The move to digital is often viewed as fintech’s bread and butter, an excellent step forward that will generate an increased standard of living for anyone who engages with it.
However, the current paytech picture isn’t all it appears to be, and it’s not a technology that works for everyone. As Jan Marc Kuelper explains here in this article for The Fintech Times, this is particularly true in regards to government payments.
Kuelper is SVP, Enterprise Sales, North America for Paysafe. He joined Paysafe in 2014 and is responsible for the eCash business (Paysafecard and Paysafecash) in the United States. He is also pursuing strategic partnerships to accelerate the international expansion of Paysafe.
Kuelper was previously responsible for the international expansion of the company and has launched Paysafecard in various countries in South America, the MENA region and in the Asia Pacific.
Kuelper worked for more than 10 years internationally in the digital and social media industry. Among others, he developed new business models in the music industry for Sony Music in New York, created new businesses and ventures for the media company Bertelsmann (USA, UK and Germany) and was responsible for the strategy of the social network XING (Germany).
Kuelper holds a master’s degree in business administration from the University of Passau in Germany.
Here Kuelper paints a vivid scene of the unbanked with the colours of digitisation, explaining how the shift has left so many at a disadvantage, whilst also offering a practical solution that will work for all:
The Importance of Cash Consumers in Government Payments
In recent years we have seen a rapid digitalisation of consumers and businesses, which has been largely driven by the Covid-19 pandemic. And as we look ahead to the future this trend looks set to continue.
One of the most significant reasons why digitalisation must be addressed is financial exclusion. As essential services such as government payments move online there is a risk that not everyone will be able to maintain access to them.
Financial inclusion remains a global and local government issue
Although conversations concerning combating global financial exclusion are usually focused on the developing world where there is a higher unbanked population, financial exclusion is still a significant issue in the most advanced countries.
Take the US for example. According to research, only 78 per cent of US adults are considered fully banked. The remaining 63 million Americans do not have equal access to financial products and services, and for somewhere between six per cent and as high as 10 per cent of US adults, this includes not even having a bank account.
This is a problem for governments and has been made worse by Covid-19.
The financial and social consequences of the pandemic such as lockdowns and the digitalisation of services have had a disproportionately severe effect on those that are unbanked and underbanked, and this is already a more disadvantaged portion of society (according to research only three per cent of US adults earning more than $40,000 per year are unbanked, compared to 14 per cent earning less than $40,000).
So, the socio-economic gap between the richest and poorest in society is growing, and this will only increase as the rise of the digital economy continues.
In addition to not being able to participate in growing areas of society, unbanked and underbanked citizens are more challenged to make and receive government payments, making financial inclusion a critical issue that governments should be taking action to resolve.
We have seen this be a challenge already during the pandemic; unbanked US citizens had to wait longer to receive their government-issued stimulus cheque (if they were eligible to receive them at all), meaning that some of the most vulnerable members of society were pushed further into more precarious situations due to not having a bank account.
Under normal circumstances, governments are more likely to be receiving payments from their citizens in the form of taxes, fines or utilities. If the unbanked and those that rely on cash payments are left out from making these payments as government services digitise then the consequences would be detrimental to society.
The role of eCash solutions
So, what can be done about this?
The long-term strategy may be to encourage financial inclusion through initiatives such as lower fees for banking services and offering citizens more options with access to all payment methods.
But in the short term, it must be to ensure cash consumers have the same access to services as all other citizens by enabling safe and convenient cash payments in their online checkouts.
eCash solutions bridge the gap between those that rely on or prefer cash payments and the digital economy. The consumer begins the transaction online through the online checkout experience but then completes the transaction in cash at a local convenient payment location.
This means that cash-only customers remain on an equal footing to those paying via a bank account supported payment method.
Diversification of the payment landscape beyond financial inclusion
Unbanked consumers aren’t the only driving force behind the diversification in online payment method preferences.
According to our recent research, 86 per cent of consumers have changed their online payments behaviour during the pandemic and 59 per have tried at least one new online payment method for the first time since the beginning of 2020.
There are several reasons consumers are generally shifting away from card payments, including being unbanked but also because they do not feel comfortable sharing their financial details online.
Businesses have noticed this change in consumer demand and are beginning to adapt.
Two thirds (65 per cent) of the 900 online businesses we surveyed believe that Covid-19 has changed consumer payment preferences, and as a result of this, 61 per cent have accelerated their plans to upgrade their checkout experience.
Government payments have mirrored this shift to some extent. For example, in the US, citizens can make some government payments such as fines and penalties using alternative payment methods including digital wallets. But the scope of alternative payment methods could and should be much wider.
In the US, 54 per cent of online businesses said that they either already enable customers to pay online via eCash or planned to enable this in their digital checkout within the next 12 months, and 59 per cent of businesses that offer this solution said that the percentage of sales carried out using an eCash solution has increased.
Governments must consider following suit.
The future of digitalisation
As we look ahead, we expect to see the movement towards digital services to continue to grow. However, we must be aware of the dark side to this, which is the potential to create two-tiered societies in which a significant percentage of vulnerable people are left behind and unable to access the goods and services of tomorrow.
Governments are in a key position to lead by example and take positive action to rectify this problem. Facilitating cash consumers and enabling the financially excluded to access digital services, in the same way, is critical to achieving a digital-first, ethically sustainable society.
Paysafe Limited is a specialised payments platform. Its core purpose is to enable businesses and consumers to connect and transact through capabilities in payment processing, digital wallets, and online cash solutions.
With over 20 years of online payment experience, an annualized transactional volume of over $120billion in 2021, and approximately 3,500 employees located in 10+ countries, Paysafe connects businesses and consumers across 100 payment types in over 40 currencies around the world.
Delivered through an integrated platform, Paysafe solutions are geared toward mobile-initiated transactions, real-time analytics and the convergence between brick-and-mortar and online payments.