The importance of inclusive payments within a digital, forward-facing financial world

01 / 11 / 2022

When exploring new forms of payments, emerging innovations in tech and conceptualising the future of the payments landscape, it's crucial for payment providers and financial institutions to consider the issue of financial inclusion. On a broader scale, this is a global concern, aligning with social and ethical progress and shifting towards ESG-focused business. The subject covers extremely important topics, such as social inclusion, access to money, wealth distribution and growth in underserved and vulnerable global regions.

Senior man making a contactless smartphone

Leo Van Hove, Professor of Economics at the Free University of Brussels, offers his thoughts on how trends in payments and digital transformation are affecting the inclusivity of payments, how COVID-19 bucked the trend and why this is a topic which should be at the top of the agenda for all within the payments world.

How have attitudes and usage changed regarding payments?

To identify how attitudes towards payments have changed, changes in usage should be examined - the ways in which customers or merchants interact with different forms of payments or processes can indicate a change in attitude or preferences. In the context of digital transformation and changing ways to pay, the topic of cash vs. electronic continues to dominate the conversation on the future of payments.

Globally, the trend towards increasing electronic payments existed pre-COVID-19, but the pandemic accelerated it. Leo Van Hove outlined the data gathered by the Digital Payment Barometer, a survey developed to map the payment behaviour of Belgian consumers.

"With a sample size of roughly 1,200, this annual survey gathers key data points concerning the digitisation of retail payments in Belgium. Additionally, consumers' attitudes towards this evolution can also be charted. The survey was initially conducted in March 2020 – just prior to the first national lockdown – the second time in March 2021, during COVID-19 and, most recently, in March 2022.

We can conclude that COVID-19 has had a lasting impact on Belgians' payment behaviour. In 2021, during COVID - we observed a clear jump in the adoption and use of contactless cards. This year we find that the popularity of contactless payments – and to a smaller extent also mobile payments – continues to increase. Interestingly, the data also suggested a slight cash usage recovery following the pandemic, especially in cash-intensive sectors. "

Within the 55-64 age group, before the pandemic, only 40% had already paid using contactless at least once. In 2021, this jumped to 64%; this year, the number is 81%. Clearly, consumers are not returning to older contact-based habits now that restrictions and lockdowns have abated.

COVID-19 highlighted the importance of payment inclusion

COVID-19 and its associated global lockdowns necessitated a change in approach from almost all companies and individuals worldwide. Suddenly, people couldn't purchase goods or make payments in the ways they were used to before. Likewise, businesses and organisations had to offer contactless services and processes that could be completed from home within days and weeks.

This global shift relied heavily on technology and its ability to support innovative ways to pay and interact. But how did this impact those not digitally native? "When it comes to payment behaviour, one should not underestimate the force of habits," suggests Leo. "When people have been paying in a certain way in a particular place, they continue to do so unless something changes. Clearly, the pandemic was a huge trigger. There's often this perception that older people are lagging; they cannot keep up. But here you see that if the payment instrument is sufficiently simple, they can and will use new forms of payment and technologies when they have to."

It's also important to recognise that cash plays a large role in many people's lives - often substantially. The Digital Payment Barometer also asked whether the respondent would cope in a cashless society. In 2020, 13% of respondents stated that they would not be able to survive and that cash was essential. In 2021, this number had risen to 17%, despite the broader trends in electronic payments. "This is a critical observation and a challenge for policymakers,” says Leo. “Cash continues to be important to many people in both digitally-developed economies and developing regions.”

Effective communication and information distribution are key to raising awareness and improving education regarding emerging forms of payment and adaptive processes.

Why are inclusive payments so important?

Social inclusion is critical. People are in danger of being left behind if they are not provided with the information, tools and infrastructure they need to adopt new forms of payment and technologies or if the methods they rely on are sidelined and mothballed. There are many ways to ensure that people are not left behind - one is to ensure that access to cash remains available.

"Many central banks have realised that developments in the direction of 'cashless' or 'near cashless' societies may be progressing a little too quickly," says Leo. "There is legislation in many countries that requires banks to guarantee a minimum level of access to cash and cash services. For instance, in Sweden, there is a rural movement, the 'Kontantupproret' or 'cash uprising', that, successfully called upon the Swedish Riksdag to adopt legislation that guaranteed the continuation of cash availability across Sweden.

Similarly, in Spain, the economic ministry recently announced a roadmap for all Spanish villages with 500 or more residents to have at least one bank branch, ATM, or mobile bank. Clearly, demand for cash is there across Europe and beyond - it's imperative to recognise and support this."

There are also broader social implications, questions of socio-economic disparity and far more complex regional development discussions. What is key is that by providing access to banking and payments in some form, financial institutions ensure economic access to individuals in developing and developing regions.

Can digital transformation support inclusive payments? What implications could a cash free society have?

Complexity will continue to be a significant issue for many regarding new forms of payments. "Take Central Bank Digital Currencies (CBDCs), for example," says Leo. "Some experts claim that they may help promote financial inclusion, but for many consumers, the concept is difficult to understand - it's not intuitive for the layperson."

Digital transformation has the power to create new opportunities and streamline existing approaches. However, supporting older methods and providing a clear, realistic path for users to transition towards digital alternatives is key. Technology can act as an enabler and a disrupter - banks and providers must empower their customers to use new services as alternatives while minimising disruption to existing services without sufficient support.

Going cashless does have benefits, including alignment with sustainability goals, better use of resources and disruption to its use in organised crime. However, is going cash-free completely even possible? This would require central banks stopping with the issuance of banknotes. As long as issuance continues, demand will remain. With economic and political uncertainty increasing, it is unlikely that cash will fade from use due to digital transformation. In many cases, digital technologies may further empower it.

What responsibilities do payment providers have?

Payment providers and governments must support customers and consumers and sufficiently explain and support processes and technologies. Digital literacy is a huge concern, but one that is actionable. Banks and providers should teach customers how to use their products - not assume they already know how to.

"Education is key," says Leo. "Whether someone is digitally literate or not, having the required information to hand if they need it is essential both for efficient use of products and to promote uptake of new products and services. At the same time, people should be made aware that they have options. They need to be educated to make the right choice for them, not necessarily the choice that is 'new'."

Banks and payment providers should act as more than just a bank - they are an important aspect of society with the ability to lead progress and promote inclusion. By offering various options and services, banks and providers can ensure their customers can make their own decisions on how to pay and bank and prevent anyone from being left behind in the progression towards a new, digital financial future.

Leo Van Hove

Leo Van Hove

Professor of Economics at the Free University of Brussels
Leo Van Hove is a Full Professor of Business and Economics at the Brussels School of Governance's Advanced Master in European Integration (EuroMaster) programme. He teaches courses in monetary economics, network economics, and e-commerce. His current research interests include currency usage, demand for e-money, and e-publishing. He has published extensively on these and other subjects in international journals as diverse as Journal of Money, Credit, and Banking; International Journal of Electronic Commerce; De Economist; Netnomics; Energy Economics; and European Journal of Operational Research. He is invited regularly as a guest speaker by central banks and payment providers.