The Strategist

PayPal Vice President: Digital payments cannot compete with cash

05/24/2018 - 11:42

Sri Shivananda, Chief Technology Officer of PayPal, believes that, despite the growing volume of digital payments, many market participants are facing serious competition with the cash. The top manager believes that payment companies need to work even harder on security and personal data protection in order to convince consumers to switch to digital payments more actively.

"The main competitor is cash," Sri Shivananda, PayPal Senior Vice President and Chief Technology Officer, told CNBC television. According to him, despite the active growth of digital payments, cash is still of great importance and this situation will not change soon. Mr. Shivananda believes that only next consumer generations, that is, representatives of the "digital" generations that grew up in the era of the Internet, can completely refuse cash. In the meantime, experts note multidirectional trends in different regions of the world. In developing countries digital payments are spreading much faster than in developed countries, in large part due to the fact that the people of developed countries are already satisfied with the far-reaching system of banks and other financial organizations. 

According to the Chinese state agency China Internet Network Information Center, citizens of the PRC made 469 million contactless payments using smartphones in 2016. This is 30% more than in 2015, or two-thirds of the total number of mobile subscribers in the country. At the same time, mobile payments by dynamics are already significantly ahead of Internet payments. In 2015-2016 the total volume of Internet payments grew from $ 2.4 trillion to $ 2.8 trillion in China, then the volume of mobile payments in 2016 was $ 5.5 trillion, which is twice as much as a year earlier. Rapid growth of mobile payments is observed not only in China. In India, where the level of financial infrastructure, availability of bank branches and ATMs often leaves much to be desired, especially in rural areas, citizens are actively connecting to payment applications. Often this is the only way to quickly make a payment using an inexpensive smartphone that is very common in this country. 

At the same time, the European Central Bank last November reported that most euro zone consumers prefer to pay for goods and services in cash, especially when it comes to small payments up to € 15. Also in November last year, the Federal Reserve Bank of San Francisco released a study that showed that the rapid development of all kinds of non-cash payment methods has not yet led to a significant reduction in demand for the use of cash. The bankers conducted their research in 42 countries, providing 75% of world GDP. In two countries, demand for cash for the period has declined - in Sweden and Norway, whose authorities consistently pursue a policy of reducing the use of cash in their countries.

But even Sweden now fears that a too sharp refusal to use cash can cause problems. In March, Head of the Swedish Central Bank, Stefan Ingves, said that massive use of non-cash settlements may result in a great danger for the country during the next financial crisis. "During periods of crisis, the population is always looking for salvation in assets such as cash, which are guaranteed by the state. In this regard, shifting all responsibility for making payments only to the private commercial agents can be unsafe," the head of the Swedish Central Bank believes. 

According to Sri Shivananda, payment companies still have a lot to do to convince the mass consumers to switch to non-cash payments. "Security of payments is the number one task. The preservation of personal data and reliability when making a payment are tasks number two and three," said the top manager. In his opinion, many consumers want to know exactly how data is transferred when making a non-cash payment in order to be sure that these data are really safe.