The Future of Cashless
in the Digital Economy – the Benefits of Cashless Payments for SMEs.
In today’s interconnected world, digitalization remains a source of both challenges and opportunities for Europe. To be able to stay competitive and thrive in an increasingly digital world, SMEs need to effectively harness the potential of cashless payments. Improving consumer experience, while at the same time lessening the administrative burdens related to cash management, will enable SMEs to have a competitive advantage. To talk about this SME Connect hosted a Working Breakfast on “The Future of Cashless in the Digital Economy – the Benefits of Cashless Payments for SMEs” last week, on February 19th 2020
To join us in this conversation, were Prof. Dr. Inese Vaidere MEP (ECON); Dr. Michal Boni, Ret. MEP, Minister of Digital Affairs of Poland (2011- 2013) and Senior Research Associate at the Martens Centre; Markus Ferber MEP, European People’s Party Coordinator of the ECON Committee; Amrit Rescheneder, Head of European Affairs, Austrian Savings Banks Association; Eric Ducoulombier, Head of Unit – Retail Financial Services, DG FISMA; Zbigniew Wisniewski, Deputy Chairman, Cashless Poland Foundation; Katarina Kakalikova, Director of Government Engagement, Mastercard; Ondrej Kovarik MEP (ECON) and Dr. Stefan Gehrold, Ret. MEP.
We need to explore ways to better support SMEs, so that they can adapt to digital challenges and thrive in this new digital ecosystem.
Prof. Dr. Inese Vaidere MEP opened the floor, mentioning the many advantages of the digitalization of payments, especially in relation to greater transparency in tax collection and to the reduction of the shadow economy. Commenting on the importance of this digital transition for the business environment, Inese Vaidere remarked that inclusion should also be translated in its social dimension. The digital transition to cashless payments should consider the different requirements and possible obstacles of people with different socio-economic background, limited mobility and lack of digital skills, as well as lack of access to the digital ecosystem.
To further explore this theme, the first panel, comprised of Dr Michal Boni ret. MEP and Markus Ferber MEP, focused on the social and political implication of a cashless economy.
Involving SMEs is the opportunity to build a new competitive advantage, to scale-up through digital tools and to internationalize, reaching new markets and clients.
Dr. Boni situated this topical debate within a more holistic digital ecosystem: cashless payments are just another piece of a digitalization puzzle of Internet of Things, Artificial Intelligence, cyber security and 5G connectivity. While establishing a coherent legislative framework for the digital economy, it is important to evaluate how public policy can support the digital transition for businesses by co-shaping new cultural patterns that envisage cashless payments as a natural part of everyday life. Cashless payment adoption should happen naturally, through experience, by assuring consumers that privacy is ensured and that their data are secure.
After remarking the differences between countries like Germany and Poland, his interlocutor, Markus Ferber, remarked how alternative payment methods and systems can enable development and growth. “Money is not the only way to make payments,” he stated. Cash management is expensive for SMEs and switching to cashless payments can be beneficial for enterprises that have clients outside Europe or that use cross-border e-commerce as integral part of their business model. In this regard, cashless payments could significantly reduce transaction costs between different currencies and countries. Cash and trade are necessarily interconnected: accessing the European Single Market offers business opportunities that cannot properly be harnessed as cash is limited by territoriality.
The second panel discussion, involving Amrit Rescheneder, Eric Ducoulombier and Zbigniew Wisniewski, focused on how to better support SMEs in their transition towards cashless payments.
Armit Rescheneder, Austrian Savings Banks Association, reminded that the main benefit of the transition to alternative methods of payments is the improvement of consumer experience for retailers and SMEs. “The role of banks in this transition is to help SMEs. It is not about the payment themselves, it’s about an enhanced consumer experience.” However, the fragmented nature of the European market makes seamless cross-border transactions. In fact, if not all European banks are active participants.
Our payment system will never be future-looking enough if not all European banks participate. We need European solutions. Right now, we only have national solutions.
Eric Ducoulombier presented the perspective of the European Commission regarding the topic of cashless payments. Although the European Commission has put the Digital Agenda at the forefront of its priorities by assigning it to Executive Vice-President Margrethe Vestager, the cash versus cashless payments debate has not been object of explicit consideration; however, a public consultation on the topic is due to be opened in the following months. “At the moment, the European Commission has no strategy or policy designed to phase out cash. We don’t want to accelerate the irreversible phase out of cash out of the economy because this can only happen through the renewal of generations.” Due to its strong cultural, territorial and generational dimension, cash still holds socio-economic significance and it will probably continue to do so for years to come.
Zbignew Wisniewski showcased how the Cashless Poland Foundation, an initiative co-founded by all stakeholders in the payment market to finance the digitalization of micro, small and medium-sized enterprises, contributed to improve customer experience, grow business and empower consumer and retailer choice. In 2016, in Poland only 20% of SMEs accepted cashless payments, believing that they would be too expensive to install and maintain. In 2018, two years after the initiative, thanks to the initiative that financed three devices for twelve months, more than 250 thousand devices were established, with only 10% of participants deciding to terminate their lease after the twelve-month period was over. Today, about 40% of Polish SMEs that use cashless payments devices are part of the initiative and the payment device rate pro capita is within the European average. However “in 10 years time, cash will not disappear,” Wisniewski stated, “nevertheless our goal is to have every merchant offering at least a choice between cash and cashless payments.” Beyond offering pragmatic solutions to SMEs, the Cashless Poland Foundation improved coverage across Poland.
We are not fighting against cash. We do not want to replace it. We just want to offer consumers a choice.
After evaluating pros and cons of cashless payments and cash management, the third panel discussion contextualized the topic of cashless payments in Central Eastern Europe, – a hub for innovation and technological adoption. Katarina Kakalikova and Ondrej Kovarik MEP agreed: while the United Kingdom and Nordic countries may be closer to achieving a cashless society, Central and Eastern Europe are adopting innovative technologies at a faster rate.
Katarina Kakalikova, a Mastercard representative, remarked once again the inherent social dimension of the digital transformation. The digital transformation is driven by consumers and, once it is realized, it will impact more than just a way to make payments. Not only consumers want “immediate, seamless, safe and secure payments”, they also want to be connected to reap the benefits of a digital ecosystem. With over 50 billion of smart devices connected as of 2020, to improve the experience of consumers and retain their customer base, SMEs should digitalize to be able to compete and grow in an interconnected digital society. For this reason, “It is not up the industry to decide what consumers should use, be it cash or other means of payments. We want the consumers to use what they want to use,” as Kakalikova said.
Cash only offers limited space for innovation.
In a context like Central and Eastern Europe, with such an “appetite for digitalization, new technologies and innovation” – like Kakalikova stated – it is particularly important to devise a coherent legislative framework able to accommodate the future. “We should not end up with a legislation that locks us in and does not leave space for technological innovation and its possibilities,” MEP Ondrej Kovarik stated. The collaboration between public administration and entrepreneurs could also benefit from the establishment of alternative methods of payment. In fact, fully digitalized taxation systems would further lessen the administrative burden for SMEs, while at the same time effectively counteract tax evasion and money laundering.
Lastly, Dr. Stefan Gehrold concluded restating the benefits of alternatives modes of payments. Adopting cashless payments present numerous advantages for enterprises: they would remove inefficiencies related to cash handling, facilitate purchases and ensure the safety of employees by removing risk factors. Once again, the issue of social inclusion was brought up by pointing out the importance of phasing out cash gently, while ensuring a fair transition towards an increasingly digital ecosystem.
Visit our flickr page to access the photos taken during the event