By: Kimberly Ramkhalawan
October 11, 2022
The movement toward a cashless society is being welcomed even among Caribbean consumers, with surveys showing 61 percent preferring online transactions or use limited cash. In an effort to dissect this latest move, the Central Bank of Barbados’ October edition of its Caribbean Economic Forum, looked at this trend toward digital payments, and the introduction of digital currencies by Central Banks in the region.
While a surge in talk of crypto and digital currency shot to fame even more so during the pandemic, Sharmyn Powell, Chief Risk Officer at the ECCB thinks it’s been both supply and demand driven in the sense that a lot of fintech companies and financial driven institutions have offered these services resulting in an increase in the supply. However, with the onset of COVID, there has also been a demand which has caused a ripple effect to push for these kinds of services to be offered as a matter of convenience.
Wendy Delmar, CEO of the Caribbean Association of Banks says most institutions within the region also have to be mindful of its customer base, which is no longer limited to the Caribbean, but rather from around the world, as much of the diaspora also operate from remote distances working or studying abroad, shrinking the reliance on cash. She adds that customers have also become much more tech savvy and as the global landscape changes, so too must financial institutions and businesses be ready to adopt and adapt.
Defining what exactly is digital payments and currency, John Outridge CEO of the Trinidad and Tobago International Finance Centre, reduces it to basically as “alternative channels to cash, where you are using technology and removing the friction in terms of the transaction, whether it is done via your mobile device, a card, or a wearable”. Speaking on the reform of the sector within TT, Outridge shared government sought to focus on three key themes, promoting and advancing financial inclusion in local market, as currently there remains a large percentage of its population that relies on cash and are considered underbanked. Other reason include the advancing of the digitization agenda for the government and public sector, while introduction of the fintech innovation hub, where they invite fintechs to do calls for solutions, provide support and opportunity, and networks to have a space to build their products.
However, Delmar explored the evolution of digital payments in the region from the early 2000s with the introduction of computers and digitization of client records, and likens the current switch to fully digital currencies in the region to something of that magnitude. She added that while the pandemic was an unplanned event that brought tremendous change, it did bring forward swift changes to the way business was done in the banking sector, combining years of work and coaxing customers to adapt almost overnight.
Recently the ECCB introduced its DeCash, to which Powell says was basically a digital version of its currency used across its island membership, where the public was able to access their cash via a digital wallet on an app stored in their mobile phone. She adds while it has been a journey to get here since some four years ago, DeCash was something the ECCB had initially envisioned to have started since 2020. However, while the pandemic had put a temporary halt to it, in the same vein forced them to “re-imagine what they were doing” and in doing so, improve the product, as certain features they now have with DeCash, actually came about because of COVID. She says the e-commerce feature was one such that allowed customers to use online that came about because of the pandemic, facilitating customers to not only send and receive cash, but to make online bill payments for utilities.
Another feature she says of DeCash is to ensure financial inclusion to all its residents and citizens, which allows people without bank accounts can still access DeCash utilizing a value-based wallet. She shares these are administered by agents which are non bank licensed institutions. Lower threshold and lower spending limit, because of the added risk involved, never the less giving you the opportunity to share less KYC information, which is limited to your name, email address and government issued form of Identification and a selfie to which the verification is done. But it is sufficient enough to allow you to make minimum payments in DeCash, allowing utility bills to be paid and groceries to be bought at supermarkets, even allowing you to send money to another country within the Eastern Caribbean States.
However, keeping it to credible sources, she says the agents are like credit unions which are subject to a level of regulation meeting the international regulations of operating a fintech and digital currency.
In the case of the Caribbean, Outridge raises the issue where a vast sector of the population remains untrusting of financial institutions. He says such is the case with Trinidad and Tobago, with over 125,000 people without bank accounts whom he refers to as the ‘underbanked’, yet prefer to do business with a credit union.
Answering the question as to why such a large segment remain untrusting, Delmar says the crux of the matter comes down to comfort levels. She attributes this to even religious beliefs playing a factor, more so with the introduction of ‘chip-based’ banking, and the “stringent requirements when coming into do business with the banking sector” leaves many questioning why, which she says has to do with the legislative requirements and the law for regulating the sector. Delmar spoke to the disparity found in doing banking transactions as to also feeding to the distrust faced among Caribbean people.
However, all moderators agreed while their digital systems did not replace cash, as it still remained queen in their economies, they were still hopeful of the day another currency would rule.
Outridge highlighted what he termed as game changers such as the tap feature on bank cards and it coming down to the ‘customer experience, that aligns with ‘cultural norms’, with a realignment of strategies to attract the population away from cash.
Talk from the public also includes how can the average person, especially those in the creative sector, which is taking on a new trajectory of growth in recent times, can tap into earnings through “Non fungible Tokens, NFTs”, and whether Caribbean banks are able to pivot to meet the needs of cryptocurrencies and opportunities for block chain technology or given overstated concerns, would Caribbean citizens have to look elsewhere”?
Delmar in explaining how blockchains works, shared that based on the number of persons that begin to feed into the blockchains, there tends to be a diminished source for returns because there is a need for more capacity of the block in order to be efficient, and the speed of processing. As it pertains to blockchains in the Caribbean, she says there is a rigorous process of verification of transactions at each node, which leads to duplication of the verification process by negating the benefit, which is the speed of processing. Delmar adds when they begin to look at the speed and transparency we think about the chain. This she explains can lead to other risks which can be found in one person now having access to the blockchain data if they purchase the majority stake, which then becomes a question of security of the block chain, and trust of the information security on one person. As result, Delmar says its calls for vigilance, and sees that banks cannot independently take the measures to adopt these policies. However, Powell says the ECCB has been entertaining the idea of blockchains through its DeCash product, as its DeCash is its blockchain format. In terms of regulations, she says they have been looking at the payment system legislation, as they recognize that digital transformation is happening and ensuring the right and proper legislation is in place that would mitigate the risks with these particular developments. She adds particular concerns also look at “not making the regulations appear too onerous, that it deters these developments and facilitates it in a safe way”, and where Central Banks enter the picture as facilitator.
Given the important role that cross border payments play in unlocking regional growth, what role does Central Bank digital currencies playing in facilitating cross border payments in the region?
Powell says based on her experience the ECCB embarked upon four years ago, she notes that “similar to how Central banks operate using the SWIFT network for payment settlements, ultimately, Central Bank Currencies will become part of that cross-border flow as well”. She says the only way this will work, is to ensure coherency among Central Banks, where the conversation is had early enough to ensure they can easily inter-operate.