State of the Industry Report September 2024

CMSPI – IAC State of the Industry Report

Section 4.3.2 – Cash in EMEA CASH CONTINUES TO SHRINK

Section 4.3.3 – Cash in APAC THE CASHLESS VISION

In 2023, the European Central Bank reported a decline in cash POS values, dropping from nearly 80% of spend in 2016 to 60% in 2022. The shift was absorbed by the growing spend with digital wallets and card payments, increasing by 3% and 15%, respectively. 141 Notably in the same report, card outstrips cash spend for the first time, accounting for 46% in 2022, up from 43% in 2019. The diversity of cash penetration in 2022 is still evident among EU countries, with Germany and Spain having 39% and 44% of POS spending in cash, respectively, while France sees only 10% (see Graph 4.4). Saudi Central Bank (SAMA) announced at the beginning of 2022, that Saudi Arabia had exceeded its goal of attaining a 55% share of electronic retail payments, surpassing cash payments for the first time. 142 This achievement aligns with the goals outlined in Saudi Vision 2030, as defined by the Financial Sector Development Program (FSDP), including targets to achieve a 70% share of electronic transactions by 2025. Government efforts to encourage cash usage can be complex and may lead to competing objectives across different levels of government. For example, in 2022, Italian lawmakers proposed removing a penalty fine on merchants that refuse to accept card payments, no longer penalizing for transactions below €60 ($63). However, the Bank of Italy and the European Commission (EC) objected to the proposal 143 , citing the increasing trend toward digital payments for customer convenience and combating tax evasion. As more countries shift away from cash to digital payments, the average cost of payment fees generally rise. For example, a Deutsche Bundesbank study of German payments found that “the average costs of all card payments per transaction are invariably higher than the costs of a cash transaction” 144 (See Section 1.2 on the weighted average cost of payments acceptance). In a further move to a ‘cashless’ society, the European Commission (EC) is developing a digital euro to “promote innovation in retail payments and reinforce the international role of the euro.” 145 The Commission’s 2023 proposal suggests that all merchants would be compelled to accept the digital euro, however, notably the cost of acceptance would be capped, considering both cost-of- provisioning and comparable payment benchmark methodologies. 146

In countries like Japan, Indonesia, and India, cash is still a significant part of the economy at 51%, 45%, and 27% of POS payments, respectively. Nevertheless, all three countries are actively pursuing digitalization initiatives. In Japan, this attachment to cash is, in part, attributed to Japan’s aging population, with nearly 29% of the population aged 65 or older in 2021. 147 The Ministry of Economy, Trade, and Industry (METI) released a Cashless Vision in 2018 with aims of increasing cashless payments to 40% by 2025, in time for the 2025 Osaka World Expo. 148 This included the government announcing in 2022 the ability for companies to pay their employee salaries via digital wallets and a 2019 program to rebate businesses 5% of the collected consumption tax for cashless payments. 149 India, through the “Cashless India” campaign led by Prime Minister Narendra Modi, aims to reduce the dependency on physical currency and bring untaxed money into the formal banking system. 150 In India, where cash dominated just a few years ago, constituting 71% of POS value in 2019, cash represented only 27% in 2022. 151 There are key catalysts to this, including the demonetization of banknotes in 2016 152 , evolving consumer habits during the pandemic and the remarkable success of the UPI. Digital wallets, reflecting this shift, have surged from 5% to 35% of POS value during the same period. 153 Indonesia has witnessed a remarkable shift in payment dynamics, with cash accounting for 77% of POS value in 2019 but decreasing to 45% in 2022. The country’s central bank launched its Payment Systems Blueprint 2025 in 2019, which included a non-cash social assistance distribution program and the electrification of local government and transportation transactions. 154 While many would consider cash the “past” of payments, and cards as its “present”, we will now consider the “future” of payments: digital.

147 https://www.stat.go.jp/english/data/handbook/c0117.html 148 https://flow.db.com/cash-management/japan-joins-the-journey-to-a-cashless-society 149 https://www.thebanker.com/Japan-seeks-to-shake-off-cash-1627897177 150 The nation also demonetized old currency notes of Rs 500 and Rs 1000 (~$6 and $12) on November 8, 2016. https://www.linkedin.com/pulse/cashless-economy-india-ready-semsindia/ 151 Worldpay Global Payments Report 2023 152 The Great Indian Demonetization - American Economic Association (aeaweb.org) 153 The Great Indian Demonetization - American Economic Association (aeaweb.org) 154 https://www.bi.go.id/en/publikasi/kajian/Documents/Indonesia-Payment-Systems-Blueprint-2025.pdf

141 https://www.ecb.europa.eu/stats/ecb_surveys/space/shared/pdf/ecb.spacereport202212~783ffdf46e.en.pdf 142 https://newsroom.ibm.com/2021-04-21-Saudi-Payments-Launches-Instant-Payments-System-sarie-in-Cooperation- with-IBM-and-Mastercard 143 https://www.reuters.com/world/europe/italy-waters-down-plan-promote-cash-payments-after-eu-criticism-2022-12-18/ 144 https://www.bundesbank.de/resource/blob/808970/ab9bedd6dbb9000fa525e147bd0e16b8/mL/kosten-der- bargeldzahlung-im-einzelhandel-data.pdf 145 https://finance.ec.europa.eu/digital-finance/digital-euro_en 146 The proposal states that the cost incurred by the merchant for accepting the digital euro “shall not exceed the lowest of the…relevant costs incurred by the payment service provider for the provision of digital euro payments, including a reasonable margin of profit or fees or charges requested for comparable digital means of payment.”