Digital payments technology is a crucial enabler of smart cities and can provide significant benefits for consumers, businesses, governments and economies.
Changes to the way in which people and companies pay for goods and services – brought about mainly by digital technologies – present an opportunity to increase economic growth and improve the quality of life for urban dwellers, says card payment multinational Visa South Africa country manager James Simpson.
The ‘Visa Cashless Cities’ report, which focuses on digital payment levels of 100 cities in 80 countries, estimates that the potential benefit of all citizens using digital payments can be $470-billion a year generated in savings and associated benefits across the 100 cities. On average, these net benefits represent slightly more than 3% of a city’s current gross domestic product.
The study does not assume that cash will go out of use, but rather investigated a broad migration to digital payments, whereby all urban dwellers use digital payments as frequently as the wealthiest ten per cent of the urban population.
Currently, more than 80% of global economic activity takes place in cities and it is expected that cities will generate by far the most future economic growth, the report states.
Smart city initiatives and supporting policies could potentially become critical pathways for governments wanting to foster economic growth, improve safety, attract businesses and provide better services for citizens.
Meanwhile, cities can rapidly migrate to digital payment systems because the enabling context is in place in the form of smart mobile phones and increasingly frequent business interactions on digital platforms and channels, adds Simpson.
The native on-board capabilities of smartphones, including near-field communications and quick-response technologies, can facilitate digital payment options in most industries and can play a key role in facilitating digital microtransactions that typically use cash because they are too low-value for common point-of-sales systems.
“Not all cash transactions will be eliminated and the intention is not to eliminate cash from the economy. However, where circumstances are conducive, digital payments can reduce the friction and costs of financial transactions,” notes Simpson.
According to the study, accepting cash and cheques costs businesses about 7 c of every dollar received, compared with 5 c for every dollar collected from digital sources.
“When combining savings with increased sales from achievable levels off digital payments use, our study projects that total net benefits to businesses across all 100 cities could amount to more than $312-billion a year.”
Average annual savings to governments in direct administrative expenditure using digital payments can amount to $710-million, while a reduction in cash-related crime could save an additional $53-million per year.
Meanwhile, the estimated potential increase in tax revenue from digital payment adoption amounts is on average $534-million per year.
However, the lack of reliable electricity infrastructure, underdeveloped Internet connectivity and low rates of computer and smart device ownership are significant barriers in moving towards a digital economy.
Broad infrastructure gaps can hinder consumer use of digital payments and the penetration of digital point-of-sale terminals in retail outlets. Similarly, limited access to digital payment products and an underdeveloped banking and payment system can also impede the use of digital payments, the report states.