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Cost of cash is expensive to every economy, says MasterCard CEO



The Global President and Chief Executive Officer (CEO), American multinational financial services corporation, MasterCard Incorporated, Ajaypal (Ajay) Singh Banga, was in Nigeria last week to hold talks with Vice President Yemi Osinbajo, and some captains of industry across sectors of the economy, with a view to promoting financial inclusion in the country. In the two-day visit, he spared 25 minutes for an exclusive interview with The Guardian’s Clara Nwachukwu, to speak on specific solutions his company is providing to promote a cashless system.

• Rapid urbanisation makes smart cities imperative,
• Technology, payment systems, good data analytics needed for networks creation

What is the purpose of your visit to Nigeria?
I visit markets where MasterCard operates for two reasons. The first reason is to have a better understanding of the opportunities on ground personally as well as a better knowledge of the challenges. The second reason is to meet our employees. People are our biggest assets, and I use the opportunity to communicate with them directly without filters and without any kind of barrier. About seven or eight years ago, we didn’t have much presence on ground in Nigeria, but today we have these beautiful people whom I describe as incredible. It gave me great pleasure to stand in front of them, look at their faces, and speak to them. It gave me an inkling into their interests. I also felt the energy and their smiles, and it gave me joy. I had a really good trip.

You met with the Vice President of Nigeria on the first day of your visit. Could you give us some highlights of the discussions at that meeting?
Yes, it was really good to meet him; when I came to Nigeria earlier before, a different administration was in power. The meeting with the Vice President was actually very interesting, and I also met about four members of his direct staff, who accompanied him to the meeting. We had a terrific conversation. Our discussions centred around financial inclusion and inclusive growth, and it was obvious that he held these topics close to his heart. It was obvious he is focused on creating access to financial services for people at the lower end of the pyramid in Nigeria.

The fact is that he is on the right path because about 40 per cent of Nigerians do not even have access to a bank account and those who do still mostly deal in cash. Cash is still prevalent in Nigeria. About 90 per cent of retail transactions in Nigeria are still in cash. The benefit of turning this scenario around is that every percentage increase in electronic payment would positively impact growth of the country’s GDP. There are studies which have been conducted with interesting results. The results reflect a direct correlation between change in electronic payments and change in GDP.


SMEs are an important part of the Nigerian economy in terms of income and economic growth. Nigerian SMEs need to move out of the cash economy into the electronic economy, so they can find ways to get easier access to credit, insurance and the like. You know, if I were a banker and you have a decently run shop but you come to me and ask for a loan or you come and ask for insurance and you verbally tell me how high your daily revenue is, that won’t convince me to offer you a credit facility. But if you could show me your revenue through electronic or digital trails, then we will have a very different conversation. I was in Johannesburg just before coming to Nigeria, and I experienced something interesting. In Johannesburg, we saw a really small merchant; he was literarily a micro merchant, which is the best way to describe him. And I saw him take electronic payment for bottles of waters, biscuits and the like from a QR code on a phone, which is a very low-cost way of creating electronic acceptance. He instantly got payment for purchases and the look on his face was one of pride and joy. The money was in his account instantly, and then he showed me all the other transactions he had been doing. He could build a history to go to a bank and say: “here is my history, give me some credit.” And with the credit, he can grow the business, add to his inventory, and probably hire more people. That’s what this is about. So to me, that conversation with the Vice President was very interesting. We are looking at how we can work together to create more financial inclusion for the people and SMEs in Nigeria.

Tell us about your opinion on smart cities and how Nigeria can key into that, based on MasterCard’s experiences from other countries?
Well, we hosted an event which was a very interesting session in Lagos, with about 30 to 40 CEOs of companies from the banking industry, the telecoms industry and the like. The conversation was a ‘CEO dialogue on smart cities’. And to me, the smart city aspect is another interesting angle. Urbanisation around the world is growing rapidly at a pace that is much faster than anything in the past and the African Continent is actually leap frogging in urbanisation.
Here are some statistics for you: it took Europe about 50 years to go from 14 to 15 per cent urbanisation rate to 40 per cent. You guys in Africa have done that in half the time, and by the way, Nigeria is already at over 50 per cent urbanisation, and then you look at a location like Lagos. When I first came here, the population was around six to eight million people. Now the population is between 18 and 20 million people. In 10 to 15 years time, the population will be about 30 million. That’s bigger than the population of some countries. There is another set of statistics that I find very interesting. Every two weeks, three million people move to urban areas globally. So urbanisation is a phenomenon that is in our lifetime, going to be a great multiplier. I think the reason is that the level of productivity and GDP in the urban area is three times the level of productivity and GDP in the rural areas. Young men and women growing up in villages in a country like Nigeria want opportunities, and Nigeria is blessed with a very large young population. They have to come to urban areas to find jobs for an opportunity for a better quality of life. If they end up in a slum with no water, no power, no healthcare, and no opportunity, that’s not a better life. That’s what a smart city can do, to cater for the ambitions of these young people and give them an opportunity to be productive citizens by connecting them to networks.

What do I mean by that?You know, in any place, there’s an education network, there’s the network to find a job, and you have a lot of FinTech people because your country has good education and young, ambitious people. Well, they need to be in a network to get access to companies like us, to get access to capital, to get access to technology. You need a network for healthcare, for transit, for transport, for education and smart cities need to create those networks. My belief is that technology and payment systems and good data analytics are the best ways to create those networks in a cheap and efficient way that is scalable, particularly, if you use global systems, because you are not reinventing them locally for local needs at local cost. You can adapt them, you can make them more workable for your environment but you can get the best of the best.

Well, as good as the smart city idea sounds, I am particularly worried about the infrastructure deficiency. What discussions did you have with the Vice President in this regard, especially as you have noted there is so much pressure on the urban centres because of massive migration?
I didn’t talk to him about infrastructure, we didn’t have that conversation. But I agree that with discussions around smart cities, if you don’t give the people opportunities and they end up in the slums with no water and no healthcare, then that’s not a blessing, that’s a challenge for them. We have some specific examples and case studies of things we have done in cities around the world, which maybe could serve as useful lessons in Nigeria as well. Let me give you a couple of them and then you’d see what I mean.

One example is the use of technology for transit, for transportation. There are 120 cities in the world that deploy rail for mass rapid transit. Many others have buses, but 120 cities have trains. We are working with a 100 of them to get them to take cash out of the system, because cash for a transit system is a problem. It makes your going into the train much slower because you’ve got to buy a ticket and somebody has to give you change (unless you are carrying the exact amount for the fare).

Then that creates a queue, and then the person collecting the money becomes susceptible to being robbed or may be tempted to steal. So to get out of all that and migrate to an electronic system is sensible. But then some transit systems in the world understood that, but decided to go and make their own methods of going electronic. Take the London Transport Authority for example. You go to a machine outside the train station and you put in cash, or you put in your credit card or your debit card from Nigeria; and then you buy another card which you are to use only in the system. I mean its expensive and a waste of resources. Now London Transport has moved off that and is giving citizens the chance to pay with their bank issued card. The same card, which you were using to buy another card, is now what you can pay with. Forty per cent of British travellers and tourists are now paying with their cards. That has saved the London Transport Authority about 100 million pounds sterling every year. Now with a 100 million pounds, you can do a lot to improve transport, facilities and infrastructure and so on. That’s an example.

Think of this: you are a tourist to London, or New York. Today in New York, if you live in New Jersey, if you want to work or come to Manhattan or go to Time Square, you have to buy three different tickets on public transport. New Jersey Transit, New Jersey path trains, then the metro-subway in New York. If you’re a tourist, it’s a nightmare, you don’t know anything, and you barely know the city. You are scared that New York is a big city of about 20 million people and somebody’s probably going to harm you. That’s the impression tourists carry, even though, if you live there, it’s a very safe and really fun city. I live there, my children have grown up there, and it’s great! Imagine if you could just pay one time with your Nigerian card, whether it’s a debit card or a credit card or a prepaid card. You tap and just pay. If all that could be seamless won’t you feel better? That is what I’m talking about.

Throughout the conversation, I get this feeling that cash is the enemy, and there is such a wide gap between the banked and the unbanked as you’ve noted already. So what is MasterCard doing around the globe and in Nigeria, to bridge that gap?
Great question! First of all, if you will indulge me for one minute, I’ll tell you why I don’t like cash. Everybody thinks cash is free. I don’t agree. Studies around the world by independent economists will tell you that the cost of cash to an economy is between 0.2 per cent to 0.5 per cent in terms of printing, securing and distributing it. Foreign exchange is bought from overseas in aeroplanes, then distributed from one place to all the locations. Then from there to the bureau de change operators and from there you pick it up and spend. You think that’s free? It’s very expensive! So my point is in any way you look at cash, it has an expense.

Then there’s another aspect of cash. The only way companies or merchants or people can do bad things and avoid paying their fair share of taxes is if they have enough cash. If everything is done electronically, sooner or later, your data will become known about what is your revenue, what is your expense; and what should be the tax you pay. I did not even include the cost of tax avoidance in that 0.2 per cent to 0.5 per cent economic cost I mentioned earlier.
Then let’s come to countries which experience insurgencies. Unfortunately, many countries in the world experience insurgency. I grew up in India, India has the problem too, Nigeria has it too, and many countries have it. That cross-border insurgency, arms carrying people and all that don’t happen without cash. It doesn’t happen with a credit card payment or a wire transfer from a bank, it happens with cash. People don’t talk about all these. These are the dirty secrets of cash. So to me, cash is the facilitator of things that I do not want my children to grow up with.

Regardless of all the advantages of a cashless system, there’s now an increasing wave of cyber-crimes, which is much more expensive than the cash issues.
No, it’s not more expensive. That is something we want to make sure. The cost of cash, electronic system is not more expensive than that, cash is more expensive.

I mean the cost of cyber-crime?
Something crucial which we have to do with technology and digital is that we have to be very respectful of privacy. One advantage of cash is your privacy as a person and as a merchant. When you violate someone’s privacy, you violate basic trust. So, I am a complete believer in that and I believe technology should not be used for the wrong things, and one of those is to violate someone’s privacy. But privacy does not include avoiding taxes, that’s not encroaching on privacy. That’s illegal. Privacy is, if you choose to buy that shirt for a $100 and I choose to buy this for $50 that’s my business and not your business. I don’t need to know how much you spent. That’s privacy that I should respect in technology, and that’s part of one advantage in MasterCard’s case.
For example, when you use your MasterCard, and I hope you use it often, your name does not come to MasterCard. The data that comes to MasterCard is a 16-digit account number, that’s the number on your card, the amount you spent, MasterCard does not know what you bought. MasterCard cannot violate your privacy because the company doesn’t know who you are. Your bank knows who you are, they deserve to, and you decided to open an account with them, so you walked in with your eyes open and said: “I want to become a customer of yours.” Your merchant knows who you are, because you walked in to buy the shirt, but MasterCard doesn’t know who you are.

That’s the way to protect privacy; to build privacy into the system by design. I am not saying cash should go to zero, don’t get me wrong, but I am a believer that there is a better mix, that’s all. About 90 per cent in cash transactions is bad, zero cash is probably also wrong. Somewhere in between is the right number. There are countries like the Nordic countries and South Korea, where cash is down to five per cent of retail transactions because the government has very actively promoted ideas like the Value Added Tax (VAT). They will tell a consumer, if you buy on a card, at the end of the month I will give you a discount on the VAT in your bank statement. So the money goes directly to the consumer and they feel incentivised for doing electronic payment. They incentivise the merchant to take electronic payment both through giving them access to credit, and also saying we will accept your trail record of electronic payments as your income tax return. We don’t need to come to audit. So, there are many ways to create incentives for consumers and for merchants to reduce cash in a sensible way.

MasterCard recently launched the MasterpassQR in Nigeria. How successful has it been so far? There is a school of thought that believes that companies offering digital services like MasterCard, and the rest, have offered too many products that tend to confuse the users. What’s your take on this?
I think the second part of the question about confusing users is a great question. I think making things simple for the consumer is really important and like every other business, the more you make it simple, the more consumers will love you; and the more they’ll engage with you so. So we are driven towards simplifying, because if you understand what I’m giving you, you will take more of it. That’s something we have to do.

On the QR code, it’s really interesting. These are early days for QR codes. Let’s go back to the example of the young merchant in Johannesburg I spoke about earlier. I see an enormous opportunity in the next three to five years. This will not happen in three months, this is a journey. It has taken us 50 years (this company is 50 years old) to get to 40 million merchants around the world. I think it would take us 10 years more to get to a 100 million and the difference would be things like the QR code because it’s easy, simple, cheap, safe and secure for the merchant to use.

The one thing I would like you to have at the back of your mind is that financial inclusion is not just about opening a bank account; because that is just an account. It is about being able to use it for paying and receiving so that you can take cash out but more importantly, you can build a credit history to get access to credit, you can get insurance, then you create prosperity. We’re doing a number of things around the world. I will give global examples, not just Nigeria. For example in Egypt, what we are doing is working with the banks and the telecom operators and the government of Egypt to give every adult an account as a wallet on their phone, not just smart phones, even feature phones. Then their salaries, their pension remittances would go into that account, and to use the money they would have a card connected to that account. So, if $100 comes in, the card would load $100 only, if $20 comes, it loads $20 only. They cannot spend more than that unless the bank wants to give them credit overtime by seeing the history of spending.

Secondly, they will get a virtual card number which is a card number generated onetime each time for shopping on the internet so that card is never exposed to the internet. Thirdly, we connected their phones to a bill payment system so even a poorer person can pay their electricity bill and their water bill on the phone and not stand in a queue for two hours. If you are poor and you get paid every hour, to spend two hours to go somewhere and then stand two hours on a queue to pay your bill is a very expensive bill.


There’s Egypt that is one example of using feature phones. More sophisticated examples are like what’s going on in other countries. In South Africa, they have taken the social security system and issued a biometric card to recipients and the other side of the card is loaded with the social benefit. We enabled that, we don’t have the biometric record, the government has it. But we can check when you come and you put your fingerprint. I can prove it is you with my technology and then give you the money from an ATM or allow you to use the money to buy rice and potatoes and meat at a shop or whatever you want to do with it.

I will give a third example that nobody thinks of, refugees. So, with the World Food Programme (WFP), we have worked with them, they spend $800 roughly per family per month on giving them food and the food used to come from Idaho in America. You give them American money so they will buy it from American farmers. It will first be shipped by truck to the ocean, by boat to Europe, by truck to Lebanon and when you do that three times there are many people whose hands get onto the grain, it disappears, You know like money, it goes between your fingers, grain goes between your fingers. In the NGO world, that is called leakage, in my world, it is called theft. About 20 per cent of the grain never reaches the refugees. What we did for them was, we said, forget that. You take that money. When the grain reaches the refugees, she is the refugee, she can’t live on grain, she has a family, she has to feed her family, what is she going to do? She wants milk, she wants vegetables, she wants yam, she wants protein and how is she going to get it? She sells part of the grain in the local market and the black market. What does that do? The shopkeeper who is selling to other people, his market gets affected because all these illegal grains are coming, so he gets angry as well. So nobody is happy, only the farmer in Idaho is happy, because his grain got sold. Everyone else is not happy. So we said forget this, you put this money in a card but the card can only be used at the two or three shops in the refugee camps that the WFP certifies as acceptable. We block it everywhere else. Why do we do that? So you can’t use it to go buy an alcohol or do bad things which is very easy to do. You can only go to the shops that are certified and guess what this did? It saved the world food program 30 per cent of the money for every family which means they can help 30 per cent more families.

You know, it’s not rocket science, this is simple stuff that involves our technology and our data and our people, who are really keen to do well but also do good at the same time. That combination is a winning combination and what we can do to be helpful in every country where we operate.

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