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We are enabling mobile contactless payments, a technology which is growing rapidly.

MeaPay is a product of the Norway-based MeaWallet, a center of excellence within mobile and digital payments and mobile wallets, providing state-of-the-art certified technology in 25 countries. Through the company’s close relationships with Amex, Mastercard, Visa and other key organizations, they are at the forefront of the mobile payments space. MeaPay is the latest technology to come out of the company’s Oslo and Riga locations, making it possible to sever the ties between expensive hardware and contactless payment – bringing device freedom to any merchant.

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Cash: the enemy of financial inclusion

Micro merchants and SMEs are the backbone of the world economy. They are the worlds largest employers and process trillions of dollars a year in payments. However, even in markets where most consumers have cards, they are largely cash dependent. This is impractical, inefficient and comes at a high societal cost. Luckily it might be about to change…

 

The current pandemic has accelerated the world progress towards a fully digital economy. But while all goods and services that are bought and sold online are paid for using digital payment methods, a vast majority of transactions in the physical world are still cash-based.

Transaction in cash occur either because the payer does not have a card or digital payment method, or because the vendor does not have the means to accept such payments, or both.

Payments: supply and demand.

Assuming that any consumer who has cards or digital payment options prefers using these over cash, and assuming all merchants in that market accept cards, we would expect the majority of card transactions in that market to be correlated to the number of people that have cards. So far so good.

Now let us use the number of cards per capita in a market as a proxy for the number of people who have card payment as an option, and use this is as the “demand” side for paying by card. On the “supply” side we have the number of merchants able to accept digital/card payments. If we subsequently look at the percentage of transaction in cash, we can see how well the supply side is able to meet the demand.

In Sweden for example, the number of cards per capita is 2.21. Meaning that the average meatball-loving Swede has two card or more digital payment options available at any given time. As you would expect the transaction in Sweden are mostly card based (over 87% card to under 13% cash)

A grocery shop is at Khaneshin Bazaar, Helmand province. Photo: www.gov.uk

In Afghanistan by contrast, the number of cards per capita is 0.01, meaning only one in one-hundred adults have a card. As a consequence, virtually 100% of transactions are in cash.

Although these two countries represent polar opposites on the supply/demand card-payment spectrum, both markets have demand/supply equilibrium. In Sweden a high demand for card payments = low cash transaction, and in Afghanistan a low demand for card payments = high cash transaction. Surprisingly, this is rare.

 

Most markets have a supply/demand gap. Croatia for example, a country where the average citizen has more cards payment options than the Swedes (2,6 cards per capita), 73% of transactions are in cash, and only 17% of transactions are digital or by card!

In fact, cash is still a more common form of payment than card in most European countries, although card issuance rates are high, and the unbanked population is virtually 0.

In South Africa, (where the government has mandated that all salary payments be made via bank transfer in a laudable effort to increase financial inclusion) the supply demand gap is even bigger. Despite the average citizen having 4 (FOUR!!!) cards payment options available, 96% of transaction are in cash..!

So why (mid-pandemic) are we still so cash dependent? Because many vendors still don’t accept card.

 

Why vendors still don’t accept card payments.

To accept card payments, a merchant must apply to enroll in a scheme, go through a vetting process, fill in forms, and wait anywhere from 3 days to 2 weeks to get their card reader sent to them. The device requires set-up, integration and maintenance. Not to mention that a new entry-level card reader costs in excess of 30 Euro per device, and often comes with leasing/down-payment plans that make them even more expensive.

By contrast, accepting cash only requires a till and someone trust-worthy to look after it. Cash is just easier.

The big retailers, chains and conglomerates will take any form of payment: McDonalds, Carrefour and the other major players will be happy to accept your bank card whether you are in Norway or Uruguay. For the big players, the small burden of getting card readers is easily outweighed by the benefit of higher revenue.

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But for the local hair salon, kebab-shop or café, it is another story. Micro businesses are cost-sensitive, liquidity focused, and operate on short cost/revenue cycles.

Sustaining the expenditure on hardware, overcoming the obstacles and technical complexities to enroll, and having to wait several days for a transaction to be available on their account, are barriers to entry. These are simply too high for many micro merchants to overcome. This makes them more likely to just operate in cash, and less likely to have bank records or data necessary for access to credit.

This is a massive issue. SMEs and micro merchants make up the backbone of the world economy. According to the World Trade Organization, small-and medium-sized enterprises (SMEs) represent over 90 per cent of the business population, 60-70% of employment and 55% of GDP in developed economies. Despite being such a big part of the economy, this segment is struggling to grow. According to the world bank, access to finance is the main constraint.

 

Small business are less likely to be able to obtain bank loans than large firms. As a consequence, they have to rely on internal funds. The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium enterprises in developing countries, have an unmet financing need of $5.2 trillion every year !

 

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It is imperative to improve SMEs’ access to finance and find innovative solutions to unlock sources of capital, not only to support these small businesses, but because this situation disproportionally affects the developing world, and women. Women-owned SMEs are hugely valuable contributors the society, not only do they foster increased gender equality, they also grow overall wealth in the economy. However, female entrepreneurs face a range of financial and non-financial challenges in realizing their growth potential, and are more likely than their male counterparts to cite access to finance as a major or severe constraint on their business operations. One of the biggest barriers for increased access to finance for women-owned enterprises is the lack of reliable data disaggregated by gender. The credit gap for formal women-owned SMEs across all regions is roughly $2872 billion, which is 30 percent of the total credit gap for SMEs.

I have previously written about e-wallets and the importance of credit access and financial inclusion, on an individual level, but this is equally important on small-business level.

 

Access to financial services enables the poorest and most vulnerable in society to step out of poverty and reduces the inequality in society.

Small businesses and micro merchants that operate in cash, will have difficulty getting access to credit, they will more likely remain liquidity squeezed, and they are less likely to succeed or scale.

The credit trap (my favourite diagram)

Again, this is a serious concern for women-owned SMEs, where most of the financial and non-financial barriers affecting occur at the startup stage of the business life cycle.

 

How merchants will go digital.

That is where we come in, having developed a solution that allows any merchant to accept contactless cards or any digital payments (Google Pay, Samsung Pay and Apple pay etc.) Instead of relying on hardware, we have a software-based point of sales systems (SoftPOS), that transform ordinary smart-phones into a contactless payment point. The low cost and high world-wide penetration of smart-phones, means any merchant with a phone can now download our app, and have a card reader. This gives merchants a quick, barrier-free ability to accept card-payments directly on their phone, without the cost or logistical challenges of hardware. Reducing their reliance on cash, increasing their revenue, and removing the operational hassles and risks associated with cash-operations. It also simplifies credit agencies and banks’ ability to evaluate their credit worthiness and facilitates their access to loans!

 

No alt text provided for this imageSoftPOS is an awesome technology. For mature western markets, it gives merchants an opportunity to take payments more easily, to scale faster, and to reduce reliance on cash and invoicing, as they can accept payments on the go (electricians, plumbers, delivery drivers etc.)

But for the emerging markets and the developing world, SoftPOS technology is a powerful enabler and gateway to increased financial inclusion and access to capital.

MeaPay is proud to deliver SoftPOS and work hard to push for the democratization of payments and increased financial inclusion.

Bring on the future, and let cash rest in peace.

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