BLOG: What if we quarantine cash in the time of COVID-19?

Jamelino Akogbeto, ADFI Digital Financial Services Specialist.

The COVID-19-related economic disruptions and their impacts on payment behavior across West Africa is worth urgent examination.

To address the crisis and comply with measures taken by public stakeholders, supermarkets have had to align with a number of restrictions, including limited opening hours,  social distancing rules (at least one meter between customers), fast restocking processes and encouraging customers to make cashless payments. But in countries with strong cash cultures, how can we stimulate customers to use alternative payment channels? Given the social distancing rules, how can the customer pay at the cash register? And, how best can we contain the spread of the virus if transactions are still cash-based, knowing that the virus is estimated to survive up to 12 hours on paper. As we near total confinement, how will commercial transactions, especially for emergency products and services be made?

Digital payments, especially via mobile money, are seen as a safe alternative to commercial transactions. To promote their usage, a number of African central banks have taken measures to encourage people to switch to digital payments such as raising account deposit thresholds and waiving low transactions fees, etc.

However, this may not be enough to effectively stimulate large swaths of people to switch to digital payment in the WAEMU region (West African Economic and Monetary Union). This Union includes eight countries (Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Niger, Senegal and Togo) with a combined population of more than 120 million and where mobile money is undergoing a dazzling boom. Yet, mobile payments, although increasing, have not been as successful as peer-to-peer mobile transfer services. As an example, in 2018, a total of CFA 23,533 billion (about 40 billion dollars) worth of transactions have been made via mobile money of which only CFA 1,117 billion (less than 2 billion dollars) were related to mobile payments. It should indeed be recognised that much progress was made in 2018, which saw a threefold increase in the value of mobile payment transactions compares with the previous year. Despite this growth and the efforts made by mobile money providers and other stakeholders, cash culture here is still formidable. Much like the use of payment cards, customers have been resistant to mobile payments. There are several reasons and I would like to briefly highlight a few.

1. The business model is not attractive enough for the merchant. As with the card payment, the merchant is charged for all transactions (0.5% to 1.5% of the value of the purchase) without having been convinced by the value proposition – added security and minimal change management.

2. Customers don’t believe in the value proposition behind the face-to-face payment, in comparison to remote payments (ie. bill payments). The benefits of added security, as many studies and human-centric design experiments have shown, don’t really drive customer appetite.

3. Mobile payment customer experience is often suboptimal, resulting in low customer adoption. Technical issues and inefficient management of customer complaints when transactions fail chips away at customer trust.

However, given the current crisis, mobile payments are now more than ever a product to promote. To facilitate the uptake, I recommend we quarantine physical money. To do so, I propose the following:

• Limit direct deposits through mobile money agents and encourage bank-to-wallet (transfers between bank accounts and mobile wallets) and P2P (Peer-to-Peer) transfer for in-cash transactions. I recommend that these transactions come with zero fees;

• Waive all the merchant payment transaction fees. These transactions will then be free of charge for both the customer and the merchant;

• Make payment by cheque, bank card or mobile compulsory for all the face-to-face transactions. To achieve this, measures should be taken to onboard all merchants as mobile payment acceptors and provide them with all the necessary equipment;

• In the informal sector, especially in local markets, merchant payments are already made via P2P mobile transactions. This must be encouraged and all P2P transactions should be made free of charge as suggested above;

• Develop e-commerce businesses by encouraging people to connect to available applications or websites to purchase online without any personal or cash movement;

• Lastly, promote salaries and other benefits payment via mobile money, especially for the unbanked.

It is critical that governments take legal measures to implement digital payments as broadly and as quickly as possible in order to mitigate the dire effects of a prolonged Covid-19 crisis. Looking further at post-crisis measures, we must build a cashless ecosystem that is sustainable and above-all, inclusive.