The trigger for electronic cash comes from the Underbanked.


The humble ATM is holding up well. Folding notes are OK. According to research firm RBR, reported here, ATM cash withdrawals rose almost as quickly as cashless payments since 2010 (7.1% vs 7.6%).

4 reasons cash is so resilient

# 1: Merchants don’t like the fees on credit cards.

# 2:Cash is anonymous. It leaves no trail.

# 3: Many people find cash is better for budgeting. You withdraw a certain amount from your ATM and a quick look in your wallet tells you whether you should forget that impulse purchase.

# 4: ATMs are everywhere. It is easy to get cash.

Now look at the Rest of the World

Those 4 reasons are true in developed economies such as America and Europe aka the West.

Now look those same 4 reasons trough the lens of the Rest of the World in places like China, India and Africa where millions are joining the middle class. They are not the Unbanked, living in total poverty. They are the Underbanked with rising incomes but only limited access to traditional financial services.

This is where we see the leapfrogging story that we call “first the Rest, then the West”.

# 1: Merchants don’t like the fees on credit cards. This is even more true in the Rest. Many merchants still don’t accept cards and many consumers don’t have cards.

# 2: Cash is anonymous. It leaves no trail. True everywhere including the Rest.

# 3: Many people find cash is better for budgeting.  This is even more true in markets where consumer discretionary spending is so low.

# 4: ATMs are everywhere. It is easy to get cash. This is where, like the lack of credit card penetration, the leapfrogging story plays out. To understand this, imagine the bell ringing from the pizza delivery guy.

Paying for pizza

Imagine the pizza delivery coming. You don’t have a credit card and there was no ATM on your way home from work and you are low on cash. But you have some cash on your mobile phone and the delivery guy has a mobile phone. Problem solved. This explains the stunning growth of mobile wallets such as Paytm in India.

This is cash, with all the advantages of cash, but just electronic rather than paper. Electronic cash can be anonymous (but whether it always is will be a trust issue that will be a factor in the success of mobile wallets). Like a physical wallet, this makes budgeting easy; with a couple of taps on your phone you can see how much you should spend.

Bitcoin is nowhere in this story. Mpesa is part of the story, but electronic cash is simpler. Electronic cash is simply the venerable stored value card gone to a mobile phone. Mobile wallets are just electronic Fiat cash with no regulatory issue (unlike Bitcoin) and no single company like Vodafone calling the shots (like Mpesa). Sometimes simple is best. Expect this to reach the West via Refugees who cannot use ATMs or Credit Cards.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.


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