The Complexities of Financial Inclusion

Two articles recently cast a different light on financial inclusion. The first published by Cash Essentials and written by Manuel A. Bautista-González of Colombia University about cash in Mexico and the second published in the Irish Times. Very different stories but interesting perspectives on using less cash.

Mexico has a financial inclusion plan for 2019 – 2024 which is based on using less cash. The rationale for this is a mixture of wanting to reduce cash use relating to crime, tax evasion, corruption and organised crime and allowing overseas remittances to be returned to Mexico more easily.

The central bank is promoting the use of its digital payment system, Cobro Digital (CoDI) for retail payments and the Ministry of Finance is encouraging digital payment in sectors such as health services and hospitality venues.

Mastercard and the Mexican Institute for Competitivity (IMCO) are also arguing for more digital payments, again to increase federal tax revenues. Mastercard and Ernst & Young have estimated Mexico’s informal economy to be as much as 19.2% of GDP. Mastercard want the government to use tax exemptions and subsidies to encourage investment in point-of-sale (POS) infrastructure and to move government contracts and welfare payment to be digital. IMCO proposes caps on cash payments.

Such calls ignore just how large Mexico’s unbanked and underbanked population is. The 2018 national survey reported 31.7 million Mexicans to be unbanked or financially excluded and a further 23.5% only had one financial product. Part of this is driven by the uneven spread of payment infrastructure in the country.

The Cash Essentials article argued that the high level of cash usage is driven to a large extent by need rather than criminal intent or the supply side issues of digital payments in Mexico. The fact that in the 12 months from March 2020 cash held by the public rose 30% suggests that demand is driven by need rather than anything else.

Losing track of spending in a cashless society

The second article in the Irish Times, originally published in the Financial Times, considered what happens when there is a disconnect between value and payments, when value is no longer thought of as a banknote. It becomes harder to make sure that spending is considered and done carefully, particularly when the spending is not face to face. As the article says, ‘We’re warned to be careful of the small print, but on a mobile phone, all the print is small print’.

The article uses some examples to illustrate the point. The website that, for a fee, directs you to a free government website. It tells you it is not an official website and it announces its fee. You use it because the government website does not appear near the top of the list in the search engine. There is the Amazon site which does everything it can to make spending money easily and impulsively. There are the subscriptions that renew each year automatically. There is the criminal who sets out to persuade you, through fear or guile, to pay them.

Whether legal or criminal, if parting with money can be made simple and fast then the ‘pain of loss’ is avoided. Paying by cash may be slower and feel painful, but the link between value and payment is real. For those on a budget, this is important. As a Mexican.