# Accelerating the transition to digital payments --- # More can be done to encourage, enable, and accelerate the digitization of payments While the pandemic may have hastened the growth of digital payments, there is still a lot of cash in circulation. Given financial institutions, consumers, merchants, and the wider economy all benefit from alternatives to cash, what can be done to reignite increasing card present transaction and reducing cash at point-of-sale? At Visa Consulting & Analytics (VCA), we have worked with financial institutions, banking industry bodies, and governments around the world, helping to benchmark cash levels in their economies, identifying opportunities to digitize payments, and applying the lessons learned in other markets. In this paper, we outline techniques to understand the prevalence of cash, identify the main drivers of payment digitization, and provide four recommendations for financial institutions and governments to consider on their journeys to reducing the reliance on cash. --- # The benefits of reducing cash – for every stakeholder Digital payments offer significant advantages over cash and checks – for financial institutions, consumers, businesses, and the wider economy. ## Financial Institutions - Revenue from: - Card fees and charges - Account balance - Higher consumption of other banking products - Reduced costs: - Cash handling - Infrastructure – ATMs, branch network - More transparency on customer behavior – data to improve customer service, targeted campaigns, Customer Value Proposition improvement - Better fraud management ## Consumers - Time savings in banking, transit, and retail transactions - Savings from avoidance of late-payment fees - Increased convenience - Improved budgeting and expense tracking ## Businesses - Lower fraud rates - Labor time savings - Potential for greater sales through digital channels ## Governments - Savings from more efficient government processes - Increased tax revenues from recaptured informal economy - Increased tax revenues from business sales - Criminal justice cost savings from reduced fraud --- ## Understanding the prevalence of cash payments The first step in understanding the prevalence of cash payments is to know the current situation in your market and how it compares to similar economies. To start, it is necessary to understand the prevalence of cash payments, the recent trends, and the relative performance of different countries. Taking this top-line approach, you can see that, globally, the share of cash as a proportion of consumer expenditure is on the decrease, **falling from 56 percent to 43 percent between 2015 and 2021**. But, as shown below, progress has been far from even: some markets are racing ahead, while others have progressed more slowly. **Understanding differing levels of cash usage – and the speeds at which countries are progressing on the journey to using less cash** Share of cash in consumer expenditures, % Source: Joint consumer expenditure study by Visa and Euromonitor, 2021 --- ## Countries compared: Highest-ranking by levels of payment digitization and extents of recent progress **Top 10 most digitalized countries** | Country | 2015 | 2020 | | | --- | --- | --- | --- | | Norway | 1 | 1 | - | | Sweden | 2 | 2 | - | | South Korea | 3 | 4 | -1 | | New Zealand | 4 | 3 | +1 | | Canada | 5 | 7 | -2 | | Denmark | 6 | 5 | +1 | | Australia | 7 | 9 | -2 | | UK | 8 | 5 | +3 | | USA | 9 | 10 | -1 | | Ireland | 10 | 8 | +2 | **Best progress in payment digitization** | Country | 2015 | 2020 | | | --- | --- | --- | --- | | Argentina | 33 | 15 | +18 | | China | 34 | 27 | +7 | | ... | | | | | UAE | 40 | 34 | +6 | | ... | | | | | Kazakhstan | 45 | 29 | +16 | | ... | | | | | Saudi Arabia | 47 | 37 | +10 | | Greece | 47 | 30 | +17 | | ... | | | | | India | 60 | 50 | +10 | Benchmarking countries’ payments digitization and comparing their performances over time reveals that there are real opportunities to accelerate the payments-digitization journey. Even among countries with already high levels of digitization, the progress is uneven. --- ## Understanding the road to reducing cash While the use of cash at point of sale is being progressively replaced in most economies worldwide, every market varies in terms of stage of development, pace, and trajectory. The journey to digitizing payments is rarely steady. Instead, it tends to be characterized by sudden changes of pace, which are catalyzed by specific initiatives or developments. For this reason, any useful analysis should dig into the wider circumstances at play in a market, including macro-economic factors, regulatory environments, maturity of banking services, penetration of digital technologies, extent and capability of the payments infrastructure, and prevailing payment behaviors. --- ## Identifying 10 drivers of payment digitization Globally, Visa has significant experience working on payment-digitization initiatives. These can include activation, usage, lifecycle management, and digital issuance efforts, which encourage individual consumers to turn to digital payments for more of their everyday spending. Similarly, loyalty, reward, and incentive programs can steer more consumers away from cash. Meanwhile, acceptance actions (e.g., the roll-out of contactless terminals) can help to capture more everyday spend. Beyond these initiatives, VCA has identified 10 drivers of at-scale payment digitization. | Category | Driver | Frequency | Good examples | Market | | --- | --- | --- | --- | --- | | Regulatory | 1 Promotion of card acceptance | | Mandatory card acceptance | Greece | | Regulatory | 2 Tax incentives to encourage consumers and merchants to use digital payments | | Introducing a business license and related tax instead of traditional charge | Kenya | | Regulatory | 3 Encouraging citizens to use non-cash payments | | Card use tax incentives | South Korea | | Technologies | 4 Development of technologies to facilitate non-cash transactions | | Simple Peer-to-Peer (P2P) money transfer and shopping solutions | China | | Infrastructure | 5 Inexpensive acquiring solutions for micro-merchants | | Enable smaller merchants to have settlements made on prepaid cards | Brazil | | Products | 7 Promotion of cash payments for services | | State super-apps to pay for services | UAE | | Behavior | 9 Increasing public financial literacy | | Financial literacy lessons at schools | Canada | From this selection of drivers, it is possible to select the type of initiative that better addresses each market’s challenges. --- # Four recommendations for financial institutions and governments ## #1 Investigate the opportunity for regulatory solutions Across the world, some of the most effective measures to accelerate cash reduction have included tax incentives, with examples coming from countries such as South Korea and Sweden. ## Introducing tax incentives to encourage consumers and merchants to use digital payments ### South Korea In 1999, the TIETP (Tax Incentives for Electronically Traceable Payments) initiative was launched, and businesses that accepted card payments became eligible for a 10 percent tax incentive (rising to up to 30 percent in 2013). This coincided with a strong increase in the related tax take and, over the next 15 years, the share of electronic payments as a percentage of consumer expenditure rose by 66 percent. --- ### Sweden **Tax relief for domestic service work:** In 2008, the government introduced a mechanism for customers to apply for tax deductions from their contractor who, in turn, applied to the tax authorities for a waiver of up to 50 percent. --- ## #2 Look at how to partner across the payment ecosystem Payments players can identify and unlock opportunities for market-wide growth and development through collaboration. --- ## #3 Explore the opportunity for financial literacy programs Across the world, there is a strong correlation between degrees of cash and levels of financial literacy. It follows that, by investing in financial literacy programs, higher levels of digitization of payments should follow. --- ## #4 Take full advantage of existing product and service solutions The payment ecosystem has been working for many years to digitize payments, and several ready-made products and services are already available. ### Examples include: - Cash-at-POS - Visa Tap to Phone --- # About Visa Consulting & Analytics **We are a global team of hundreds of payments consultants, data scientists, and economists across six continents.** • Our consultants are experts in strategy, product, portfolio management, risk, digital, and more with decades of experience in the payments industry. • Our data scientists are experts in statistics, advanced analytics, and machine learning, with exclusive access to insights from VisaNet, one of the largest payment networks in the world. • Our economists understand economic conditions impacting consumer spending and provide unique and timely insights into global spending trends. The combination of our deep payments consulting expertise, our economic intelligence, and our breadth of data allows us to identify actionable insights and recommendations that drive better business decisions.