By Robin A. Montano
As the 21st century has progressed, financial technology has evolved at a rapid pace in the world market system. With the recent development of cashless financial technology, particularly in the Global North, cash-based payments are becoming less prevalent. In places like the United States, Canada, the United Kingdom, Sweden and China, citizens are carrying less cash and are completing transactions using their phones, credit cards and or debit cards.
This has been a shift that has alleviated pressure on Central Banks, as well as commercial banks, as it has resulted in the reduction in the demand for cash which increases the amount of money banks have to invest, thus contributing to economic development.
However, Trinidad and Tobago’s economy is very much so a cash-based economy, where it is not unusual to see people walking around with cash for their daily transaction. This cash-based tendency is further motivated by the fact that many small and medium sized businesses do not have card readers or other technology to process electronic payments. With that being said, Trinidad and Tobago have already started taking steps towards becoming a cashless society with the inception of the FinTech Association of Trinidad and Tobago (FinTech T&T) by the Trinidad and Tobago International Financial Centre (T&T IFC), the Ministry of Finance and the Ministry of the Attorney General.
As per media releases from the Daily Express and LoopTT in February 2020, FinTech T&T was created as an initiative to position Trinidad and Tobago as a leading regional FinTech hub and a FinTech-enabled international financial centre. The non-profit organisation will work closely with the Government and regulators to improve the delivery of financial services and promote a cashless future.
Transitioning towards a cashless society is an attractive proposition for its various contributions to addressing issues relating to crime and flow of capital. The transition, however, does also bring many challenges that ought to be addressed in order to promote sustainable and effective development.
A cashless society brings many socio-economic improvements that alleviate pressures on both the public and private sector. Arguably, the absence of cash would have a positive impact on the crime rate, specifically in the instances of financially motivated crimes such as robbery and sometimes even murder. Carrying cash makes for an easy target for thieves. Worse yet, cash is difficult and inconvenient to carry, especially when it is in abundance to accommodate high price levels for goods and services. Cash can be stolen at gunpoint, through pickpocketing, or some other criminal activity. According to a study by American and German researchers in Missouri, the crime rate dropped by 9.8% after the state replaced cash welfare benefits with Electronic Benefit Transfer cards (Wright et al. 2014).
Moving away from cash also targets corruption, illegal gambling, money laundering, and drug operations. According to the Financial Action Task Force, which is heavily engaged in anti-money laundering issues in the Caribbean, criminals gravitate towards high value notes because they are easily transported across borders (FATF & MENAFATF 2015). Since a cashless society means that transactions take place electronically, there are automatic paper trails that make illegal transactions much more difficult. Electronic transfers enable better traceability of income and expenditure. Thus, the transition will tackle illegal transactions such as drug operations and money laundering, increasing the government’s ability to halt tax evasion, corruption and bribery.
Cashless society also means that money is instantaneously accessible by the individual once you have your card or your phone on hand. This saves tremendous amounts of time spent handling, storing and depositing cash that can be used more productively. No more lines at the bank or rushing to find an ATM – which are scarce in T&T – to complete a simple transaction. Additionally, the Central Bank would no longer have to continue spending money to print bills and coins. A cashless society would prompt greater worker productivity and more available funds for socio-economic projects by the state.
Moving away from a cash-based society and towards a cashless society is not, however, an easy transition. The change comes with its challenges. Most critically, Trinidad and Tobago, and to a greater extent the Caribbean region, have large informal sectors, where many workers depend on cash incomes, and also there are many unbanked citizens (The Caribbean Council 2016). Taxi drivers, waiting staff, water sports providers, and vendors are some examples of small businesses that rely on cash. Unless special outreach efforts are made, the poor and unbanked will likely have an even harder time in a cashless society. Proactive and pre-emptive action will be needed to assist these small businesses and vulnerable citizens to access the necessary financial technology to support themselves. Additionally, with respect to the unbanked members of society, projects in financial literacy and increasing ease of access, like the ones seen in India or Brazil, can achieve significant results in increasing the banked members of society.
Moreover, some persons may also find it harder to control spending when they don’t see the physical cash leaving their hands. Completing a transaction using your phone or card feels so smooth and seamless that it is hard to remember that you are actually spending your money. Consumers therefore would have to rethink how they manage their spending. Issues of financial literacy will find its prominence in this area and is therefore another challenge to be cautious of in the transition to a cashless society.
Finally, perhaps one of the greatest challenges to be faced is the inadequate regulation of commercial banks in Trinidad and Tobago. Credit and debit cards are immensely difficult to receive, and even when you finally earn one, the high costs of operating deter its use. The local banks operate inefficiently and at ridiculously high costs to the consumers, with various service charges and extortionary interest rates. This incentivises citizens to not only remain cash users, but to also not even open a bank account. What is necessary is a reformatory crack down on these commercial banks, instituting regulations on charges and operations that would benefit the citizens and to a greater extent the economy.
As I have argued in this article, a transition to a cashless society brings with it both productive benefits and difficult challenges. However, the technology, knowledge and resources are available to mitigate the challenges related to unbanked members of society, cash-dependent workers, consumer spending, and unregulated banks. Moreover, the transition is not one that occurs overnight, but rather a slow process that ought to be inclusionary and development oriented. It is important to note that I do not believe that cash itself is likely to disappear from the world market in the transition towards a cashless society, however I do believe that it should, and would, become a significantly less prevalent feature of the market economy.
FATF and MENAFATF (2015). Money Laundering through the Physical Transportation of Cash, FATF, Paris, France and MENAFATF, Manama, Bahrain, http://www.fatf-gafi.org/publications/methodsandtrends/documents/ml-through-physical-transportation-of-cash.html
The Caribbean Council. (2016). The cashless society and the Caribbean. Retrieved from https://www.caribbean-council.org/cashless-society-caribbean/
Wright, R., Tekin, E., Topalli, V., Mcclellan, C., Dickinson, T., & Rosenfeld, R. (2014). Less Cash, Less Crime: Evidence from the Electronic Benefit Transfer Program. doi:10.3386/w19996