Although the narrative in the financial industry is that digital is better, that is not always the case. Many rural economies across Asia operate on a largely informal and cash basis. A few factors are driving this. Firstly, there is often a lack of infrastructure to support cashless payments, such as limited internet access or banking services. Secondly, the rural populations often have a general distrust or lack of familiarity with digital payment systems. Additionally, the informal nature of many businesses in rural areas lends itself to cash transactions, which are perceived as more straightforward.
Bridging The Digital Divide
However, the primary challenge of going cashless is the digital divide – the gap in access to digital technologies and internet connectivity between urban and rural areas. Technology infrastructure, or even more basic infrastructure like electricity, is limited or fragile in many markets. In 2023, we were in-country for a field visit on a project with the Solomon Islands Central Bank. The Solomon Islands, located in the South Pacific, is an archipelagic state comprising over 900 islands. This country is known for its diverse topography, which includes mountainous regions, low-lying coral atolls, and dense rainforests. Honiara, situated on Guadalcanal Island, is the capital and the largest city, serving as the administrative and economic center of the country. The economy is primarily based on subsistence agriculture, fishing, and forestry, with a growing focus on tourism.
The country is also nearly wholly powered by diesel fuel. Think about that for a minute. Regularly, large tankers come in from Singapore or Australia and fill up storage facilities where diesel fuel is burned. Regular blackouts and disruptions in shipping lines can be catastrophic. Although the solar power industry is gradually developing, the cost is prohibitive.
When the Tina River Hydropower Development Project, supported by many international development agencies, is complete, nearly 70% of Solomon Islands’ power will come from renewable and consistent sources. Until that project is finished, the power grid in the Solomons remains incredibly fragile. During our trip, during a discussion at a café, the electricity went out, as did our cell signal. Suddenly, cash was king again as cards and phones became useless. These are problems that Solomons’ central city, Honiara, faces; the challenges of infrastructure and connectivity are even more stark in the remote islands.
Cash: Accessible and Simple
In this context, cash remains a symbol of accessibility and simplicity. It does not require technological prowess or connectivity and is universally accepted. For many, especially in rural communities, cash transactions represent a sense of security and immediacy that digital transactions cannot yet match.
Several major emerging Asian economies still use cash for a significant percentage of transactions. For instance, according to data compiled by WordPay, In 2022, cash payments accounted for 56% of point-of-sale (POS) payments in Thailand, 46% in the Philippines, 45% in Indonesia and 42% in Vietnam. Cash was also used in 18% of e-commerce transactions in Vietnam and 15% in the Philippines.
At the same time, several of Asia’s advanced economies retain an affinity for cash. This has nothing to do with the level of financial inclusion – which is extremely high – and is more of a cultural preference – especially as those countries’ populations are among the most elderly in the world. Cash is still king in Japan, for instance, where 51% of POS transactions used it in 2022. Taiwan was not too far behind at 31%. Even Singapore, the paramount fintech hub of Southeast Asia, used cash for 19% of its POS transactions in 2022. Elderly citizens in these countries are more likely than their counterparts in the West – who have been using credit cards for decades – to have a preference for cash.
Data compiled by the Japanese government show that 29.1% of the country’s 125 million citizens are 65 or older – a record – while Taiwan is set to become a “super-aged” society in 2025, when the percentage of the population older than 65 will cross the 20% threshold.
Other APAC countries have nearly gone cashless. To that end, in New Zealand, Australia, China and South Korea, cash payments respectively accounted for just 6%, 7%, 8% and 11% of POS payments in 2022.
Moving Towards Hybrid Models
The continued use of cash in rural Asia as well as certain wealthy Asian economies with large elderly populations has implications for financial service providers and policymakers. It underscores the need for a balanced approach to financial inclusion that accommodates different populations’ diverse needs and preferences. Financial institutions might need to rethink their strategies to include more hybrid models catering to digital and cash transactions. For policymakers, this trend highlights the importance of addressing the digital divide and enhancing financial literacy to make digital financial inclusion a reality.
The prevalence of cash in both Asia’s rural areas and in several advanced economies notable for their huge populations of elderly citizens is a reminder of the diverse and complex nature of financial ecosystems. While digital financial services continue to grow, the persistence of cash transactions in these regions speaks to deeper issues of accessibility, infrastructure, and trust. Addressing these challenges requires a nuanced understanding of local contexts and a commitment to inclusive financial policies that bridge the gap between the old and the new. As Asia moves forward in its financial journey, the coexistence of cash and digital finance will likely be a defining feature of its diverse economic landscape.
