Japan’s Tohoku region was transformed from seaside haven to ravaged wasteland when an earthquake-induced tsunami struck in March 2011. Over 15,000 people died. Among the survivors was a sad, leather-faced old man — I will call him Ogata san — who, when asked a few weeks after the tragedy what he would have done differently to prepare himself, answered, “I wished I had packed a decent pair of shoes, my toothbrush … and some cash.”
Experiences like this point out that ‘cashless’ approaches to money management in society — especially societies facing calamity — are misconceived. Yet the world of disaster management has become overly fixated on providing relief via ‘mobile money’ approaches that they perceive to be entirely cashless. This contradicts not only what those affected by disaster think about money and how they use it, but ignores how the commercial world of ‘cash management’ actually works. As a result, the humanitarian community is failing to give due consideration to the full range of ‘cash management’ options available… an approach which may not always be in the best interests of those struggling to recover from disaster.
In an effort to widen the debate and foster greater collaboration between all stakeholders involved in humanitarian cash transfer programming (CTP), the following ‘reality checks’ address some of the most commonly held misperceptions about how cash is managed in society:
Cash Misperception # 1: Cash is redundant.
Despite political moves to embrace the utopia of a cashless society, cash remains by far the most used payment instrument across the world. Even in the UK, the Bank of England reports that the value of cash in circulation has risen steadily year-on-year by about 11% for the past 20 years i.e outstripping inflation and rises in GDP. This cash is made available to the general public primarily through ATMs.
Cash Misperception # 2: M-Pesa is the mobile model to emulate.
In light of M-Pesa’s impressive success and widespread use, it is perhaps surprising to note that since this ‘mobile money’ system was introduced, both the velocity (rate of cash use) and volume of currency in circulation in Kenya have actually increased. This is partly because in low income societies, cashing-out always occurs somewhere in the cash cycle, even one based on mobile money. In addition, according to the ECB, “most forms of electronic payments seem to be competing for volume with forms of payment other than cash.”
Cash Misperception # 3: Cash is apolitical.
Moves for entire countries to go cashless are essentially political acts, and are driven in part by a legitimate desire to increase transparency, reduce corruption, and minimise opportunities for tax evasion. But they are also driven by a less legitimate desire to increase the profits of those involved in digital payments. Non-cash payment methods are not public goods. As Thierry Lebeaux, CEO of ESTA, a trade association, puts it, “Cash is public money generating public revenue, while electronic money is private money generating private revenue.” Promotion of non-cash payments leads to the transfer of risk and shifting of costs to the recipient while creating additional revenue streams for all those involved in the transaction.
Cash Misperception # 4: Cash is inefficient.
Digital money doesn’t recirculate, while physical currency does. This means that, while digital money is creating revenue for those involves in the transaction, it exerts no leveraging affect within local communities. According to a study by the UK’s Overseas Development Institute published in 2015, every dollar distributed in the form of humanitarian cash transfers, on the other hand, exerts a ‘multiplier’ effect within the local economy, generating in the region of $2.4’s worth of additional transacting.
Cash Misperception # 5: Cash is insecure.
Cash is more secure than supposed. The insecurity of cash is relative and dependent on the online insecurities that come with paying electronically. Of course there are disadvantages in carrying cash around, especially where law and order has broken down. Logic would suggest that those affected by disaster might regard the use of cash as less safe than making card payments or paying electronically by mobile smart phone as a result. But they shouldn’t, and for one simple reason: the risk of having their money stolen through cyber-fraud is hundreds of times greater than the risk of being mugged, even in a refugee camp.
Cash Misperception # 6: Cash is inconvenient.
Cash is simple to stockpile prior to a hazard event occurring, and is resistant to systems failures and power outages once it has. Those lucky enough to have early warning of impending disaster – when hurricane or tsunami warnings have been issued, for example – always try to stock up on cash as one of their first priorities if they have the time. The experience of New Zealand’s response to the Christchurch earthquake of 2011 explains why cashless payments systems are not applicable in the context of natural disasters. According to Alan Boaden, Head of Currency at the Reserve Bank of New Zealand, “Access to physical currency is an immediate priority in times of national emergency, even in a country where 75% of transactions are normally made with electronic payments. In fact, when electronic retail payment systems are not working, electronic payment becomes a vulnerability, not a strength.” In terms of lessons learning, he went on to suggest that “local authorities need to work closely with banks and cash-in-transit companies in high-risk areas prior to these types of natural hazards occurring.” According to Ecuador’s Minister of Finance, it was much the same during Ecuador’s response to its earthquake in April 2016. “People are comfortable with cash,” he said, “They trust it, and it was our job to invigorate recovery by making sure they had access to it.”
Cash Misperception # 7: Cash is expensive.
Banknotes have to be printed, stored, and distributed. All this requires insurance, security, machinery, staff, real-time tracking, and linked up IT systems. However, the ECB concluded in 2015 that “cash is less expensive than electronic payments, both for society as a whole and for retailers.” This goes against conventional thinking, particularly by those in favour of mobile payments. “On average,” the report says, “cash payments show the lowest social costs per transaction … while merchants would be better off if transactions currently executed with debit cards were instead carried out using cash.”
Cash Misperception # 8: Cash is simple.
Cash transfer programming at scale in a disaster zone is a highly complicated and complex undertaking. There is no one-size-fits-all approach for the optimisation of cash management. The availability of, and access to non-cash payment infrastructure – as measured by the number of debit cards issued, point-of-sales terminals available, percentage of population with a bank account, for example – differs widely per country. The optimal cash cycle also depends on many country specific factors, including culture, geography, the regulatory environment, and the efficiency with which physical currency is recirculated in society.
Cash Misperception # 9: Cash has few societal benefits.
Cash allows consumers — and that includes those coping with disaster — to exert control over their spending habits. A psychological phenomenon known as the ‘dissociation effect’ ensures that digital-only consumers overspend by anywhere between 20% and 40%. This not only has short-term implications for the individual beneficiary, but has longer-term implications for aid agency and donor budgets. In addition, humanitarian cash transfers in times of disaster represent not only a more efficient way for donors to donate but also a more efficient way to provide relief to survivors i.e more can be done with less. Cash is also more than a convenient method of payment. For those who are illiterate or for people who find it difficult to manage an electronic budget – and that includes the vast majority of those affected by disasters around the world – cash has a number of important symbolic values: It gives them dignity; it affords choice; and it puts them in charge.
Cash Misperception # 10: ATMs are unsuitable for humanitarian action.
ATM penetration is increasing in low-income societies, not reducing. Rural ATM networks in disaster-prone areas across the Southern Americas, Africa and Asia, and from India to the Philippines, are expanding. In part this is because governments are keen to stimulate financial inclusion and reduce disaster risk, and have understood the role ATMs can play for societies in crisis. Like the commercial banks, they recognise that technology – particularly biometric technology – has enabled the ATM’s transformation from ‘automated teller’ to stand-alone ‘branchless bank’; that remote operations are increasingly feasible; and that an adequate return on investment is now possible, not just in revenue terms but for society at large.
Cash promotes both social and financial inclusion. It reduces disaster risk and fulfills unique needs. As long as it does, it will remain. In disaster situations, reliable, efficient, secure, convenient, and timely payments solutions need to be provided to all those affected commensurate with the neutral, independent, and impartial ideals of humanitarian action, and according to standards set by the humanitarian clusters.
So far, the bulk of engagement by the private sector in humanitarian CTP has been limited to the payments industry, particularly Mastercard and a handful of ‘fintech’ startups. This has been very welcome and has been of net benefit to society. But, going forward, realising the potential cost-utility of CTP at scale will not be possible without coherent engagement at the national and global level by the entire Cash Management Industry (CMI), not just parts of it. This means involving the myriad ‘back-end’ services involved in end-to-end, omni-channel cash distribution, including in particular, specialised security printers, ATM manufacturers, Independent ATM deployers (IADs), Cash-in-Transit companies, and the commercial banking sector.
If the full range of payments options are to be given the attention they deserve when considering humanitarian action, poverty reduction, and disaster risk resilience strategies, these companies need to be represented at all levels of CTP planning at national and global level before disaster strikes.
By James Shepherd-Barron
SOURCE: Cash Essentials
Take control of your money and improve your life.
Join our Withdraw Cash Wednesday campaign and receive timely reminders and tips to take control of your money by using cash.