There are lots of good reasons to rid ourselves of cash—as we’ve written about before. Transporting and securing it is expensive, the stuff gets counterfeited and stolen, enables crime, uses up precious metals, spreads bacteria. And so on.
But perhaps the best reason is cash’s role in financial exclusion. Up to 2.5 billion people worldwide live without access to regulated financial services. Which means they’re forced to rely on loan sharks, pawnbrokers, and the like, and struggle to borrow enough, say, to open a business, or pay for an education.
The goal of the Better Than Cash alliance—a new partnership of governments, nonprofits, and financial firms—is to improve financial access, and so help people out of poverty. Its recent report outlines the potential of electronic money as a development tool.
"We know that having a place to save money, to seek appropriate microcredit, and having the ability to perform financial transactions and receive remittances, makes a huge difference both in helping people suffering from hunger, and when disasters strike," says Rajiv Shah, USAID’s administrator.
USAID, which helped set up the project, is pushing e-payments in several ways. It’s using its diplomatic clout to get governments in places like Afghanistan and the Philippines to stop using cash. It’s working with local finance firms and mobile providers to install new systems. And it’s partnering with the Gates Foundation and Omidyar Network, and others, to develop new technologies.
"This whole field has been held back because we haven’t had the big, bold actions that convinces the demand side of the market to move to this type of infrastructure," Shah says. "With this alliance, we’re able to move beyond the chicken and egg problem."
For example, USAID is spending $10 million in Haiti building a new mobile payments system with Digicel, a local provider; Shah says its products already reach 1 million customers. Pilots conducted by charitable groups show that e-payments are safer, and help people with money management.
Meanwhile, in Afghanistan, USAID has encouraged the civil service, teaching corps, and police to shift to mobile payments, reducing "leakage" in the process. "When the police force moved to the mobile system, they thought they were receiving a 35% raise. But they weren’t," Shah says. "It was just that the traditional system was so prone to graft and corruption. All we were doing was squeezing that out."
And USAID is requiring that all of its roughly $1 billion of annual humanitarian relief—which is mostly distributed by Mercy Corps, Unicef, and the World Food Program—go through e-channels.
USAID’s push on financial inclusion is part of its emphasis on technological solutions and public-private partnerships. Shah says that by working with nonprofits and big business, USAID can reach more people, and be more effective.
Still, the alliance with Citi and Visa does raise the question of whether the U.S. government ends up doing those companies’ work for them.
Shah is unapologetic. "We’re proud to have a partner like Citi. They believe there are 63 countries where we can scale this up over time. That will allow us to meet hundreds of millions of people who we would never otherwise be able to assist."
"At the end of the day, six of the 10 fastest growing economies are in Sub-Saharan Africa. If we can do a tremendous amount of good and also position American businesses to play a role in the emerging economies of the future, we are proud to carry that mantle," says Shah.