Risk, Danger and a World Beyond CashHugh Thomas |
An interesting article in the American Banker had a slightly misleading headline: “What Are the Most Dangerous Countries for Banks?” Turns out the story isn’t about “danger,” which is pretty unambiguously a bad thing, but about risk, which is not.
Some of the most “dangerous” countries include China and Russia, and it’s unlikely anybody is going to shy away from doing business in either of these markets (or Brazil) because of perceived risk. Risk means opportunity. The question is, can you handle it?
This insight fits in neatly with some work MasterCard Advisors recently did around how cash usage correlates to a number of risk factors, including corruption, ease of doing business and productivity.
While MasterCard Advisors notes that heavy cash usage is not restricted to developing markets—developed markets with high cash usage include the U.S., Germany, Japan and Italy—there is an alarming correlation—in fact they call it a “tight” correlation—between cash usage and the existence of a black or grey economy. Cash feeds, and is fed by, bad behavior, more particularly the existence of an informal economy invisible to the tax collector and to the legal system. This may not be true in Germany and Japan, but it is certainly true in Italy and the U.S.
In the developing world a different, if related, dynamic obtains. Here it’s a question of merchant engagement as well as financial inclusion.
In either case, to cite the Advisors work, since cash-heavy economies are harder places in which to do business and are less productive per capita, the correlation between cash and corruption represents the risk component of the value proposition.
Topics: Payments Strategy