eBusiness Weekly
Tawanda Musarurwa
Zimbabwe is widely embracing electronic payment systems as means of transacting, with the Reserve Bank of Zimbabwe figures showing that digital payment means — led by mobile money — accounted for over 90 percent of the $97,5 billion in total value transactions for the country last year.
But cash does have its benefits.
For one thing cash, unlike electronic transactions of all sorts, is free. And it is completely owned by the one who has it at that particular moment.
Electronic money? Perhaps not so much . . . A two-day crash of the country’s largest mobile money system earlier this year exposed the limitations of electronic money.
But from a monetary and/or fiscal authority perspective the drive towards a cashless, or rather cash-lite, economy is totally understandable.
After all hard cash (on their part) is expensive — especially for Zimbabwe which does not have own currency has to import United States dollar bills. Hard cash also enables tax evasion as it’s difficult to enforce taxation on small businesses that solely rely on cash transactions.
So we do get the authorities’ cashless economy get-up-and-go.
Is it feasible?
But is it really a feasible one for Zimbabwe at this point in time, especially when cash is still valued at a premium (between 35 percent and 80 percent depending on several factors)?
Estimates are that the use of plastic and electronic money in Zimbabwe currently accounts for over 80 percent of retail transactions.
But does that mean we are just 20 percent away from being a cashless economy?
Obviously not, because those are just retail transactions, big retail mostly.
What the circa 80 percent electronic and plastic money usage in big retail perhaps points to is an economy that is taking important steps to becoming light on cash more than anything else.
“Considering the state of our economic development, the size of the informal sector, the general income levels and the sparse distribution of electronic infrastructure for payments purposes, the thinking that we can aim for a cashless society is very far-fetched and at the least, impossible for many years to come,” says Brains Muchemwa, managing director of financial consultancy company Oxlink Capital (Pvt) Limited.
“The Eurozone, one of the most developed blocs, has cash holdings as a percentage of GDP (gross domestic product) at 10 percent whilst the United States of America sits around 7 percent. One of the most cash-lite societies in the world is Sweden and has cash at around 2 percent of GDP,” he says.
Despite its impressive figures Sweden itself is still some way off being a utopic cashless society. According the Riksbank (Sweden’s central bank and the world’s oldest), cash transactions constituted just under 2 percent of the value of all payments in that country in 2015.
In Swedish shops still, cash accounts for just under 20 percent of transactions.
“And when one considers the volumes of economic activities conducted by cash, the most developed of nations are still far to consider a cashless society, let alone for Zimbabwe.
“Therefore the policy discourse should be focusing on moving towards a cash-lite society and looking at ways of subsiding electronic infrastructure to ensure that the whole nations carries the burden unlike now when the most burden is on the shoulders of the banks.”
And the Reserve Bank of Zimbabwe’s policy thrust seems to be one of going cash-lite, notably its reduction of charges on electronic transactions in June 2016 and again in February 2017.
However, there is a bit more that needs to be done in respect of the core infrastructure around the financial system itself.
Are local banks, “FinTechs” oriented for cashless?
The good thing about cash is, despite all its faults, it’s yours, well and truly yours. You can use it anytime and don’t have to pay extra to use it. On the other hand a bank deposit, or even an EcoCash, OneWallet or TeleCash one, however, cedes the keeping of money to the particular financial or quasi-financial institution and charges you for that.
An account therefore — of whatever type — is simply a claim on one’s money, which can be very problematic (think Zimbabwean firms under the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury’s sanctions list whose monies got confiscated; it serves to show the limited control of one’s money when it’s in an account).
For one thing, some observers have argued that banks and/or financial technology (FinTech) companies, most of which being private institutions, have the right to refuse transactions at their discretion. This means no one should really expect every payment to be given due process.
This could be a real problem for the authorities’ cashless economy dream.
It’s a paradox that even the authorities and banking regulators themselves can fully appreciate.
“The regulatory framework of any country plays a key role in aiding financial inclusion. The rules that relate to financial inclusion should take into account authorised paying institutions, withdrawal limits and requirements for money transfers as well as consideration for anti-money laundering issues,” says one observer.
The central bank will not be caught flat-footed and has been implementing a number of measures aimed at protecting consumers of financial services offered by financial institutions under its purview, significantly the issuance of guidance to banking institutions and payment system providers on acceptable conduct and practices.
“The banking sector has to comply with various pieces of legislation governing their operations such as the Anti-money Laundering and Financing of Terrorism Act and therefore may not, at will, break such laws to accommodate most of the informal sector players who happen to be the significant movers of cash,” explains Muchemwa.
And there is a reason why the majority of informal sector players are averse to adopting electronic payment systems.
Clearly they do so in order to remain below the Zimbabwe Revenue Authority’s radar.
One solution would be to legislate for the use of electronic payments for shops in urban areas in order to burst the many informal players who do not want to pay taxes and therefore continue demanding cash payments.
But even the best legislation can only go so far in an economic milieu with sparse requisite infrastructure.
Isolated rural communities . . .
A substantial snag for the goal of a cashless economy is Zimbabwe’s rural communities which, according to World Bank statistics, held 68 percent of the country’s population in 2015 (against a sub-Saharan Africa average of 62 percent).
Despite many rural-based Zimbabweans now having access to mobile telecommunication services, which also entails access to the mobile money platforms of the country’s three telecoms firms, there are still significant barriers to financial inclusion in such communities, not least the distance to a bank as well as a general lack of financial infrastructure.
There are specific limitations peculiar to mobile money platforms in terms of financial inclusion, for instance in respect of offering credit facilities (although through EcoCash’s EcoCashSave account, holders can borrow money much in the same way as banks, but then the question of scale remains key).
But Zimbabwe like many an African country has a trump card, albeit a largely underestimated one, that can boost rural folks’ access to broad financial services — the Post Offices of old.
“With up to 90 percent of citizens excluded from the banking services in some countries, and banks’ general lack of interest in rural and low–income populations, Posts can increase their revenue by developing modern, digitised and diversified financial services — and at the same time contribute to the financial, economic and social inclusion of disadvantaged population,” says Universal Postal Union (UPU) director-general Bishar Hussein.
In Zimbabwe the transformation of Post Offices into FinTechs of sorts is already underway.
ZimPost, as a case in point, is implementing cross-finance services (including digital financial services) at its 226 outlets across Zimbabwe.
And indications are that postal administrator will benefit from the Universal Services Fund (USF) — a Government initiative aimed at extending ICTs reach to marginalised communities — to securing adequate financial resources and cash flows for it to be able to undertake transactions.
But the problem of limited key infrastructure to service a cashless economy also extends to urban areas.
The P.O.S dynamic
The importance of an efficient electronic payment system in respect of the wider target of a cashless economy cannot be understated. Countries like Sweden have shown that the rapid adoption of Point-Of-Sale (POS) terminals by a large base of SMEs and micro-merchants is a critical catalyst for driving electronic payments.
Although in Zimbabwe a large number of big retailers and traders have adopted the POS technology, with the POS population growing from around 4 000 in 2009 to 20 000 by August 2015, and indications from the central bank that the country’s POS population had reached 30 000 by the close of 2016.
Zimbabwe’s POS population further rose to 59 939 in the fourth quarter of 2017 and further to 70 960 in the first quarter of this year.
Although the POS population has been incremental over the last few years as the numbers above show, many in the lower tiers of business simply have not adopted them.
Furthermore, the bulk of the POS devices are concentrated in urban areas against a background where over 60 percent of the Zimbabwean population is domiciled in the rural areas.
And therein lies the problem. Or does it?
A snap survey shows that the majority of SMEs players and even vendors are interested in acquiring POS machines for their businesses, but the requirements to access them from the banks are a little beyond them.
It’s not an issue of cost either as banks give them out for free on the basis of having received an application which require the operation’s full registration papers (and a trading licence on the part of vendors).
And with most SMEs and vendors not officially registered that basically puts paid to their dreams of getting a POS machine.
And even though banks are charging a nominal fee for the use of their POS machine (that is, 1 percent of each transaction on the machine), that rate could still be knocked down further . . . after all traders can simply take hard cash and hand over to the dealers supplying them goods.
We haven’t reached that point yet where using a POS machine, unlike cash, is an incentive in itself!
