According to the World Bank, access to the internet—and smartphones in particular—is having a measurable effect on financial inclusion. In 2011, just half of the adults in the world had access to a bank account or mobile money provider. That has since increased to 69%, with 1.2bn more people having opened a bank account.
This 69% is due in part to the disparity between a relatively well-banked developed world and a developing world at the other end of the scale. For example, in Sub-Saharan Africa, there has been little change in the number of bank accounts, but 21% of adults now have mobile money accounts. There are 95 million adults in the region that use only cash, and 65 million who use what is described as “semi-formal” methods of saving.
This increase in the use of mobile money solutions and digital services means more and more people will have access to financial services. And so, with the world moving towards digital money and becoming truly cashless, it seems that financial inclusion hinges on making these services more widely available.
So will financial inclusion mean more technology and less cash? Not quite.
Cashlessness is not yet here - anywhere
Financial inclusion won’t mean that people need to use cash less. In fact, it often means they require better access to cash.
No economy is going to switch over instantly from cash to cashless. It’s a long process, and one that, to date, is not yet complete in any country. Even where this process is furthest along, there is still a need for cash.
Sweden is usually held up as an example of how a cashless society can thrive. Buy a coffee and cake in Stockholm, jump on a bus, even visit a supermarket — cash is unlikely to be the first payment option in every one of these. In 2017, only a quarter of people said that they use cash once a week and just 15% of payments in the retail sector are made in cash. If any country is going to go completely cashless anytime soon, it’s likely to be Sweden.
However, when asked, it turns out that two-thirds of Swedes don’t want to get rid of notes and coins completely. A combination of caution around the possible failure of a cashless system and paranoia around data breaches and how payments are tracked means that the last few percent of cash payments may always be out of reach for cashless initiatives.
Even if a completely cashless society is possible, it is a long process, and any attempts to shortcut it have not gone well so far. India’s demonetization programme, for instance, was an effort to move as many people as possible away from cash and towards the use of bank accounts. This resulted in widespread disruption to trade, especially agriculture and fishing, and more inactive bank accounts than anywhere else in the world.
Financial inclusion demands cash
Financial inclusion provides people with opportunities that would otherwise be out of reach. It gives the unbanked access to credit and insurance, makes it possible for people to start businesses and invest in their education and, ultimately, unlocks their ability to plan for long-term goals.
Of the United Nations’ seventeen Sustainable Development Goals, seven have been identified as being enabled by financial inclusion, including increasing gender equality, ending hunger and eradicating poverty. Simply put, giving people access to financial services helps make the world a better place.
Financial inclusion means more than just access to a bank account. This is the entry point, but a bank account also means better access to financial services in general, and a greater number of transactions taking place. Many of these will be in cash. This may seem counterintuitive but it’s necessary if we are to truly include everyone. There are still many people whose daily lives are inherently cash-based and for whom digital money doesn’t yet present a more convenient alternative. So, at least in the short term, financial inclusion will mean growing volumes of cash transactions.
Cash use is also likely to increase thanks to other related factors. Over the last decade, the amount of money being sent home by migrants has increased by 51%. According to the UN, this has had the effect of lifting millions out of poverty. But again, these funds will often be withdrawn and spent as cash.
Cash here is not a barrier to financial inclusion, rather an enabler of it. As more and more people gain access to digital financial services, the number of cash transactions may decline but, until then, the increasing use of cash should be seen as a positive sign as commerce and trade increases.
A cashless society may be seen by some as the ultimate goal for financial inclusion, but it’s not yet clear if this is attainable or even desirable. Increased access to technology is, however, undoubtedly going to help, as mobile technology and internet penetration make access to financial systems simpler. The fully-digital future may still be a way off, but the path to it is paved with notes and coins.