Cashless economy revolutionising world

Bitange Ndemo

Across the globe, a quiet revolution is going on – transition to electronic payments – and it is paying off. The Better Than Cash Alliance (BTCA) is a global partnership under the UN that raises awareness on the benefits of replacing physical cash with electronic payments (EP).

The group says EP systems advance financial inclusion and cost savings while giving governments a more efficient, transparent and secure means of disbursing benefits such as salaries, pensions and social welfare stipends.

Kenya is among developing countries that have seen these dramatic benefits of EP. But it is not enough. There is much we can do to lead this quiet revolution and eventually defeat poverty.

There is greater room to advance more benefits. From the experience of BTCA, EP is becoming increasingly common as markets seek efficiencies through new technologies.

However, the shift from cash to electronic – particularly in a way that expands the benefits of financial inclusion and savings for the poor – is a complex process requiring leadership, resources and technical expertise.


Many countries leverage on this experience from BTCA that supports the transition by providing the policy, technical and financial assistance needed to identify and implement the most effective approach for local market conditions.

Our attempt to deepen EPs especially in the transport sector has been met with resistance and fear that the government may be trapping the sector into paying tax.

This is misleading and counterproductive, especially when we know that EP has greatly improved on productivity as well as transparency in the work place.

A series of innovations and on-line businesses as well as courier services have mushroomed in Kenya as a result of EP, creating employment and making it possible to transact in the virtual world.

As the information communications and technology (ICT) infrastructure improves, the potential for EP to create greater impact increases.

Perhaps the strategy we need to expand EP services is to transition the entire government payments. This will not be new to government since it has in the recent past implemented a new payment system (G-pay).

Early reviews by the Bretton Woods institutions indicate that the government has made savings from this system, which necessitates stricter expenditure controls.

EP systems close loopholes for financial misappropriation and detach people from constant interaction with service providers. Research has proven that it is this constant interaction that precipitates dishonesty.

Information gathered by BTCA shows that millions of people in developing countries receive their salaries, benefits and pensions through government-to-people (G2P) payment systems.

Though the co-ordination across government departments is challenging, the financial and strategic benefits of making government payments electronic are lasting and tangible.

For example, the Brazilian social welfare programme, Bolsa Familia, which delivers money transfers to 12.4 million recipients, was able to reduce administrative costs from 14.7 per cent to 2.4 percent of the total grant value by moving to an electronic payment programme.

Colombia has undergone one of the most rapid transitions to electronic with Familias en Accion, which pays bi-monthly amounts to 2.4 million households, or 11 per cent of the population.

Within two years, the programme went from 76 per cent of its beneficiaries being paid in cash to only nine per cent in 2011 – by which time, 91 per cent had a card-linked bank account.

A research study by Vincent and Cull conducted in Kenya, Malawi, Namibia and Swaziland in 2011 confirmed that the rapid penetration of cell phone infrastructure, combined with a growing interest from banks to extend financial services, is likely to make the electronic delivery of cash transfers an increasingly viable option.

The major benefit of electronic delivery systems is the increased cost-efficiency (lower transaction cost per transfer than traditional “pull” systems involving the physical delivery of cash), not to mention the increased levels of convenience both to the programme implementer and the transfer recipient.

Mobile money is a uniquely Kenyan innovation and in the same vein, Kenya must continue to provide unique leadership in this emerging field.

We are on the edge of a major breakthrough on how effectively we can fight poverty at the grassroots level, become more inclusive and still maintain the beneficiary’s dignity.

We perhaps need to study the socio-psychological effects of EP recipients when they do not have to be subjected to the indignity of publicly queuing for cash payments.

In the words of Arun Maira, “Inclusion cannot be legislated into a society. It requires deep changes in attitudes and institutions.”

Dr Ndemo is an associate professor, University of Nairobi and a former Permanent Secretary, Ministry of Information and Communication.