The fintech sector is ready, but one of the biggest challenges remains educating people to encourage them to transition from cash payments to cashless wallets
It often seems like when we speak about development in Asian countries, we inexplicably refer to the biggest economic players: China and India. However, look a bit to the south, and you will find a region of enormous growth and potential — the Association of Southeast Asian Nations.
Predicted to be the 5th largest world economy by 2020, the ASEAN region is home to rapidly emerging markets like the Philippines, Indonesia, Thailand, Malaysia and Singapore.
With a population of more than 635 million people spread out across the 10 Southeast Asian countries, it is estimated that "millennials" make up over half of the population here. This is why, perhaps, it is no wonder that digitalization is a key focus in the region.
Over the longer term, technological change in general and the emergence of the digital economy in particular is a major factor driving economic growth in Emerging Asia. — OECD Economic Outlook for Southeast Asia, China and India 2018
While internet penetration in the region is approximately 58%, meaning that that just over half of the population has access to the internet, only 27% of the population has a bank account, according to KPMG.
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This means that a vast majority of the ASEAN population does not have access to financial services, that some would argue should be a basic human right. One of the key concerns with this is that millions of migrant workers are left without affordable solutions like efficient remittance payments.
For example, labor advocates in Singapore claim that migrant workers compose 30% of the workforce, and that they are often subject to extortion, delayed/withheld wages. These individuals are encouraged to report the injustices to Humanitarian Organisation for Migration Economics, but often do not, out of fear for losing their jobs.
It should not come as a surprise that many of the migrant workers do not have access to a bank account either. All throughout Southeast Asia, many migrants are paid in cash, which limits the accountability of the employer and traceability of the funds throughout the system. A substantial amount of these funds are sent back to the migrants' home countries to support their families. Besides unscrupulous employers, we are now presented with another blight.
Remittance fees in the ASEAN region are some of the highest in the world, largely due to the fact that Money Transfer Operators like Western Union and MoneyGram are left without competition. The average price of remittance from Thailand to Vietnam, for example, is as high as 15%, for a $200 USD transfer.
However with the emergence of fintech companies that have chosen to focus on remittance in the region, we see a drastic increase in digital banking and e-Wallets coming to the rescue.
Globally, it’s estimated that payments made via mobile and contactless systems will reach $95 billion by the end of 2018 and will lower the cost of basic financial services by up to 90%, according to a 2017 study by PwC.
“A cashless society already exists in China, but in countries with very high banking penetration like Singapore, 15% to 20% of payments are still made in cash,” said Matthew Tippetts, CEO of Clik. “It’s a cultural habit, so I doubt they will go completely cashless anytime soon.”
The costs of remittances remain high for cash based transactions. However, once money is digitized and handled through a mobile payments application, the cost is drastically reduced.
“The fintech sector is ready, but one of the biggest challenges remains educating people to encourage them to transition from cash payments to cashless wallets,” Tomas Pokorny, CEO of Cambodia’s Pi Pay digital payments startup, said at a conference last year. “Step by step, people will adopt the new technologies.”
“The pros of going cashless, when done properly, is reduction in costs, risks, fraud, seamless payment — no more manual effort, superior user experience and improved accountability,” he said. “What will change is how we use cash, and its utilization will indeed decline, but not disappear.”ARYZE is creating Digital Cash
The argument for reducing dependance on physical cash lies in a reduction of costs and risks associated with handling cash. Fraud and exploitation of workers can be drastically reduced when using digital payments platforms, as accountability and traceability is improved. The idea is not to completely eliminate cash, but alter the format in which it travels. A digital format for cash would have the benefits of being backed up by the confidence of a central bank.
This is something that ARYZE is working on implementing on a global scale. Creating electronic money for digital applications is one thing, but creating a a digital monetary system that mimics the characteristics of cash is something else. Money that isn't at risk of being withheld by a bank that is on the brink of collapse, and something that doesn't require a banking intermediary to take fees along the way.
Article by Carl Jenster
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of ARYZE.
Cash-based remittances pose an enormous risk for migrant workers in Southeast Asia was originally published in Cryptocurrency Hub on Medium, where people are continuing the conversation by highlighting and responding to this story.