(Extracted from Business Observer – June 2016)
From a study titled ‘Evaluating the Cost of Cash’, international payment company MasterCard has concluded that the Jamaican economy can grow by at least 0.7 per cent if electronic payments were to grow by 30 per cent over the next four years.
In a recently held discussion with journalists, Gabriele Zuliani — MasterCard’s senior vice-president and head of the Caribbean region — revealed that, among other things, heavy dependence on a cash-based economy continues to stifle growth in the country while enriching the shadow (informal) economy. This, Zuliani indicated, was due to the link between the use of cash and the country’s corruption index, and this further correlates with “the perceived low GDP (gross domestic product)”.
“Contrary to what many people think, there are costs associated with cash. From direct costs, like production and transportation of bills and coins, to direct costs such as corruption, social insecurity, financial exclusion, timely State aid payments, and tax collection complication,” Zuliani said.
Zuliani noted, however, that though there was a correlation between cash transactions and the corruption index, there was not enough evidence to substantiate that the use of cash is a direct cause of acts of corruption.
The senior vice-president explained that because cash is not as easily traceable as electronic payment, then its commonplace use can lead to “unbalanced behaviours [which] have indirect consequences that impact GDP”. Among the consequences listed is tax evasion, with the study stating that “there is an inverse correlation between cash usage intensity and tax revenues”.
In fact, based on the MasterCard-commissioned study, 32 per cent of Jamaica’s GDP is unaccounted for because of cash transactions taking place in the informal economy. A comparative study on Kenya’s economy showed that since the country moved from cash-dependent to electronic payments, the country’s GDP grew by some two per cent.
Zuliani told the Jamaica Observer that a “cultural shift” would be needed to increase electronic payments and thereby improve the economy. He said that, along with public education campaigns to “grow acceptance” for electronic payments, MasterCard wants to “start an engagement, raising the discussion” with Government and financial partners in Jamaica that could lead to solutions.
One option, the study posits, is that Government can incentivise the electronic payment of taxes.
Another approach is new legislation to enforce electronic payments. Here, Zuliani suggests that Government can leverage social programmes, such as the the Programme of Advancement Through Health and Education (PATH), by effecting payments through a carded system.
He also suggests that payments to people involved in social programmes can be on an integrated platform. That is, individuals can receive payment through PATH on a card and use the same card to purchase items at the supermarket or to pay fare on Jamaica Urban Transit Company vehicles.
“We can partner with the Government to implement this programme,” Zuliani told the Business Observer, adding that such an initiative can reduce “the significant burden for Government to administer with cheques and cash” the disbursement of funds.
“We are trying to be the influencer. We are trying to bring our experience from all over the planet… to connect different and conflicting views,” the MasterCard Caribbean head said.
According to Zuliani, with the Bank of Jamaica indicating that it will soon be planning the agenda for the next five years, and MasterCard having shared the study with the central bank, he is hoping that the study will gain traction and possibly help to shape policy.
Despite recognising the challenges of changing Jamaica’s culture, as well as building out the technological infrastructure to accommodate the necessary changes, Zuliani said there are “exciting times ahead for Jamaica”.
Though recommendations in the study will take about five years to be implemented, the MasterCard senior vice-president said that if we start now, there are some things that we can accomplish in the short term, over the next 12 months, to improve Jamaica’s economy.