Untapped Benefits Can Be Derived from FinTech Solutions
By Michelle Salandy, PhD – Research Officer, T&T IFC
“The volume and types of digital payments are increasing worldwide. Financial Technology (FinTech) companies and the solutions they provide are increasingly accepted and supported by several advocates, as many individuals and governments now call for the increased use of digital or cashless payments. It is a revolutionary wave that is needed not only for financial sector development but for national development. The onboarding of FinTech solutions, the eradication of cash and the push for cashless economies are justified by the many benefits.”
A study by A.T. Kearney and VISA reveal that a 5% increase in digital payments per year for five consecutive years, reduces the informal economy by 10.8-12.9%. The use of digital payments also fosters financial inclusion and has provided access to financial services to an estimated 1.6 billion people, and increased the volume of loans extended to individuals and businesses by US$2.1 trillion, in respective territories (Manyika, Lund, Singer, White, and Berry 2016).
Digital transactions also improve and promote transparency and security by increasing the accountability and tracking of money transfers within the economy. This is linked to a reduction in the cases of fraud, money laundering, tax evasion, drug trafficking and counterfeit notes. The Ministry of Social Development and Family Services in Trinidad and Tobago implemented the Direct Deposit system in 2017 to transfer social security payments to address the challenges of stolen cheques. In the case of India, the digital delivery of subsidies removed the incidence of leakages through “ghost” intermediaries and resulted in an estimated fiscal saving of US$2 billion (George and Subramanian 2015). Digital payment platforms have also been encouraged by Swedish banks to prevent robberies, whilst debit/credit cards and digital wallets are encrypted with passcodes or biometric authentication to safeguard against theft.
Macro-economic benefits are realised from the increased use of digital payments. Employment has increased because digital payments have encouraged new business formations such as FinTech companies and microfinance institutions. The increased access to formal credit and savings instruments also enables the financial system to capture more savings and, in turn, extend more credit which increases the level of aggregate investment. Moody’s extrapolation of the effect of card usage on consumption and GDP using the data from 70 countries, revealed that higher card usage contributed an additional US$296 billion to consumption between 2011 and 2015, or a 0.1% cumulative increase in global GDP, as well as an average increase of 2.6 million jobs (Zandi, Koropeckyj, Virendra and Matsiras 2016).
Digital payments are associated with reduced cost and increased savings. VISA’s study revealed that businesses would save 2.1 cents of every dollar if they accepted digital payments. Additionally, Automated Clearing House (ACH) transfers reduce the cost of printing and mailing paper cheques and indirectly reduce the cost of resources utilised by the government to replace lost or stolen cheques. Digital payments also reduce the cost of minting. The likelihood of additional charges for late payment of utility bills are also reduced with digital payment.
Digital payments are faster, more convenient and improves the timeline for data analysis. Digital payment facilities allow 24-hour access to funds and have reduced the need to be physically present at a bank, or to stand in a queue to withdraw cash from Automated Teller Machines (ATMs). Wages are now paid directly via the Automated Clearing House (ACH) platform and utility bills can be paid at the convenience of a single ‘app’ without any hassle. Many mobile wallets have allowed for payment authentication via fingerprint scan or a personal identification number (PIN) in the past, while MasterCard was first to introduce “selfie pay” technology, which uses facial recognition.
Digital payments also allow for the facilitation of purchases and payment during times of viral pandemics such as Ebola and COVID-19. Mobile Wallet use in Sierra Leone during Ebola increased timeliness of salary payment to Response Workers, improved patient care and strengthened the capacity to contain the disease (Bangura 2016). Many financial institutions and the World Health Organisation also guided customers to use digital payments during the COVID-19 pandemic. It was clearly supported to ensure social distancing while allowing individuals to access financial services without making in-branch visits or using cash.
The government, financial sector, citizens and merchants of Trinidad and Tobago can only attain these benefits if there is a transition to a broader financial space with increasingly innovative digital payment options. The T&T IFC continues to echo the call for the development of the local FinTech ecosystem to improve the ease of doing business in Trinidad and Tobago and to expand the country’s potential.
Alderman, L. (2018, November 21). Sweden’s Push to Get Rid of Cash Has Some Saying, ‘Not So Fast’.
A.T. Kearney & VISA. (2018). Digital payments and the global informal economy.
Bangura, A. (2016). Saving Money, Saving Lives: A Case Study on the Benefits of Digitizing Payments to Ebola Response Workers in Sierra Leone.
George, S., & Subramanian, A. (2015, July 22). Transforming the Fight Against Poverty in India.
Herwadkar, S., Verma R., & Bilantu, P. (2019, August). Drivers of Digital Payments: A Cross Country Study.
Manyika J, Lund S, Singer M, White O, and Berry C. (2016, September). Digital Finance for All: Powering Inclusive Growth in Emerging Economies.
Zandi, M., Koropeckyj, S., Virendra S., and Matsiras, P. (2016, February). The Impact of Electronic Payments on Economic Growth.