By Daumantas Dvilinskas, CEO and Co-Founder of TransferGo
Even before the pandemic, the decline of cash was taking place – research from UK Finance showed cash made up less than a quarter of all payments in 2019. COVID has only accelerated that decline –temporary moves to reduce the use of physical currency — intended to cut off a possible pathway for virus transmission — were changing customers’ habits. Those stuck at home have turned to digital as the only way to spend, send and save money.
This decline in the use of cash is down to multiple factors. The shift in consumer behaviour towards online shopping, the speed and convenience offered to end users through contactless payments and the technological innovation within the fintech market have all played their part. A great example of the latter being in digital money transfer services, which facilitate the flow of money across borders but without the brutal fees and hidden exchange rates traditional cash based businesses have.
So what does the future hold for the use of cash in our societies, and what does this mean for the finance industry?
How the finance sector has responded
With the pandemic bringing country-wide lockdowns, consumers were forced to turn to digital as trips to banks and post offices to make deposits or collect banknotes became inaccessible. Fintechs, who are digital by default, were particularly well placed to support customers by allowing them to send and spend funds by facilitating online transactions through digital payment services.
Additionally, digital lending firms, who were able to move fast in response to the surge in loan applications as a result of redundancies and businesses shutting down, were much more nimble than physical branches and traditional financial institutions. And the demographic of users has widened too, with digital lending platforms seeing not just tech savvy users, but older users in their 40s and 50s turning to their services.
Prior to the pandemic many people, for reasons such as lack of trust, being technophobes or just being creatures of habit, were hesitant to use digital finance services over cash. We expect to see a continued reversal of that as consumers get used to the ease and accessibility that fintechs have bought to the sector.
Cash isn’t king within the remittances sector either
This issue of cash vs digital is especially prevalent amongst the migrant worker community. Migrants are often relied upon by their families for income support, and in some cases are the sole source of income. For example, in 2019 remittances amounted to $554bn according to the World Bank, beating all other forms of cross-border financial flows to poor countries.
Alongside the lockdown, we also had to deal with the issue of closed borders, which prevented migrants arriving home with actual cash. Combine that with the closure of most retail finance operations, options for sending physical cash were basically eliminated. Workers therefore needed to find other ways of ensuring their hard earned money could get to those that needed it at home. Digital finance bridged the gap.
Through the benefits of digital, providers can offer guaranteed and fair exchange rates, ensuring that migrants, who may be undergoing financial difficulties, are not stung by hidden remittance fees. They can also provide consistent and accessible support, for example by offering in-country agents who understand local discourse and issues and can help find appropriate solutions. What’s more, these services can offer a seamless customer experience, increased service reliability and perhaps most importantly security. For example, TransferGo recently announced a partnership with end-to-end ID verification companies SumSub and Veriff, which ultimately means that migrants are able to have their identity verified, quickly and reliably, preventing fraudulent activity, without causing a delay to registering for and using the service.
So is this change just a result of the pandemic or is cash truly on the way out?
COVID has undoubtedly caused a huge shift in consumer propensity to use cash. Findings suggest over half of consumers had used digital transfers to give money to friends and family at least once during the first month of lockdown, with 20% doing so more than twice. When you consider that cross border payments are expected to hit $240 billion by 2024 due to an increasingly global and interconnected economy and TransferGo experienced a 63% growth in transactions in April compared to the same time last year, the future is seemingly evident.
The convenience, speed, improved customer experience and security offered to consumers through digital payments will be difficult to surrender – especially as people become accustomed to new ways of working and living.
I can’t help but feel that this is the irreversible direction of travel, and it is incumbent on those of us at the sharp edge of innovation in the industry to ensure it remains secure and fit for purpose as the world continues to change around us.