Cash: the enemy of financial inclusion

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:

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?