Cashless society - a two-sided coin

Cashless society - a two-sided coin

 

Only in one of the four communes in Romania there is an ATM. Three-quarters of people living in rural areas, who represent half of the country's population, do not have direct access to an ATM.

More than 320 branches were closed in 2019 and basic service such as ATM is not provided in all localities in Romania.

Only in 695 of the 2,861 communes in Romania there is an ATM, according to the National Bank data. In rural areas there were 1,045 ATMs (ATMs), installed in 695 communes. People from the other 2,166 communes do not have access to ATMs in their locality. In Romania there are a total of over 10,500 ATMs, of which 9,488 are in urban areas, according to BNR data at end of August 2019.

Into the low-income Romanian population living outside the urban area, most of the inhabitants gain just to pay the utilities and feed their families. Households keep their savings as cash, and their payments are made mostly in cash.  As a result, an insufficient number of banks and automated teller machines (ATM) are within walking distance. Cars and travelling to a city tor banking services are expensive especially for elderly who moved out into the rural area during the pandemic.

Advantages of the cashless society

 Minimizing the underground economy, which according to 2019 statistics accounts for approx.  21% of GDP in Romania. Thus, it is important to realize that the existence of an underground economy is only possible in the context of cash use and its liquidation would mean the disappearance of major problems  such  as  undeclared work,  black  market  transactions that  include  trafficking  in  drugs, alcohol, cigarettes, people etc. 

Limiting tax evasion, any revenue being transparent and taxed by the state due to the no-cash economic system. Thus, there will be no more individuals to benefit from unemployment and other social benefits in the context of having a hidden undeclared income.

 Romania did not transpose the AML directive within the required time-frame, and it did not notify the Commission about it. In July 2020, the Court of Justice of the European Union decided Romania should pay a EUR 3 million lump sum for the delayed, incomplete transposing of the directive on money laundering and terrorist financing.

Interbank competition.

 The presence of an increase in competition between banks, given that the amount of customers will grow considerably, which in turn will make the choice in favor of the bank with the most profitable services and offers. Thus, banks will become much more interested in facilitating certain procedures, attracting potential clients and keeping the old ones, and people will enjoy an optimal banking system.

Disadvantages of a cash-free economic system

 Financial exclusion

The first and most important step towards the adoption of a cash-free economic system is the financial inclusion of the entire population, taking into account that in such a society without cash, without an account it is impossible to "survive".

Nowadays in Romania we see a decrease of brick-and-mortar banks in remoted communities, many individuals still do not use banks due to the fees, or the absence of a regular income or the lack of trust into the banks. However, many communities still lack sufficient access to financial services provided by banks, so most of their members tend to manage their finances through receiving in cash especially the social benefits, pensions and microloans.

High cost of using the cash

 Fees charged by banks to supply an account generally increase sharply at the counters of banks in Romania. Banks with territorial networks of hundreds of units justify these costs by recording significant costs of transporting and managing cash. Due to the high costs of transport and administration, banks do not like to work with coins, for which they apply higher taxes and because of this they do not even reach the market, Romania being one of the EU countries with the biggest problems when the customer has to receive change from merchants. In general, in the last year in Romania the commissions for cash withdrawal have increased, both for scheduled and unscheduled withdrawals.

 Is this the price for poor or inadequate banks’ digitalization? Even if banks claim that digitalization and remote services have increased, especially since the coronavirus crisis broke out, the truth is that a lot of trivial operations require the physical presence of people at the counter: to update personal data, to sign the general conditions of business, for picking up cards, for re-issuing cards, for activating online banking applications, etc. Also, with the introduction of two factor authentication, the number of system errors has increased, application errors are frequent, and the speed of banking sites is slower. The number of maintenance hours of the banks' websites has increased, scheduled especially at night and / or on weekends, when even the ATMs are not supplied with enough cash.

 Conclusions

At end of 2019, approximately 52% of the Romania’s population remained unbanked. A cash-free economic system will bring great benefits for Romania in terms of limiting tax evasion, counterfeit money, money laundering, etc. At the same time, the risks (financial exclusion, privacy issues, systems hacking and unauthorized users, the presence of intermediaries, circulation of counterfeit money, money laundering) which should not be neglected but reduced to a minimum, with the implementation of  proper regulation, are equally important.

It is clear that technology only is not enough for creating a favorable environment for adopting a no-cash economic system.

The first and most important steps towards the adoption of a cash-free economic system are reducing the poverty and financial illiteracy, improving access to information and communication technology to achieve the goal of  financial inclusion of the entire population, taking into account that in such a society without cash, without an account it is impossible to "survive".

 


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