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Developing World Leapfrogs to Cashless Society

Developing World Leapfrogs to Cashless Society
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Major credit card companies are expanding their efforts in emerging economies to help move from traditional cash exchange to electronic processing of transactions.

From merchants in local markets to full service commercial bankers, credit card companies are encouraging new technologies to facilitate the growth of electronic accounts.

According to Michael Fiore, MasterCard’s Executive Vice President of Global Product, there is a good reason the emerging countries to want money distributed differently.

“Governments are very interested in cutting costs. “Cash,” he said, “is actually very expensive for a government.

In fact, 1.5 percent of a country’s Gross Domestic Product is spent on handling cash... printing it, distributing it, securing it, collecting it, cleaning it. It’s very expensive.”

In addition,” according to Fiore, “there’s a crime factor. Cash cannot be tracked,” he told VOA in an interview conducted at MasterCard’s Purchase, New York, world headquarters. “It’s very difficult to do that.

In fact, tax evasion, the black market and money laundering are all typically using cash to avoid being tracked. Whereas,” Fiore continued, “electronic is a way to keep a transparent view of what cash is, how it is moving.”

Cash still king

According to MasterCard, even with all the new technology applications, fully 85 percent of all transactions in the world today are in cash and only 15 percent electronic.

One of the major growth areas for electronic card companies is the developing world. Africa, India and Brazil are wider battlegrounds for card companies with vast numbers of people without bank accounts, and a growing middle class.

Scott Shay, chairman of Signature Bank of New York, told VOA “in the developing world new technology can be extremely helpful in helping those societies leapfrog some of the development that we went through."

For example,” he added, “the fact that in the developing world countries can go directly to cell phones, it means they don’t have to install the expensive infrastructure that we’ve installed in the United States and in other developed countries for our phone systems and for other telecommunication systems. They can leapfrog that.”

Innovation is the key. MasterCard’s John Sheldon is in charge of innovation management. His offices in Manhattan have that cutting edge look.

He showed VOA the new hand-held facial recognition transactional software in action. The user validates a purchase with a picture of his or her face.

Electronic ID cards

In Nigeria, Sheldon has helped that country issue new ID cards.

He said, “so many of the people, particularly in Africa, don’t have a reliable means to verify their ‘Know Your Customer’ data and therefore aren’t able to participate in the banking system. So one of the big things we’ve done as a business at MasterCard is work with the country of Nigeria and we’ve helped them issue their EID, which is their Electronic ID, which has information similar to a driver’s license issued by the government."

According to Sheldon, “It is a reliable data source so they can go ahead and participate in the banking system.”

But the world is not standing still. Change is happening. Fiore of MasterCard gave an example of how his company is working with other emerging nations.

“In South Africa,” Fiore said, “the government wanted to have a better experience in distributing Social Security. We worked out a system with South Africa to have Social Security distributed on a MasterCard.

"They now have a safe place to keep their money,” he said, “as opposed to having it in cash.” Now, according to Fiore, 1-in-3 South Africans has an electronic account to use to receive their benefits.

In Egypt, the government has also made a commitment to move to cashless. With the help of MasterCard they’ve created mandates to allow mobile network operators and banks to allow consumers access to electronic accounts.

There’s still a long way to go for a fully cashless society. Basically, it is up to governments to decide how and when they join the cashless world.