Mansoor Murad on why plastic money largely remains the preserve of upper classes.

Like most other developing countries, we are largely a cash society. Despite the increase in urban street crime, most people carry significant amounts of cash on their person, and a vast majority of the lower middle class salaried group withdraw their entire monthly income in a single transaction, this being the extent of their interaction with the banking system.

With over 17 million cards in circulation, plastic currency largely remains confined to the upper classes. The use of cards as a cash withdrawal instrument at ATMs, accounts for over 90 per cent of all card transactions in Pakistan. A part of this has to do with customer education; large segments of the middle classes, even if they have plastic currency in their wallet, do not understand the value of using it as a payment instrument rather than a means for cash withdrawal.

However, a significant part of the malaise is that many businesses do not welcome non-cash methods of paying, because they see transaction charges as something that erodes their margins. More likely, a card transaction is recorded, and therefore will definitely need to be paid taxes on. Unfortunately, as a population we seem to believe that the law applies differently to ourselves, and that taxes are something that happen to other people. As a result, businesses either do not encourage, or actively discourage payment by card. Insisting on paying by card, or having to fork out a premium on a purchase does negatively impact the customer experience, alienating some users.

As branchless banking grows, the appetite for vendors to accept non-cash payments may also grow with it. However, the jury is out on this, as most of the financial inclusiveness programmes use cards as a transparency measure; their use is still limited to cash withdrawal, and the basket of services offered by branchless banking centres around bill payment and money transfer.

Banks have a natural incentive to move customers towards plastic currency. A transaction that takes place at a Point of Sales terminal is not taking place at a teller’s counter, enabling banks to rationalise their costs; a counter transaction can cost a bank up to three times as much as the same transaction at an ATM, whereas for card issuing banks a point of sales transaction has negligible transaction cost. Not to mention the significant revenue opportunities that banks see with credit card customers.

There is a famous saying that a bank doesn’t lend you money unless you can prove that you don’t need it, and it is not that far off the mark. Credit cards in particular provide many with an entry into the ‘instant consumption’ lifestyle they seem to aspire to, and banks target customers who have the means to pay, but aspire to a lifestyle they want now, instead of saving up for it in the future. Some of this can also be seen in the advertising messages banks have been using to promote credit cards of late.

Of course, it is not in the banks’ interest to lend to customers who are unable to repay; the cost of chasing payments from customers is often prohibitive. Banks do not want customers to be purchasing their monthly staples on credit any more than customers do. And so, when it comes to the conflict between rising costs of living and a convenient source of extra cash in your wallet, both banks and their customers are on the same side. However, a bank cannot make a customer promise that they will use credit given to them in a responsible manner, any more than a car maker can make a customer promise that they will drive their vehicle safely. People can often manage their budgets more effectively by making sensible use of plastic currency, especially credit. However, the temptation to spend a little bit more this month than one should is ever present, and once one gets in the habit of just making the minimum payments, that is a road, often very difficult to recover from.

(All statistics from SBP Payment Systems Review)