Today, some 2.6 billion people live on less than US$2 per day and 90 percent of them lack access to formal financial services. Due to the minimal volume of individual transactions, oftentimes these services are difficult and expensive to provide at scale. As a result, most poor households subsist almost entirely in an informal, cash-only economy, making it difficult for them to access financial services that create an ability to save for the future, build assets and move out of poverty.
Governments, the development community and the private sector make billions of dollars in cash payments to the poor, including disbursements of salaries, payments to suppliers, pensions, social welfare stipends, cash-for-work programs, emergency relief payments, and others. While cash is preferable to the distribution of food and other in-kind goods, these programs present a missed opportunity to expand financial inclusion and help people in poverty grow assets.
Shifting from cash to electronic payments allows for greater reach of a population at lower costs than cash and increases the transparency of fund transfers. Increased transparency supports better accountability and has the potential to reduce corruption. At the client level, electronic payments reduce the risk of loss of funds due to theft or fraud, increase clients’ privacy and are also often easier to access and faster, which means substantial savings for the household. They also enable better record keeping and control of finances that in turn contribute to improved capacity to invest in productive activities. Finally, they open doors for fee-for-service business models, such as health and crop insurance, previously unavailable due to high transaction costs.
The belief that the shift from cash to electronic payments can improve the livelihoods of low-income people and accelerate the growth of emerging economies led to the inception of the Better Than Cash Alliance (BTCA). The Bill & Melinda Gates Foundation, the Ford Foundation, the Omidyar Network, USAID, Citi and Visa Inc. launched BTCA in September 2012 to become a global coalition of governments, private sector companies and development organizations that aims at accelerating the shift from cash to electronic payments. The UN Capital Development Fund (UNCDF) serves as a Secretariat for the BTCA.
In addition to raising awareness of the benefits of replacing physical cash with electronic payments, BTCA facilitates the transition for governments, the development community and the private sector through:
- Advocacy and awareness to encourage government, civil society and private sector commitments to digitize their payments to the poor
- Building the evidence and knowledge products to drive the change
- Provision of policy, technical and financial assistance to catalyze the shift to electronic payments
At present, a number of host country governments have committed to the Better Than Cash Alliance principles and are championing the concept and implementation of the shift, including the Department of Social Prosperity of the Government of Colombia and the governments of Afghanistan, Kenya, Peru and the Philippines. In addition, numerous organizations in the development community have also signed on, including, ACDI VOCA, CARE, Chemonics International, Concern Worldwide, the Grameen Foundation, Mercy Corps, the United Nations Development Programme, USAID and the World Food Programme.
Despite a prevailing drift toward more electronic payments, there are significant barriers that can lengthen the transition, increase the costs or reduce the benefits, and even jeopardize wide-scale adoption such as the lack of political will to address the infrastructure and regulatory challenges and a shortage of knowledge about options and implications of making and receiving bulk payments. There are still miles to go to digitize cash globally.
BTCA commits to supporting its members and stakeholders in harnessing the opportunities while addressing the challenges of shifting cash to electronic payments. By catalyzing resources and building the necessary “know-how’ for the shift, BTCA aims to make headway in unlocking demand for electronic payments services and support local economic growth as well as increased financial inclusion.
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