Tackling corruption is high on government agendas. Such a pervasive problem demands new solutions, especially in light of the latest Corruption Perceptions Index, which shows that the majority of countries have made little or no progress in the fight against corruption since 2012. The ranking, which uses a scale of zero to 100, where zero is highly corrupt, found that more than two-thirds of countries score below 50, with an average score of 43.
A significant impediment to progress is the problem of cash. Every year, hundreds of billions of dollars of government payments and transfers are made in physical cash. These include government salaries, health payments, pensions and financial support for families in need. Such payments are often difficult to trace, insecure and inefficient. The anonymity of cash makes it vulnerable to skimming off the top, and to “ghost” recipients who don’t exist. This is not a minor issue. It causes more than $110 billion in losses every year in emerging economies.
Thankfully, increasing connectivity and technological innovation allow governments to deliver payments through secure, transparent and convenient digital channels. The money either reaches the intended recipient in full, or goes back to state coffers. The following governments are all leveraging digital financial technologies, illustrating the power of this shift.
Governments aren’t the only ones benefiting from digitized payments. When the shift to digital is managed responsibly and responsively, it can make citizens’ lives better. Access to a bank account or other digital finance portal can unlock unprecedented economic opportunities, particularly for women who are twice as likely to be excluded from the formal financial system. Having an account can make saving more convenient and secure. It can also lower the costs of accessing services that are critical to financial security and growth, such as insurance and credit products.
The digitization of payments is a necessary stepping stone in hauling anti-corruption systems into the 21st century. By leveraging payment data and advanced analytics, governments could save up to $1 trillion worldwide. Smart use of payment data is the new frontier of auditing. It helps identify suspicious patterns, fraud and non-compliance in revenue collection and payment disbursement, which can allow governments to cut leakages.
According to Ex-Finance Minister Lim Guan Eng, going cashless could help to reduce corruption in Malaysia as the country continues to drive e-payments in order to realize cost savings, increase efficiency and safeguard financial stability.
In his keynote address at a WeChat Pay exhibition in Kuala Lumpur, Lim said applications like WeChat, a messaging, social media and mobile payment platform developed by Chinese technology giant Tencent Holdings Ltd can help digitalize payments in Malaysia and create an environment conducive for big data analytics and other relevant Industry 4.0 technologies.
Enablers like WeChat foster fertile ground for further innovation to take place. When talking about a cashless system, another very important benefit is that it will cut down corruption. I’m sure that corruption is much reduced in China, partly because of the cashless system. So, technology can help to cut down corruption. As the way forward, this is good for every country and especially for Malaysia
Lim also said Malaysian consumers are now seeking safer and more convenient payment methods as opposed to carrying around large quantities of cash.
Cash usage remains relatively high in the country, although Bank Negara Malaysia (BNM) data shows there was RM106 billion worth of cash circulating in the economy last year.
At 7.4% of domestic GDP, this was lower than 7.7% and 7.9% recorded in 2017 and 2016 respectively, in line with the wider application of mobile and online payments in Malaysia.
In contrast, a largely cashless economy would have around 2% of cash in circulation or lower, based on International Monetary Fund calculations,” Lim said.
According to a January 2019 Nielsen report, 67% of Malaysian consumers have used cashless payments, with debit cards and online banking being the most preferred non-cash channels.
However, only 10% of respondents surveyed said they used e-wallets as forms of payment, despite 88% of participants being familiar with the payment method.
BNM data also shows around 92% of Malaysians have access to bank accounts while 91% have access to online banking.
Digital payments are not a panacea. But as economies and governments look for new ways to modernize and tackle corruption, leaders must look beyond cash. The citizens they serve are increasingly adopting digital financial tools in their everyday lives. Governments cannot afford to continue to pay the cost of cash. By shifting their payments from cash to digital, they can save trillions of dollars, resulting in better government for all.