Using more of digital payments can make government to save close to $710 million a year in administrative costs. Also, using more digital payments can increase tax revenue for cities to an average $534 million a year, while a reduction in crime can save additional $53 million for cities in a year.
These were revealed by a unique study commissioned by Visa and conducted by Roubini ThoughtLab. According to the research, the use of cash is time-consuming, inefficient, and sometimes risky. The research explained why cities around the world should consider moving toward digital payments, and demonstrates the potential benefits of their increased adoption to consumers, businesses, and governments across 100 cities worldwide.
In cities like Lagos, Nigeria, digital payment usage today is not very high. According to the research, 12 per cent of consumers are reportedly relying solely on digital payments in Lagos. In this city, which the report classifies as “cash centric,” consumers incur significant costs as a result of their dependence on cash.
The report indicates that an average consumer in Lagos spends nearly 22 minutes per month on cash-related activities, whereas in Stockholm, Sweden, which is a world leader in digital payments usage, the average consumer spends less than half that amount of time. Adults living in cash centric cities are spending on average nearly 3.5 hours managing cash over the course of a year, while those in digitally leading cities spend under an hour.
According to the report, businesses, on average, spend an equivalent of 2 percent of their monthly revenue accepting non-digital payments. Businesses spend an average of 68 hours per week managing cash, and lose about an equivalent of 4 percent (around nine per cent in Lagos) of their revenue per month to theft, counterfeit money, and cash register shortages. Labor cost savings and a strengthened bottom line are just two of the ways in which firms may stand to benefit from increased digital payments usage. Roubini ThoughtLab’s research found revenues can increase an average of 17 per cent when businesses begin accepting digital payments.
“For governments, tax evasion and crime are often the biggest costs of cash. The widespread adoption of digital payments may reduce crime and cut costs related to the handling of administrative tasks, running public transit and toll roads, and administering criminal justice. Equally important, moving away from cash increases tax revenue thanks to a reduction in the informal economy. On average, governments of the cities the report studied could expect to save close to $710 million a year in administrative costs by making greater use of digital payments. A reduction in crime can potentially save the cities studied an additional $53 million per year on average,” it stressed.
The research explained that as cities increase their use of digital payments, the positive impacts extend beyond financial benefits to consumers, businesses, and government.
“The shift to digital payments also may have a catalytic effect on the city’s overall economic performance, including GDP, employment, wage, and productivity growth. The data suggests that combination of greater economic activity, lower crime and greater ease of living could make cities with increasing rates of digital payments more attractive to businesses, talent, and tourists,” it added.
Advising on what cities and national governments do to help usher in a cashless culture, the report highlighted five immediate and actionable steps they can consider taking to reduce cash reliance.
“Undertake targeted financial literacy programs to help bring the unbanked into the banking system and offer secure digital payment solutions for government benefits to those that do not have bank card; support innovative approaches to risk management; ensure that digital payments are a key component to all “smart city” plans and strategies; implement secure open-loop payment systems across all transportation networks, and have a technology and innovation strategy and make secure digital payments an integral component of it,” it stated.