Paper short abstract:

The paper investigates the dynamics of a contemporary cashless society and its effect on financial inclusion. Data from Zimbabwe shows that transactions costs are higher than in a traditional cash payments system due to perceived risks associated with the multi payments and multicurrency system.

Paper long abstract:

Innovations in information and communication technologies have changed the way financial markets operate in many developing economies. Mobile telephony and Internet networks have grown rapidly leading to developments in systems like M-Pesa in Kenya, SMARTmoney in the Philippines and MTN Mobile money South Africa. These platforms have disrupted financial markets and significantly increased access to financial services for low-income individuals. Of special interest is the changes that have taken place in payments systems. This paper uses data from a survey conducted in Zimbabwe to investigate dynamics of a contemporary cashless society and how they affect financial inclusion. Zimbabwe presents a special case. By May 2018, official figures showed that 96 % of all local transactions were conducted electronically, making it the most cashless society in the world. Different forms of e-payment are found to be associated with a variety of costs. These costs are linked to the perceived risk of each payment form. Moreover, the multicurrency system further complicates payments which vary across different currencies. This has led to higher transactions costs for low-income households than in a traditional cash payments system. We conclude that e-payments can only benefit low-income households when care is taken in the design of the system to ensure that platform providers in their quest for profit do not take advantage of vulnerable individuals and households. The benefits of electronic payments as a source of financial inclusion can therefore not be taken for granted.