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Economic benefits of “cashless cities”

Shift to digital payments could have a catalytic effect on the city’s overall economic performance

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Societies that substitute digital payments for cash see a raft of benefits
Societies that substitute digital payments for cash see a raft of benefits

Cities that progressively rely on electronic payments, such as cards and mobile payments, could yield a net benefit of up to $470bn annually, new research suggests.

 

The independent study, conducted by Roubini ThoughtLab and commissioned by Visa which analysed the economic impact of increasing the use of digital payments across 100 cities, also found governments could achieve $130bn per year in estimated direct benefits.

 

This is calculated as the equivalent of 3 per cent of the average GDP for these cities.

 

The impact would be derived from factors including increased tax revenues, increased economic growth, cost savings from administrative efficiencies and lower criminal justice costs due to reduced cash-related crime.

 

As cities increase use of digital payments, the positive impacts can 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 report states.

 

“Cashless Cities: Realising the Benefits of Digital Payments” quantifies the potential net benefits experienced by cities which move to an “achievable level of cashlessness”, defined as the entire population of a city moving to digital payment usage equal to the top 10 per cent of users in that city today.

 

The study does not look at eliminating cash. Rather, it seeks to quantify the potential benefits and costs of significantly increasing the use of digital payments.

 

The immediate and long-term benefits for three main groups: consumers, businesses and governments are predicted to be:

  • Governments across the 100 cities could achieve nearly $130bn per year in estimated direct benefits. This impact would be derived from factors including increased tax revenues, increased economic growth, cost-savings from administrative efficiencies and lower criminal justice costs due to reduced cash-related crime
  • Consumers across the 100 cities could achieve nearly $28bn per year in estimated direct net benefits. This impact would be derived from factors including up to 3.2 billion hours in time- savings conducting banking, retail and transit transactions, in addition to a reduction in cash-related crime
  • Businesses across the 100 cities could achieve more than $312bn per year in estimated direct benefits. This impact would derive from factors including up to 3.1 billion hours in time-savings processing incoming and outgoing payments and increased sales revenues stemming from extended online and in-store customer bases. The study also found that accepting cash and checks costs businesses 7.1 cents of every dollar received compared to 5 cents of every dollar collected from digital sources.

“This study demonstrates the substantial upside for consumers, businesses and governments as cities move toward greater adoption of digital payments,” said Ellen Richey, vice chairman and chief risk officer, Visa.

 

“Societies that substitute digital payments for cash see benefits from greater economic growth, less crime, more jobs, higher wages, and increased worker productivity.”

 

The study offers 61 recommendations for policymakers to help their cities become more efficient through greater adoption of digital payments. Recommendations include undertaking financial literacy programmes to help move the unbanked into the banking system, implementing incentives to stimulate innovation focused on scaling new payment technologies, implementing secure open-loop payment systems across all transportation networks and more.

 

“The use of digital technologies -- from smart phones and wearables to artificial intelligence and driverless cars -- is rapidly transforming how city dwellers shop, travel, and live,” added Lou Celi, head of Roubini ThoughtLab.

 

“Without a firm foundation in electronic payments, cities will not be able to fully capture their digital future, according to our analysis.”

 

If you like this, you might be interested in reading the following:

 

The evolution of digital payments

The payments market is ramping up and is poised to pass $5 trillion by 2020

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Malaysia’s cashless push to smart

The country’s global tech hub of Cyberjaya has signed an agreement to commit to building a cashless society

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Rio athletes can use Olympic rings to make smart payments

A secure Gemalto microchip and an embedded NFC-enabled antenna allows athletes to make payments by tapping their ring at a terminal

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