In this blog:
We discuss how businesses relying on cash as a primary form of transaction burden economies, its implications on society and why it’s vital to solve it and what steps we must take to transform them as businesses. Your business has a far greater impact than you think! Find out how cash impacts the economy and society at large.
Developing economies rely heavily on cash, even in the post pandemic period. The vast informal economy of developing countries relies on cash to sustain itself. We may have arrived in the digital age however; people seem to believe in the tangible – what is around them. Cash in circulation is growing around the globe, where 80% of the worldwide payments continue to be cash transactions. Currency in circulation rose by 40% in Africa from 2011 to 2016 alone. While Pakistan alone faced a 10.4% increase in cash in circulation as compared to that of last year. Although governments across the globe have taken aggressive initiatives to counter the rising flow of cash, the digital divide – particularly in emerging economies, has forced consumers and businesses to accept cash as a primary form of transaction.
Despite innovations by fintechs, to move from cash to “cashless” economies, the appetite for cash remains evident around the globe and particularly in emerging markets and developing economies, what is known as EMDEs, where cash has become the main vehicle for retail payments. While driving the underlying risk and drawbacks of handling cash at businesses, it impacts the economy to an equal or to an even greater extent, stagnating growth of the economy. According to an article published in Harvard Business Review, “There’s an assumption that cash is best when money is tight” even though it may be untrue.
While societies progress towards instant mobile payments, and on a bigger scale, to blockchain and a decentralised banking system, these methods of cash reliance deploy economies with greater challenges. For individuals, cash imposes a regressive tax, where unbanked individuals pay 5 times higher to access their money as compared to those registered on formal banking sectors.
Cash economies also pose a higher risk towards tax evasion. Every year, just African countries lose about $50 billion in taxes – which is more than the amount of foreign development aid that they receive, while the United Nations Economic Commission for Africa (UNECA) puts an estimate to a much higher $100 billion lost in taxes. If even 20% of the underreporting is enabled by the cash economy, Africa loses about $20 billion a year in terms of taxes, creating social implications for the country – in terms of health care systems, transportation infrastructure and standards of living.
The vast majority of the costs of cash, because of those lost in taxes, is borne by society at large – creating a vicious cycle. While developing countries rely on the usage of cash for daily transactions because of the lack of resources created by the digital divide, the digital divide promotes the use of cash while the use of cash continues to nourish the same.
For economies to break the leash and move forward, decision makers – constituting of small-scale business owners to multinationals must take a step towards creating a digital friendly financial ecosystem as corporate social responsibility. As much as this change would help ease the oblivious cash management implications engulfing businesses and deteriorating their growth, it would create a bigger and better impact. Supporting the economy and playing a part in creating inclusivity and social justice on a national scale.
Being user-centric, we understand cash-based transactions are vital for SMEs to run businesses and maintain client dealings. We’re the “digital on-ramp for cash” – as a business you get the ability to accept cash, without going through the hassles of management. Keep your processes transparent to improve visibility, avoiding internal and external discrepancies, eliminating reconciliation costs and improving the working capital cycle. We’re helping businesses automate and digitize cash based transactions – enabling them to focus on scaling up their business and eliminating the impacts of cash. We’re here to help you mitigate cash based implications, chat with us today!