5A Framework: Getting the Cashless journey right

In the last few years, ‘Cashless’ / ‘Less-cash’ theme has topped the agenda for a range of stakeholders - Governments, payments networks, banks, non-banks, technology providers. Across markets, multiple solutions have been adopted to enable and accelerate the non-cash journey. The list of initiatives/solutions include - mobile payments, debit cards, QR, POS (incl. mPOS), real time payment infrastructure, P2P payments, FAANG overlays, micro payments, non-bank facilitation/ participation. Largely, technology and (enabling) regulation have fueled this journey. 

The impact of such solutions is visible in the rising non-cash payment volumes that have clocked a resilient double digit CAGR growth (more details - https://worldpaymentsreport.com/). Earlier this year, for select markets, a ‘peak-ATM’ milestone# may also have been hit. Increasingly this means, payers/savers are overcoming the bas de laine / cash-in-the-mattress phenomenon, a lingering behavior pattern from the initial paper cash days (Gold to Cash transition).

 While some countries have been very successful, others are on the journey. How can this journey be accelerated? What design principles can be adopted? How can banks / nonbanks evaluate the dynamics and play their part? This piece takes a step back and evaluates structural aspects that influence the cashless maturity. Once understood, multiple initiatives can be structured to accelerate the journey.

At a high level, there are five forces that enable and influence the cashless journey, namely, A-conomy, Access, Acceptance, Affordability and Assurance. Understanding the interactions and interlinkages can help in calibration and incentivization to create a virtuous cycle.

The Five A’s

1.      A-Conomy* (Alternative Economy): the need for economic transformation to minimize informal economy and/or steer away from dependency on extractive/ commodity based economic model.

2.      Access: to non-cash storage and payment methods across range of use cases and payer segments (including education)

3.      Acceptance: adoption and enablement by people, businesses, Corporates and Governments to accept non-cash payments

4.      Affordability: cost and pay-off of non-cash payment methods for payers, providers and the economy

5.      Assurance: safety of non-cash payments/associated information and pre-emptively addressing potential disruptions that drive relative attractiveness of cash-in-hand.

 Access

Enhanced access to store of value i.e. accounts, wallets has enabled payers to secure a ticket for their non-cash journey. Regulatory support to open banking is redefining access. Access to e-payments, with options for form factor and channel mix for all motive types i.e. transaction, precaution & speculative, has aided the transition to non-cash. As an overlay, providers continue to work hard to make the checkout experience frictionless reinforcing payer behavior. Personalizing access through usage of identity solutions holds the key for the next leg on this lever.

Acceptance

Scaling up the non-cash receiving infrastructure, including mobility and QR has helped create the force multiplier together with the access lever. Technology, while enabling lower incremental acceptance costs, is also enabling value added services like offers, alternative units of payment, biometric and/or device authentication.  Accepting a payment as part of the journey, without a detour, preferably invisibly, is the holy grail of this lever.

Affordability

Often this is viewed from a customer/user/payer perspective. Leaders need to view it from a provider perspective as well. The costs of developing, maintaining and more importantly evolving payments solutions are onerous. In the enthusiasm to make ‘access’ a priority, regulators should not shortchange affordability (business model). Additionally, regulators need to balance pursuit of innovation with knock-on effects of un-bridled innovation (fragmentation, standardization, level playing field). Specific ‘nudges’ to shared-utilities may be an interim stage to assist transition e.g. cash handling utility. Providers need to ascertain per unit cost of payment and use ‘kaizen’ philosophy to drive down costs.

Assurance

Assurance supports multiple themes like - privacy based responsible ownership of payments data, customer permission via opt-in, calibrated friction (permissions, conditional) based on transaction characteristics. Initiatives like SCA, SRC lend support to this lever.Assurance should also support availability of payments to support structural and individual tail-event scenarios (e.g. communication outage, Court of law attachment/freeze, bank busts / withdrawal restrictions). Counterintuitively, we may even need the equivalent of ‘back to cash/ fallback’ mode. As a reference to history, during the prevalence of gold standard, it was obligatory for Central Banks to redeem ‘cash to gold’. Mere existence of such a safety valve might provide sufficient assurance to let go of cash.

A-conomy

A-conomy sets the tone and the pace of cashless/ less-cash journey. While one size does not fit all (mature vs emerging markets), factors like current state, country specific context, maturity of shared payments infrastructure can enable / hinder the pace. Estimated benefits of visibility and formalization should be used to support initiatives in the other 4As. Effort share in collaborative space and its impact on the competitive space can drive up partnership approach. Enabling central/shared payments infrastructure can provide a sound foundation for all. For-profit providers need to ride the wave leveraging capabilities of the central/shared payments infrastructure.

How to use the 5As?

§ Define metrics under each of the 5 levers.

o  Technology axis sets the pace

o  Regulation axis sets the direction

§ Baseline current state.

§ Define initiatives

§ Segregate competitive and collaborative initiatives (including education)

§ Tag the interlinkages

§ Explore network effects

§ String incentives for stakeholders - positive, fallback

§ Track results and refine metrics (mind the lead / lag effects)

Bon voyage!

# https://www.americanbanker.com/articles/prevalence-of-atms-drops-worldwide

*Would like to thank Harikrishnaprasad G for coining this term for this context.