In my last post I discussed why giving cash to people in poverty might be the best option. However according to Bill Gates there may be an even better way. The Gates Foundation along with several other partners have formed the Better Than Cash Alliance to promote electronic payments over cash. Gates believes replacing electronic benefits with cash can more effectively lift people out of poverty while being cheaper and more transparent for governments.
One of the pros to electronic payments is that it makes it easier for people to see where the money is going and get financial services. Apps similar to Mint.com could be created to easily show people where they are spending their money and provide suggestions for spending it in a more sustainable way. Research has shown switching to digital payments increases access to savings accounts and encourages people to save, making it easier for them to lift themselves out of poverty. Mobile technology combined with online banking and education could put financial literacy and management training in the palms of every person in poverty throughout the world.
Electronic payments could also help woman gain more control over their financial futures in male-dominated societies. With cash, it is easier for a husband to take money from a woman but with electronic money in her name it is easier for her to keep and choose where money is spent. Electronic payment can also make it easier to prevent all kinds of theft and fraud and ensure that any money given goes to the intended recipient.
But one of the major problems I have with this, indeed really the only reason I still carry cash, is the cost to small businesses. One of the valuable qualities of cash is that it can be exchanged anywhere. You can use it to pay for a hot dog on the street, for admission at the door of a concert, or for your baby sitter when you return home that night. Most of these vendors aren’t going to carry around a credit card machine anytime soon. At least in America, accepting credit and debit cards means paying fees on every transaction and buying technology to process it. If your income is limited to electronic payments it can cut out microentreprenuers like my beloved hustlers.
Innovations such as Twitter founder Jack Dorsey’s latest project Square might change that. He has created a small device that can plug into an iPad or cell phone and take credit cards anywhere. However it still comes with a 2.75 percent fee for every transaction, meaning less money is going to your community and more money is going to credit card companies.
Could electronic payments revolutionize the way we handle money? Certainly I would love to have a financial planner in the palm of my hands, monitoring my decisions, and providing tips for ensuring my personal financial sustainability. It could help more people in poverty have control over their financial futures. However it could also further restrict our freedom to exchange and hurt some of the creativity and ingenuity that happens on a small scale in our economy. I’d be the first to agree we need something ‘better than cash’ but I think the jury is still out on whether electronic payments are it.
