.

The discrepancy between those who save and those with a savings account suggests that many businesses and households are saving their money in cash. Even in countries where savings clubs provide a viable alternative to savings accounts, group savings are likely stored in cash. Increasing access to savings accounts can help to reduce reliance on cash and the risks that large cash holdings entail.

Access to an account at a bank or MFI also provides consumers and businesses with a low-cost way to send and receive payments. Businesses that use a bank account are able to minimize their cash holdings while also reducing the transaction costs associated with paying suppliers and receiving payments from customers. For households, account ownership offers a convenient way to receive wages,  government payments and  remittances. This allows households to avoid traveling long distances and standing in line to send or receive payments. Moreover, accounts provide a low-risk, non-cash instrument for storing funds until they are needed.

Unfortunately, given the low rates of financial inclusion in Egypt, Mexico and Indonesia, account use for these purposes remains limited. This is particularly true in Egypt, where account use for payments is well below 5%. However, over 10% of Mexicans now use their accounts to receive wages, with Indonesia not far behind. Not surprisingly, most Americans use their bank accounts to receive wages, reflecting the widespread availability of direct deposit among American employers.

Another measure of financial inclusion and an indicator of cash dependence is the use of electronic payment instruments. Many electronic payment instruments such as debit cards, prepaid cards and mobile phones serve both payment and savings functions, making them potentially effective tools for increasing financial inclusion and reducing reliance on cash. However, aside from the US, the countries being studied by CEME lag behind in terms of electronic payments adoption.

Comparing account use with the types of electronic payments used, it appears that countries where wages are received by direct deposit tend to have higher debit card ownership. But electronic payment usage is also lower than debit card ownership, which suggests that these cards are more frequently used for savings or withdrawals than for payments.

In countries where bank account ownership is low and electronic payments infrastructure is underdeveloped, mobile phones have the potential to provide the unbanked and under-banked with a way to save money and make cashless payments. Yet, of the four countries discussed here, only Mexico has seen a small uptake in mobile money. Still, the numbers are not extraordinary: In 2011, only 4% of Mexicans used their phones to pay bills, while 3% used them to receive payments. But it is slightly higher than in Indonesia and Egypt, where less than 1% of the population uses mobile money.

The Bottom Line

In the words of the Better than Cash Alliance, “When designed with financial inclusion as a goal, electronic payment programs can offer stepping stones to greater financial tools and services.” Just one more reason to promote a shift away from cash and towards alternative payment technologies.

Page 2 of 2 | Previous page

Leave a comment