Analyzing the benefits of using e-payment
system on financial governance in Saudi
Arabia
1. Introduction
Saudi Arabian finance governance is still a big problem, with a lot of misconduct
going on, indicated by only achieving 0.34 percent in the control of corrupt practices
index. With the current rate of the Saudi economy and support from ample natural
resources that need to be managed well, the right steps require cost and time. This
cost is not an expense but a long-term investment that must have feedback, which
could provide benefits to the economic level itself and improve the welfare of
society. Wastage of resources could be saved, and the achievement of the estimated
target can be done in the right way with effectiveness and efficiency. In economic
theory, resources can be saved, and the achievement of the right target can only be
done by improving the quality of something. An example is replacing the old method
with a new effective and efficient method. The e-payment system is a change in
payment and settlement methods, computerizing the entire payment system, claims,
and government procurements. This step is suitable for the current state of the
Saudi economy and, at the same time, can provide the desired results.
The introduction provides the research topic, a brief background, and the purpose
of the study. "Analyzing the benefits of using e-payment system on financial
governance in Saudi Arabia" highlights some of the important milestones and
benefits, which can be seen in the early part of 2000 in Saudi Arabia. Each part of
work related to the implementation of the e-payment systems, such as the National
Center for e-security and the Saudi Arabian Monetary Agency (SAMA), has shown
the commitment from the government of Saudi Arabia in implementing this online
service. The role of e-government in Saudi Arabia is to provide online services to the
public at any time and anywhere. E-government is not only to move from traditional
service to online service, but it is an application of information and communications
technology (ICT) for providing government information and services to the public,
enabling efficient and genuine processes between government agencies, businesses,
and citizens. SAMA, as a government organization responsible for monetary and
financial sector policies, has shown a real concern in creating an effective and
efficient system through various ways to improve the quality, such as holding
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awareness and training activities for society. The latest is that SAMA has issued a
license for the establishment of a new company to provide services that require
payments to others using practical and efficient methods.
2. Overview of e-payment system
E-payment is a subset of an e-commerce transaction that includes electronic
payment for buying and selling goods or services offered through the internet. Using
an e-payment system will increase efficiency and the security of funds and
information transferred through the internet, which is the future of money itself. In
the near future, all businessmen and customers will make and receive their
payments through the internet. E-payment is the ideal mode of payment in Saudi
Arabia. It will help improve effectiveness in financial governance, reduce the cost of
transactions, and increase business and economic activity. This is because epayment is very fast and can be done anywhere and anytime, thus it is very suitable
for the characteristics of the Saudi Arabian community.
According to Al-Ghamdi (2009), the Saudi Arabian Monetary Agency (SAMA) has
introduced SADAD, which is the e-payment system for individuals and companies.
SADAD has shown a lot of improvement in financial transactions in Saudi Arabia.
This is because it can centralize transactions involving banks and make the
collection and settlement of transactions of banks and other financial institutions at
SAMA easier. Besides that, SAMA will open a SADAD account for each bank, making
the transaction from the bank to SAMA much easier.
The Economic Planning Unit and EPU (2010) have stated that SADAD will reduce
the usage of currency and replace the current procedure of transferring money by
cheque with the modern procedure of transferring money using the internet. This
will provide a lot of benefits because using SADAD, the transaction can be done
through any kind of bank channel, which is very efficient compared to the previous
way. This is because it only requires going to the nearest ATM machine or using
online/internet banking/phone banking, and there is no need to go to a specific
bank to pay the bill and transfer money.
3. Importance of financial governance in Saudi Arabia
Financial governance refers to the system or regime of decision making and
resource allocation for the efficient and prudent management of resources. It
encompasses the decision-making processes by which the governing body directs its
economic and financial resources. Sound financial management is at the core of
good public governance. It is widely recognized that there is a linkage between the
quality of financial management, accountability, and transparency which
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characterizes the governance of an entity. Since the objective of the e-payment
system is to increase efficiency and productivity, it is important to analyze the epayment system on financial governance. (Garrouch, 2022)
Saudi Arabia has witnessed development in its financial governance. The Saudi
Arabian financial sector has been undergoing modernization and becoming more in
line with international standards, and the Saudi Arabian Monetary Agency (SAMA)
believes that the increased use of information technology in the financial sector will
lead to a more efficient, safer, and sound financial system. The e-payment system
can contribute to this and complements the top-down strategy-based reform
process in Saudi financial governance, focusing on improving regulation and
supervision and switching from an oil-based economy to private sector-driven
economic growth. This fits well with one of the objectives of the e-payment system,
which is to increase efficiency and productivity in the economy. In the budget
speech of the year 2005, it was mentioned that better corporate governance and
increased IT will increase productivity to the extent that it will create higher
economic activity to the tune of an additional one trillion worth of projects over the
next 10 years. High-value projects will involve complex financial transactions, and
the e-payment system can provide efficient payment and collection services. (Li et
al., 2021)
The decision to conduct e-government and good governance requires political will.
The e-payment system is required for the effective implementation of egovernment. The objective of e-government to convert all government-to-citizen
and government-to-business transactions to electronic form can only be achieved if
there are efficient payment and collection services. The e-payment system would
also be needed to realize the cashless society objective. With oil revenues forming a
substantial part of Saudi government revenue, the e-payment system can provide
better management of oil revenue. This is due to recent concerns about the volatility
of oil prices and their impact on Saudi Arabia's development planning. The existing
New Revenue Management Initiative (NRMI) can benefit from the e-payment
system. Finally, around 70 Saudi banks and the 12 foreign banks are ministries'
financial agents, and the e-payment system involving the banks can provide the
services they require. (Said et al., 2021)
4. Benefits of using e-payment system on financial
governance
The e-payment system has revolutionized the business, governmental, and personal
transaction processes. Particularly, the system has a major impact on the economic
and financial systems, regardless of the significant risk that might be posed by this
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technology. Due to the efficiency, fast and secure transaction provided by the epayment system, the impact upon the financial governance of a country would be
significant. This paper will discuss the potential benefits and implications of
implementing the e-payment system on financial governance. In particular, the
discussion will focus on the impact towards better budget allocation and revenue
collection, efficient financial management and monitoring, as well as lowering down
the costs of public administration. (Isamade et al.2022)
Using the e-payment system will significantly change the system of how revenue is
collected and allocated. By implementing the e-payment system, the government
will provide a secure, easy, and fast payment channel for the public to pay their
direct and indirect taxes, such as income tax, road tax, etc. Experience from
developed countries such as the US shows that the e-payment system provides a
way to significantly reduce the tax gap by reducing the usage and implementation
cost of the payment system itself, and by providing a system and environment for
high compliance tax payment channels. Finally, it will increase the overall revenue
collection. This will promote an increase in optimal revenue collection and enhance
the government's ability to allocate a proper budget to implement developmental
projects and programs. High revenue collection will protect the country from budget
deficits, and the current account will not end in negative equilibrium. This situation
is very good to ensure that the country will be able to accumulate assets to protect
future generations. (Torki et al.2020)
With the e-payment system, the revenue collected can also be traced and monitored.
Thus, it will eliminate the chance of corruption in taking the money for one's own
individual benefit, and it can also avoid the revenue being allocated for unplanned
and irrelevant programs and projects.
4.1 Increased efficiency in financial transactions
Data from the Saudi Arabian Monetary Agency (SAMA) depicted that the proportion
of currency in circulation to total money balances has dropped from 7% in 1990 to
4% in 2000, indicating a shift from the use of traditional payment methods such as
checks to electronic payment methods as electronic payment improves its cost and
efficiency. Electronic payment is defined as the use of electronic communication and
computing technology such as electronic data interchange, automated teller
machine transfer, and electronic fund transfer to transfer money. These methods
represent e-payment which is defined as "any transfer of funds initiated by
electronic means, performed to effect the payment for goods and services, to
transfer of cash or other financial assets, to make settlement of securities, or to
achieve any other form of financial obligation. This includes electronic methods
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such as direct credit, direct debit, internet banking and virtual wallets".
(Alnori2020)
E-payment enables transfer of money funds between accounts, and the transaction
can be initiated and settled in real-time or with a time delay, increasing the speed of
transaction settlement. It raises the opportunity costs of holding currency and
decreases the cost differential between holding money and an interest-bearing
asset. Real-time or low-cost settlement over e-payment methods make it less costly
relative to the more common and efficient paper-based alternatives. This has
economic efficiency implications, which are if the cost of performing an activity
decreases, it is expected that more of the activity will take place, or it is replaced by
similar but more costly activities. Either way, resources are freed up. E-payment can
be efficiency-enhancing by creating ways to perform the same activities at lower
costs, without foregoing quality. An example is to automate the wage payments of a
firm by depositing wage funds directly into employee bank accounts, as opposed to
more costly methods such as issuing cheques. (Bosco, 2021)
4.2 Enhanced transparency and accountability
Promoting transparency and accountability is a fundamental aspect of good
governance. Transparency and accountability will result in citizens having greater
trust in the government, and that in turn results in greater confidence and certainty
on the part of the private sector in expanding investment. The International
Monetary Fund (IMF) has emphasized the importance of developing efficient and
transparent institutions as part of the overall development process. The argument
put forth is that such institutions are essential for macroeconomic stability,
accelerated economic growth, and poverty reduction. In a more specific study on
fiscal transparency and economic outcomes, it is shown that greater transparency in
government accounts is associated with stronger fiscal performance and that the
overall higher quality of public sector governance is associated with better social
indicators. (Chen and Neshkova, 2020)
One of the key features of the e-government project in Saudi Arabia is its emphasis
on transparency. All information pertaining to government programs and the
results achieved is to be readily accessible to the public. This would be a large shift
from the present situation, which features limited access to such information in
traditional government systems. The Saudi Arabian Ministry of Finance has already
taken some steps in this direction by placing the 9th development plan and detailed
budget information on their website. E-payment systems have a crucial role to play
in bringing about this increase in transparency. The automation of payment
processes can provide an audit trail, tracking exactly when and where payments are
being made. Integration of systems between different government entities can allow
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for the sharing of information in a way that was not previously possible with paperbased methods. An example given by the Ministry of Finance in Malaysia was that
prior to the implementation of an e-procurement system, it was difficult to gauge
the efficiency of different departments in the government when it came to making
purchases. This was because paper documents would often be misplaced. With the
e-procurement system, an information warehouse was created which stored all data
regarding procurement and which was easily accessible to all departments.
Simulation studies have shown that the Saudi government can save SAR 8 billion
through tighter management of public procurement. This savings would be achieved
through a reduction in corruption and the negotiation of more favorable prices with
suppliers. (WALID and Sherzad2020)
4.3 Reduction in cash handling and associated risks
E-commerce means electronic commerce, and it is the process of buying or selling
over the internet in electronic form. E-payment is a subset of e-commerce, and it
refers to the conception, design, deployment, generation, and settlement of payment
through machines and telecommunication systems. The movement away from cash
and other physical payment methods has shifted dramatically, i.e., towards cards
and other electronic forms of payment. This shift to e-payment has the power to
change the way we manage our personal financial governance, and the effects will
be far-reaching. (Mtebe and Sausi2021)
Cash is a high-cost method of exchanging financial resources versus goods and
services. The usage of cash generates costs for both the person spending the cash
and for the person receiving it. When a person withdraws cash from their account to
spend it at a later date, it has an opportunity cost in that it prevents the cash holder
from earning interest on the money whilst it remains unspent. This interest forgone
may seem small but can mount up to a substantial sum when considered across the
entire population of cash users for a given currency. The cash user must also
consider the cost of storing the cash and the risk of theft or loss. This risk is most
easily explained by considering the loss of a wallet. In most cases, the person who
loses a wallet cannot recover the cash that was inside and loses it to the 'finder' or
thief. This is a cost to the cash user, and it is a transfer of purchasing power from the
loser of the cash to the thief or person who finds it. These costs of using cash can be
attributed to the loss of buying power for the cash user. (Florez et al.2024)
4.4 Improved financial data management
Improved data management is known to be one of the significant benefits resulting
from the implementation of information systems, especially under a transition to
electronic systems from a paper-based system. Often, the manual means of data
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management result in data duplication because the same data is recorded on several
different forms. Also, the retrieval of data to answer queries is much slower for a
manual system. In comparison, data can be stored only once in an electronic system
and made available to answer various ad hoc queries. Furthermore, queries can be
answered without the need to reformat and resubmit the question, as is necessary
with a paper-based system. These factors are all achieved through utilizing
electronic data storage. (Fahlevi and Alharbi2021)
In the context of Saudi Arabia, financial data that is stored using paper-based
systems is currently captured and then stored in a variety of different ways. Often,
data is captured in manual form and then typed into a computer for later storage. An
example of this is the budget for the municipality of Riyadh. Although the budget
begins in the form of a request to the Ministry of Finance, the initial data is first
captured by handwriting into the budget forms. These forms are then sent back to
the ministry and typed into the computer. Unfortunately, data storage to date has
proved to be inefficient. Most data captured into the computer is saved on a disk, but
the data on many of those disks has been lost. The remaining data is stored on the
hard drives of various different computers. The data on these hard drives is rarely
organized, making the data difficult to access and at times requiring recreation of
the data. Evidently, a more consistent method of storage is needed. The budget is
just one of several different types of financial data. The specific nature of the data
and the type of access required dictate the use of different methods of storage. The
ideal situation is to have a centralized storage area that is secure and organized in a
way that is easy to access. This will ensure longevity of the data and easy access
when necessary. Electronic systems are the perfect solution for this end. With the
implementation of IT in Saudi Arabia, an infrastructure will be supported that will
allow for the capture of all forms of data in electronic format, and various different
databases can be created to house the data in an organized fashion. (Bahn et al.,
2021)(AlSadrah, 2020)(Alqarni et al., 2023)
4.5 Facilitation of remote and contactless transactions
E-payment mobile, card, and internet systems can facilitate remote and contactless
transactions. It has produced several benefits beyond simpler interchange. In many
cases, particularly for mobile and internet payments, the marginal cost of a
transaction is lower than cash, considering that the infrastructure cost is already
covered. This means that e-payment systems can economically reach untapped and
underserved consumers. Mobile payment systems are proven to reach the
unbanked, a population traditionally underserved by financial institutions, in that
they can allow people to exchange microcredit, thumbnail, and small-scale savings
in a simple and affordable way. Remote transactions and especially internet
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payments open up a worldwide market for consumers to access various products
and services. In this case, e-payment systems provide a more efficient and less costly
means of transferring money between consumers and businesses, who in turn can
sell a wider array of products knowing they have a cost-effective way to receive
payment. Finally, the expansion of remote transactions contributes to a reduction in
the use of cash and checks, which in turn carries its own benefits discussed in
previous sections. (Domingos)(Koliulis et al., 2021)(Efuetlateh, 2020)
5. Case studies on the impact of e-payment system in
Saudi Arabia
Iran International Banking: It is important to note that the electronic payment
system affects financial governance, which in turn influences the activities of the
government in various ways. One example can be seen in Saudi Arabia's aim to
implement an electronic payment system as a strategic sector in the development of
the national economy. This involves cooperation between the Saudi Arabian
Monetary Agency (SAMA), the Ministry of Finance, the Ministry of Civil Service, and
the Ministry of Communication and Information Technology to prepare Saudi banks
and society in facing the era of electronic payment. This is an excellent case for
observing the e-payment system. The government expects that the usage of the
electronic payment system will be a medium for more efficient financial
transactions between the government, society, and the banks. As a result, it is
expected that through the e-payment system, financial governance will be more
directed and controlled. To measure success, it can be seen in how many people and
society use electronic payment services provided by banks to make transactions for
their government-related activities (tax payment, transactions of buying
government bonds, etc.). The higher numbers represent success because people and
society have been conducting transactions for their government activities. This will
have a direct impact on the banks and SAMA, which will attempt to create a
conducive e-payment environment for the transactions. If the target has been
achieved, there will be a clearer sign that the government has successfully utilized
the e-payment system as an efficient medium to finance and control the activities.
(Alnemer, 2022)
6. Challenges and limitations of e-payment system
implementation
The implementation of e-payment systems is indeed not free from issues and
challenges. These issues and challenges are a major hindrance to the improvement
and development of the e-payment system. This is a concern and challenge for the
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financial governance in Saudi Arabia. Most of the major issues come from the
technology and infrastructure limitations and challenges. The challenges are:
Security is the most important. Sabotage, fraud, and information theft can paralyze
the e-payment system. This can occur when the information that moves is in the
form of money or other valuable assets. The attack could be done from the outside
or from within the company that manages e-payment services.
The lack of human resources who understand technology and information systems
in e-payment services is an obstacle because the process of finding people who are
competent in the field is not easy. E-payment systems require reliable IT
professionals. But their involvement in e-payment services makes them susceptible
to the attraction of another company with the offer of better salaries and career
opportunities.
Legal and regulation issues are critical in e-payment services. Responsible human
resources, in this case, the programmers and system analysts, should be able to
understand and study the legality related to e-payment systems, which are
constantly changing. A tiny mistake can lead to a huge loss of money. Therefore, it
requires the role of a legal expert in analyzing the decisions taken. The early phase
of e-payment systems in Saudi Arabia is also feared to harm local entrepreneurs at a
very low level when they are pressed to switch to e-payment services. (Almoamen,
2021)
6.1 Security concerns
Authentication, privacy, integrity, non-repudiation, and dispute resolution are all
security issues that must be considered when developing an e-payment system.
These security concerns are balanced against the perceived cost savings and
efficiency benefits of a fully implemented e-payment system. The FSI provides
public key infrastructure (PKI) security services to banking systems that provide
strong authentication of the client to the bank, and also ensure the integrity and
confidentiality of the data and transactions. PKI could also be used in conjunction
with biometric identifier technology to provide strong authentication for e-payment
transactions, and thus mitigate the risk of repudiation. Unfortunately, the cost of PKI
implementation may be prohibitive for smaller banking agents and clients, and
thereby create a '2-tier' e-payment system with greater security risks in the lower
tier. This would lead to the migration of e-payment related transactions to larger
banks where security is greater, negating one of the primary benefits of e-payment
in terms of reduced clearing float and processing costs for the entire banking
system. The potential for PKI and biometric technology to provide strong security
measures for e-payment transactions means that the existing cost-benefit trade-off
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between security and efficiency in e-payment systems could be altered in favor of
higher security. This would have a flow-on effect to improved governance of the
overall banking system, since the financial services industry depends on efficient
banking systems to reduce costs and allocate capital more effectively. (Muskaan et
al.2022)(Chuat et al., 2021)
6.2 Infrastructure requirements
Hardware and software required for an electronic payment system will demand a
few changes in their current positions. Most of the popular e-payment systems that
are currently implemented use a credit card and debit card-based system. This
method only requires a terminal to swipe the card and an internet connection.
Relatively, it is simple to implement, and most of the shop lots and convenient stores
available today can fulfill this requirement to start an e-payment system.
As for a more advanced system, an example like PayPal requires the shop owner to
have a computer or a smartphone with an internet connection in order to process
the payment. This method is much simpler to implement and, at the same time,
more flexible because it can be done anywhere. The PayPal system does not
necessarily need a terminal to be allocated at a shop because every transaction can
be done using online transactions.
Another method is using an e-banking online system. Unlike the first two methods,
it is more complex and demanding in terms of infrastructure. This particular epayment method will require a good internet connection and server, especially for a
large company that plans to implement this method for their entire staff. The reason
is that the e-banking method will involve the entire transaction to be done online,
from the point where the staff or the client makes the payment until the point where
the payment is received by the desired party. It is also preferable for the company to
provide a guideline to the staff or conduct training regarding this method to avoid
any mistakes due to a lack of knowledge. At the same time, it is also possible for the
company to monitor the entire transaction and generate a report to see the cash
flow for the company. This is very useful for financial management and it can cut the
cost and time to do the report manually. The e-banking method is very suitable for
today's online business and a large-scale business company. (Brydan and
Abdulnabi2021)
6.3 Adoption and awareness issues
As of now, continued research has to be devoted to analyzing the extent of adoption,
factors influencing the rate of adoption, and why there is resistance on the part of
consumers to take up e-payment systems. This has to be done if we are to measure
our success in the future and is a significant step in understanding the barriers to
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increased utilization of e-payment systems. This research has partially been
addressed in the earlier part of this paper. A most vital area of future work comes in
developing the models and methods needed to simulate and thereby understand epayment system adoption. This is crucial if policymakers are to have any hope in
increasing the current rate of e-payment utilization in an increasingly cash-based
society. Without a simulation model and understanding of the factors influencing
the agents in the economy, policy decisions are being made in the dark. (Al-Dmour
et al.2021)
At a more practical level, we need to consider the best ways to increase awareness
of the e-payment systems that are currently underutilized. This would involve
considerable coordination between the banks which operate the systems and has
the potential to provide information to the consumers who can benefit most from epayment utilization. This information provision strategy may involve incentive
schemes and tuition in e-banking methods. Again, it is essential that methods used
are understood and simulated so that their effectiveness can be evaluated. A further
area of research must be to understand the preferences of high and low-income
individuals when it comes to choosing a payment method. (Lukonga,
2021)(Lukonga, 2020)
It is suggested that the Saudi Arabian Monetary Authority is best to focus their
efforts in the coming years on increasing utilization of the systems already in place
before developing further systems. This involves encouraging switching from paperbased methods. One way in which this could be done is increasing the relative cost
of paper-based transactions by phasing out the less efficient methods. Again, this
has further methodological research requirements to understand the most effective
way to create a relative cost difference.
6.4 Regulatory and legal considerations
The implementation of electronic government in the country has consequences for
the laws and policies that are currently regulating government. E-payment enhances
the chances for more strategic and integrated government laws and policies by
providing more information to the public and more services to the business through
a convenient and secure mode of payment. The e-payment system will improve
revenue collections by phasing out paper-based payments and replacing them with
a more efficient system for the government. This means that collections will be
much faster, cost-efficient, and recorded. This, in turn, aligns well with the current
laws and policies being implemented, which require clear accounting records,
efficiency, and cost-saving measures. The e-payment system will also contribute to
reducing corruption among government servants and the public. With public access
to more information on government services, there will be less discretion and abuse
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of power among government servants towards the public. This translates to
providing good governance and a better quality of life for the public. The
government services that are more accessible and efficient will, in turn, contribute
to the business community. This is because the services being provided are a result
of the higher burdens placed on the private community by the government. The high
productivity and quality services produced by the government enable the business
community to further exploit the local industry and attract foreign investment. This
happens because the e-payment system offers a cheaper and faster mode of
payment compared to traditional banking. The banks, on the other hand, would
provide more services to the government to meet the growing demands of the epayment system. All of these factors will shift the current global perception index,
which is recorded at 53%, to a higher level. (Ali and Salameh, 2023)(Albarq,
2024)(Alkhunaizan and Ali2022)
6.5 Integration with existing financial systems
A level of concern arises as to whether the new e-payment system would integrate
smoothly with the existing financial systems. Many government organizations have
their own financial systems, and it is essential that the e-payment system integrates
with them without causing data re-entry. This is because data re-entry is a costly
and time-consuming process. E-payment systems that integrate with existing
accounting and financial systems offer significant benefits to businesses. These
systems allow for greater automation of the accounts payable/receivable process.
Therefore, it is essential that the e-payment system be implemented across the
public and private sectors to facilitate a standardized e-payment process, thus
reducing the cost of doing business with the government. E-payment systems can
facilitate integration with existing financial systems using a number of different
technologies and techniques. This complex challenge requires careful planning and
execution to achieve seamless integration with existing financial systems. (Naeem et
al.2020)
It is suggested that government organizations and private sector firms move
towards adopting electronic data interchange (EDI) as a means to conduct the
payment and reconciliation process. EDI is the transfer of business transaction
documents in a standardized format between the business's computer systems. It is
proposed that payments between the government and the businesses be conducted
via EDI using the ACH network to transfer the funds. This would remove the need
for checks, and the businesses can integrate the payment into their existing
accounting system by automatically generating a remittance advice and reconciling
the payment. This would create a similar process to B2B purchase payments. For
these types of payments, it is suggested that the e-payment system create a virtual
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credit card number or an equivalent method to facilitate payment from businesses.
This would allow businesses to pay using the credit card number and still generate a
remittance advice and reconcile the payment. (Soliman, 2024)
7. Strategies for successful implementation of e-payment
system
The success of the e-payment system implementation depends on the various
strategies that the government has to consider. The implementation of e-payment
system is essential to improve the efficiency and the effectiveness of the system,
hence a wide range of strategies to ensure the success of the system must be
formulated. First and foremost, the government has to clearly define the target and
the direction of the e-payment implementation. (Kilay et al.2022)
The objectives and the mission of the implementation must be well documented and
disseminated to the public. Then the government must set easy and convenient epayment usage for the taxpayers. This is because people will not use the e-payment
system if it is difficult compared to the traditional payment methods. To instill
confidence in the system, security and privacy protection is crucial. This is because
people are very concerned about their financial details and privacy. (Yadu and
Sharma, 2021)(Pešterac and Tomić, 2020)
Hence, the most secure system and environment must be created. To reduce
government spending, the e-payment system must help to lower the collection and
administration costs. This will lead to the improvement of the governance of the
financial. The e-payment system will open a wide opportunity and market for IT
services and enhance the human capital of society in ICT. So the system must be able
to provide job opportunities and various high-income ICT services. (Said et al.,
2021)
To ensure the success of the implementation, the system must be continuously
monitored and evaluated by the government. From time to time, customer feedback
should be taken to improve the system. Any difficulties or failures of the system
must be rectified immediately and the system must be improved with the latest and
globalized technology.
7.1 Collaboration with financial institutions and stakeholders
E-payment systems have a profound effect on the liquidity of money traded in
various institutions. This is also relevant to the money from the government budget
used for goods procurement, which will significantly decrease if using the eprocurement or e-tendering facilities. The scenario will encourage monetary
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liquidity used in society for more productive activities and decrease dependency on
public consumption.
For the private sector, the e-payment system is very influential as it could improve
their business process. Typically, a business transaction between a private sector
and a government institution starts from the procurement of goods or services.
With the e-payment system, government institutions could pay for the goods or
services directly to the private sector with reduced time and cost. This process gives
benefits to the private sector as a whole because it could increase competitiveness
and open more opportunities to work with the government. (Chen et al.2022)
Experience from foreign countries that have already implemented e-payment
systems shows that it could improve money circulation in society because the
government budget could be used more effectively for goods and services
procurement. This condition gives a positive opportunity to increase tax revenue for
the government and stimulate more economic activities.
7.2 Public awareness campaigns and education
Raising public awareness about the advantages of e-payments, particularly through
effective crash management, takes on added importance in Saudi Arabia. Public
confidence in the banking system, as well as e-payment systems, has been
undermined by a series of frauds and payment defaults committed by operators in
the mid-2000s.
The Saudi Arabian Monetary Agency (SAMA) and the Ministry of Finance show high
levels of commitment to using the system to achieve long-term efficiency gains in
the management of government finances. However, fulfilling this vision will require
changing people's attitudes towards e-payment as a safer and more efficient
alternative to traditional payment methods. (Ali and Salameh, 2023)
Changing attitudes, especially among those who are unbanked or have limited
access to banking services, will require an extensive and sustained publicity
campaign using a variety of media. However, an effective campaign in Saudi Arabia
must be carefully targeted and tailored to different segments of the population.
First, attention needs to be given to rehabilitating the image of e-payments and the
banking system as a whole. This will be particularly important for older and lowerincome Saudis, many of whom have had little or no experience with banking and
have negative perceptions. The present generation of youth is more likely to have an
account and use e-payments but may need to be convinced of the relative
advantages of e-payments over other methods.
14
7.3 Development of robust security measures
Customers and vendors unfamiliar with one another traditionally rely on associates
to mediate transactions. Satisfactory settlement often depends on the willingness of
the disputants to devote substantial resources to the issue. E-payment systems can
result in greater success and fluidity of business transactions. Settlement is usually
the first goal in any legal transaction directly following the transfer of title. In
today's age of high transaction costs and low trust, successful settlement of
exchanges through traditional methods is often unfeasible. High failure rates and
the risk of contractual default, if not met with timely performance, will incur even
higher costs from damages. E-payment systems provide an opportunity for
automatic clearing and settlement of transactions. This is imperative for the
efficiency of trade and possible when the underlying payment system shares the
same standards between banks and their clients. (Saxena et al., 2023)
For the near and distant future, security remains the greatest impasse to overcome
for all types of e-payment systems. The internet is a public network with inherent
risk when transmitting messages. Any successful e-payment system on any open
network must have secure payment instructions sent from payer to payee. Then
there is the issue of data storage within the system and retrieval for future
transactions. Stored data will significantly lessen processing cost and time for future
payments, but e-payment systems have had varied success in persuading consumers
to change their payment habits. They will be unlikely to do so relying on a system
with no capability of guaranteed funds transfer whose only advantage is in eventual
micropayment efficiencies. Any and all forms of e-payment must also have fail-safe
recovery systems in place for any payment that does not result in a service or good
received, which is often the case in today's high fraud credit card transactions. To
meet these security requirements, a private secure network is desirable for the
transmission of payment instructions between financial institutions, with the use of
public networks coming only for the transmission of those instructions between
payers and payees. The secure network will come through encryption of payment
instructions and data with decryption keys stored by the participating financial
institutions. This will prevent access by any unauthorized persons to payment data
during transmission or storage. The desired encryption methods are as of yet
undeveloped for public knowledge but must be used in conjunction with digital
signatures on payment instructions and data and the ability to know with
unequivocal certainty the identity of who is sending, receiving, and storing payment
data at any time. This is essential to prevent repudiation with the use of deceitful
claims on identity theft. E-payment systems until now have not managed to ensure
even the identity of financial institutions participating in the payment method, let
alone the customers with which the contract of payment exists. (Nasr et al.2020)
15
7.4 Continuous monitoring and evaluation
Continuous monitoring and evaluation, as a key part of the project's sustainability
approach, is earmarked in the implementation and development of the system. By
analyzing whether the proposed system is achieving the benefits it set out to and
functioning at its maximum potential, and determining any adverse effects it is
having due to not considering wider implications, the government can assess how
the system is developing and aligning with business to ensure it provides more
efficiency and effectiveness in the future. (Khan)
Regular analysis of the system compared to the scenario situation will tell the
government whether it is worth continuing with the system. If it is not achieving
greater effectiveness or efficiency compared to the alternative scenario, then it may
not be a relevant benefit. For instance, the e-Tax system in the current manual
scenario, if credit and loans are subject to interest, the tax can be recovered.
However, e-taxation is yet another difficult area and needs detailed guidelines from
RBI to ensure that it stays within the provided service tax legislation and does not
impact service tax on credit and loans. In such a case, it would be beneficial if e-Tax
aware no more effective tax method would be possible – a similar situation applies
to the e-Tax method in Malaysia. (Al-Sakran and Alsudairi, 2021)
An adverse effect would be anything that reduces the perceived benefit and costs
more to rectify back to the alternative scenario. An irreversible change with
negative implications may see a halt of the system to prevent further loss. Step back
analysis at this point should be done with respective Ministries on each FSI project.
This monitoring and evaluation can be done using industry reports, customer case
studies, and regular meetings between e-government and e-MOF with delegations
from the relevant industries.
7.5 Integration with national development plans
The e-Government Program was initiated in Saudi Arabia with the help of the
National IT Plan in order to equip KSA in the global age in terms of economic and
social challenges. This is done by improving the efficiency, effectiveness,
transparency, and accountability of the government to its citizens in the country and
abroad. (Alharbi and Alaboudi2020)
Several initiatives come under the e-government program. These initiatives aim to
improve the cooperation among government sectors, provide effective government
information and services to the citizens, strengthen state administration and
sovereignty, and open up opportunities for citizens in KLSCP development areas.
16
With the current global trend moving rapidly toward networking, internet, and
intranet applications using secure and ubiquitous mobile or fixed devices, the focus
is on e-payment tools. As mentioned several times, the successful implementation of
an e-payment system can contribute a lot to the efficiency, effectiveness,
transparency, and accountability of the government and its sectors to the citizens.
(Chepkoech et al.2022)
8. Future prospects and potential advancements in epayment system
The potential for national growth increases when the greatest number of citizens
have access to government services, including financial services. The e-payment
system has been recognized as the core function in providing comprehensive and
inclusive financial services. The Saudi Arabian Monetary Agency (SAMA)
implemented an e-payment system and set up the Payment Systems Department in
2003. Its principal objectives are to maintain financial stability, build efficient
infrastructure, support economic development, and extend financial services to the
wider community. This can be achieved by developing a suitable environment
through the creation of enabling systematic conditions that will allow financial
institutions to adopt better methods in which they provide their services to the
Saudi community. This will encourage the formation of new payment methods and
instruments, as well as more efficient and speedy transaction processes.
(ALQAHTANI, 2023)(Omar, 2022)
In 2006, Saudi Arabia adopted a strategy involving a financial and non-financial
agenda. There is also an initiative taken by several regional entities in the country to
work on the amalgamation of the GCC countries. This may bring significant changes
to Saudi Arabia's e-payment system, in which it could evolve its methods with the
integration and participation of other countries. The formation of a more united
economy with other GCC countries will likely increase the volume of trade and
foreign direct investments. This will increase the utilization of payment methods
and instruments for both cross-border and domestic transactions. It will also create
advancements in technology that can be utilized to produce a more efficient
payment system. This initiative also falls in line with bringing more comprehensive
and inclusive financial services to the wider community. (Najafi et al.2024)
The potential advancements of the system create an impetus for individuals and
financial institutions to shift from traditional payment methods to e-payment
methods. Although the e-payment system has improved the payment landscape, the
utilization of e-payment methods and instruments is still relatively low. The
demand-side factors are mainly from businesses and government agencies
17
attempting to make more efficient large value and recurrent payments. At the micro
level, the government is attempting to enforce the use of e-payment methods in
hopes of bringing more transaction transparency to the public sector and reducing
corruption. This is being done through the implementation of e-payment methods
exclusively for salaries and wage payments to government employees. In hopes of
meeting these objectives, SAMA is currently working on plotting the future direction
of the e-payment system and identifying the strategic plan. (Ameerbakhsh et al.,
2021)
The e-payment system in Saudi Arabia has been considered a significant
development in the field of governance. It contributes to various improvements in
transparency, accountability, and overall financial management. The positive
outcomes occur because the e-payment system deals with electronic transactions
that require the usage of the internet and financial technologies. This essay aims to
analyze the impact of the e-payment system on financial governance in Saudi Arabia.
The work analyzes the objectives of e-payment initiatives in the kingdom, recent
developments, the value added from the e-payment system, and several challenges
and risks in implementing e-payment systems. (Almaiah et al.2022)(Ali and
Salameh, 2023)(Albarq, 2024)
The Saudi Arabian government has developed the e-payment system with the aim of
achieving more effective and efficient financial transaction methods, supporting the
decision-making process, and making government bodies more transparent and
accountable. These objectives were represented as savings in the time and cost
spent by the Ministry of Finance in financial transactions, and a significant decrease
in the float money in the economy due to the payments of government dues and
taxes. The recent developments have shown that the above objectives have been
achieved. This is indicated by the increasing volume of e-payment transactions from
year to year and the positive result of the government's efforts in promoting epayment transactions, which can be seen from the society's warmer reaction
compared to previous years. (WALID and Sherzad2020)(Ali and Salameh,
2023)(Khan)(Alzeaideen et al.2024)(Fahlevi and Alharbi2021)(Al-Dmour et
al.2021)(Garrouch et al.2024)(Assiri, 2022)(Nawayiseh et al.2024)(Alzahrani)
18
The Impact of Cash Shrinkage and Rise of
E-Payments on Individuals, Businesses, and
the Economy
Now, when we consider the fact that cash shrinkage has a direct impact upon the
economy, and that certain individuals and businesses will lose or gain as a result of
this movement, we can see that it is indeed an innovation with considerable
consequences. This essay will outline the implications of such changes, which have
arisen largely without substantive public discourse, for various individuals,
businesses, and the economy in general.
One such innovation has been the rise of electronic payment (henceforth Epayments). In recent years, due to concerns over efficiency, thefts, and the cost of
cash as a payment system, there has been a move away from cash and towards Epayments, particularly for high-value transactions. This stems from the belief that Epayment methods are more efficient and secure than cash.
The production of knowledge is fundamental to the post-industrial economy. It is
knowledge that determines what we produce and how we produce it. Such
production is reliant upon the diffusion of innovation, whereby knowledge is more
readily transferred between those engaged in similar activities. It is essentially a
social process which, not unlike learning itself, involves considerable interaction
between individuals. These activities may take the form of conferences, journals,
consultancy work, or simply experiencing the products of others' innovation.
. Implications for Individuals
People's behavior often adapts to the tools available to them; the shift from cash to
electronic transactions fosters the same change. Debit and credit purchases are
already dominant at the point of sale in many countries around the world. In the
United States in 2006, 27 percent of transactions were made with cash and this is
anticipated to drop to 23.4 percent in 2011. Cash will survive as a niche payment
instrument for the many individuals excluded from the financial system and these
are the unbanked or the underbanked. These people will have no choice but to
resort to cash for their transactions and it is well documented that the unbanked are
typically poorer citizens. However, this shift away from cash is still likely to affect
their behavior in acquiring goods and services. The cost efficiency and assumed
safety of an electronic payment compared to cash may encourage these individuals
to enter the financial system. E-payments are conducted through an account at a
19
financial institution which offers a wider range of options to manage and access
funds compared to cash stored in a literal or proverbial "shoe-box". Proven security
and control features may be difficult to provide in an electronic account with new
technology always having potential security flaws; there is no risk of loss or theft to
an electronic account and deviation from the norm of keeping funds in cash may
result in these individuals entering the banking system to better manage their
income. Step into the realm of the individual who follows the norm in utilizing cash
but is not part of the excluded minority. Anecdotal evidence suggests that the
younger generation are less reliant on cash as they do not see the need to carry it to
pay for goods or services provided primarily by their peers. Sense on Campus
Research shows that a higher socio-economic status is correlated with debit and
credit usage and some individuals have recognized the benefits of e-payment from
student loans intended to be a source of income for several years. The transition
may have a slight influence on their spending and it is suggested that paying
electronically may encourage a more liberal attitude to parting with money. Overall,
for all these individuals, an increased reliance on e-payments will have an impact on
monitoring and management of funds and in types of spending. (Cipriani et al.2023)
. Convenience and Accessibility
The convenience and access of e-money benefit those with disabilities who may
have found it difficult to access money and traditional channels of banking. E-money
increases privacy and reduces the need to handle money, which can help groups
such as the elderly who are often targets for theft. High earners who are time poor
may also find convenience in e-money, as it simplifies personal administration. It
also has the potential to reduce costs for businesses with the streamlining of
payments and accounting. Although e-money is not a product solely for the wealthy,
research in Sweden has suggested that the lower to middle class have not been
offered suitable alternatives to cash and may struggle with the lack of access. This
may lead to financial exclusion as e-money becomes the dominant form of currency,
and it is something that may need to be addressed to ensure e-money remains
inclusive to all. (Dobler et al.2021)
Livingstone and Lunt (1992) saw access to credit as more convenient than access to
cash and believed it would therefore increase consumer spending. This is echoed by
the convenience of e-money. As discussed, it can be accessed at any time.
Additionally, the autonomy of being able to access accounts and make payments
online would reduce the need for planning, and potential spending would be less
averse.
E-money undoubtedly benefits consumers due to its convenience and ease of access.
Cash usage has fallen over the past few decades with the rise of electronic payments.
20
This may be due to the lack of bank branches offering cash withdrawals, financial
incentives behind using e-money, and the ease of access to one's bank account to
check balances after making payments. E-money caters to the fast-paced
environment that people are accustomed to. It can be stored on cards, phones, and
various other devices, and can be accessed at a moment's notice. Various forms of emoney exist, and each presents its own level of convenience and access. Pre-paid
cards can be purchased and used without opening a bank account and can be a
useful budgeting tool. However, they may incur fees that outweigh their benefits. On
the other end of the spectrum, money stored in bank accounts can be accessed via
debit cards and mobile banking applications. It can also be used to make payments
online. This is due to bank-issued e-money mirroring the transaction process of
sending money from bank account to bank account, and it comes with the added
protection of only being linked to the account it is stored in. Step by step, e-money is
providing a substitute for cash that is more convenient, and many individuals are
already consuming in this cashless society.
. Security and Fraud Prevention
With direct and indirect theft losses in mind, the importance of e-payment security
and the prevention of fraud is not limited to methods that affect individual
consumers. It is also necessary to consider the impact of fraud prevention methods
on the cost of doing business and the economy as a whole.
The increased popularity of e-wallets and other cashless payment applications has
raised concern for the security of personal financial information stored within these
applications. While the convenience of linked bank accounts and automatic top-up
features make e-wallets desirable, consumers are vulnerable to severe direct and
indirect losses should their e-wallet accounts be subject to unauthorized access.
This form of theft is a growing concern as it may lead to a consumer being unable to
access or retrieve lost funds and incurring additional expenses in attempts to restabilize lost account funds and rectify resulting credit defaults. (Alam et al.2021)
Credit or debit card form e-payments are also prime targets for intermediation
fraud, in which a perpetrator gains access to a person's card number and uses it to
create a counterfeit card on which to make purchases. Steps are being made within
the payments industry to switch from the current magnetic stripe card technology
to EMV (Europay, MasterCard, and Visa) global standard for credit and debit card
chip technology. The reason for this is to reduce card misuse, facilitating easier
fraud prevention detection and making it more difficult to skim card information in
order to create counterfeit cards.
21
The security of e-payments is a complex issue that involves the security of the
payment instrument (i.e. card), the authentication of the cardholder, and the
transaction security. As it stands currently, the payment of goods and services over
the internet is susceptible to fraud without a tangible card swipe or card
information entry. This has led to a greater percentage of e-commerce and mobile
payment transaction disputes, resulting in cardholders receiving credit reversals for
charges that they did not authorize.
The essence of many e-payment transactions revolves around the swiping of debit
or credit cards. That is to say, the electronic account transfers are an extension of
current banking systems and resulting rules and regulations that safeguard personal
finances from theft and fraud. For instance, if electronic transactions were not
secure, the methods by which they were conducted would revert back to the cutand-dry form of cash payments, a definite step backwards in terms of progress and
efficiency.
. Implications for Businesses
Another implication of e-payment methods is the many benefits it brings forth to
sending and receiving parties, particularly in customer-to-business relations. Epayment methods will reduce the risk and increase the speed of payment
settlement. Time is also saved through the automation and elimination of tasks such
as depositing cheques and preparing and mailing invoices, as mentioned in the first
point. This then frees up more time for sellers to cater to their customers. With the
faster settlement and increased free time, businesses will be able to provide more
timely and convenient service to their customers when dealing with paymentrelated issues. This is particularly important for dealing with recently made
transactions or solving problems in subscriptions or recurring payments. The
increased speed and convenience will then make customers more comfortable with
their transactions and thus happier with their overall experience. This is vital as
happy clients are likely to retain loyalty and do repeat business, thus increasing
revenue for sellers. (Alzoubi et al.2022)
Enhanced customer experience
In a recent study that analyzed the impact of e-commerce on small and mediumsized enterprises (SMEs), it was found that the internet changed the traditional costincome ratio curve by allowing firms to achieve the same output with fewer costs.
Steady-state income can be achieved earlier in the development of a business as
online selling and marketing is done 24 hours with automation in many areas. The
automation and implementation of e-payment will allow cost reduction and
efficiency, thus making it easier for businesses to achieve the same income at lower
22
costs. This cost reduction then transfers to a decrease in price for goods to the
consumer. In developed economies, it is common to see a surge in consumer prices
despite inflation when firms experience increased costs. Though in the long term,
this switch to e-payment methods will maintain or lower prices due to the
decreased costs to the merchants. (Kilay et al.2022)
With the rise of e-payments as a method of internet-based invoicing, it is expected
that processing costs will reduce due to a decrease in the use of cheques and cash.
The use of e-payment methods is also expected to easily integrate into accounting
systems, thus reducing the manual input and processing of payment information.
Cost reduction and efficiency
. Cost Reduction and Efficiency
It is common knowledge that every business seeks to operate at the lowest possible
cost, trying to secure maximum profitability. This objective is shared by all
businesses, regardless of size or industry. The increased prevalence of e-payments
has allowed this to proceed, as the reduction in cash transactions has led to
increased efficiency and convenience. Technological advances have improved the
functionality of electronic payment systems, with the development and
implementation of EPOS tills in particular proving beneficial to small businesses.
These tills can store vast amounts of data on stock and sales and link directly to an
accounting system, eliminating the need for paper records or manual data entry.
Credit and debit card transactions can also be processed through these systems,
allowing for instant and secure financial record keeping. For any business, time is
money, and this leads to a more important benefit of cash reduction. When
considering the chance to enhance efficiency and thus potentially sales activity, it is
possible through cost savings. Time efficiency can be quantified in various ways,
though all can be linked to cost, and any increase can indirectly lead to decreased
activity as a result of savings. This can range from better utilization of time with
regards to increased revenue generation such as expanding product lines or
enhancing time spent with customers, and can also expand to activities such as
business administration. Cash handling and management is an expense often
overlooked. In a study commissioned by Visa in 2008, it was estimated that handling
cash can cost between 2-3% of turnover for the average small business. Time
efficiency also includes the cutting of time spent dealing with internal and external
theft issues. Staff can be falsely accused or begin to notice cash discrepancies
themselves, all leading to an unhappy workforce and decreased productivity. Staff
and customer theft of cash is also much harder to detect and often goes unreported;
the removal of this issue with cash shrinkage can provide immediate increased
profitability for a business. The residual impact of cost reduction can be reinvested
23
into the businesses, helping to grow the UK economy in these difficult times. This
possibility of increased efficiency and cost reduction has led businesses to bemoan
the costs of the recent rise in VAT, effectively questioning whether the advantages of
decreased cash transactions can lead to any form of tax break. (Josephine2021)
. Enhanced Customer Experience
Introduction
With the migration from a cash economy to a cashless economy, one of the most
profound effects comes in the form of improved customer experience. This takes
many forms, since customer experience is not just one single thing, but a collection
of interactions and impressions that a customer has with a brand. Given the rise in
consumer-to-business digital payment, this paper will focus largely on interactions
between individuals and small businesses, as well as consumer-to-big business
interactions. It is important to consider first the mindset of digital consumers. The
mentality of a consumer is that spending money should be convenient and as
painless as possible. When cash is taken out of the equation, customers are not
limited by funds in their wallet. Electronic transactions allow for easy manipulation
of funds, with those funds existing in a theoretical form until they are realized when
a bill is due. With credit cards or services such as PayPal, funds are not drawn from
the account immediately, thus giving the customer an extended grace period where
they feel as if they have not spent money at all. This alone serves as an incentive to
spend more money. A study by Dunn and Bradstreet found that consumers spend
12-18% more when using credit cards as opposed to cash. This is due to the tangible
nature of cash in that it is visible and finite. Electronic forms of payment also save
time for the reimbursement of services. Consumers often use insurance to pay for
medical expenses, and with the old pen and claim form method, doctors would often
suggest that the patient receive a check from the insurance company to then pay the
doctor. This not only took time, but was an unwanted hassle. Now, with automatic
electronic billing, claims are paid almost instantaneously, saving the headache of
invoices and numerous paper trails. These scenarios represent a very positive
customer experience for the consumer. (Grodzicki and Koulayev, 2021)
. Adaptation and Innovation
Businesses have dealt with the challenge of cash shrinkage by adapting to electronic
payments. In countries such as Sweden, the use of electronic payments directly
correlates with the amount of cash in circulation. The less cash in distribution, the
more it costs to implement. As Sweden is the closest country to becoming cashless,
it is the best example for how cash shrinkage can escalate to ePayment only
function. This has caused businesses to feel pressured to accept ePayments or lose
customers. In the same way that cash has been pushed aside as a form of payment
24
by credit and debit cards, businesses are worried that they will be unable to keep up
with the speed of innovation and lose out on potential sales. This could be a very
real possibility as ePayments continue to become easier with smartphones and new
applications as seen with the recent outbreak of Asia's FeliCa, a way to turn your
phone into a mobile wallet. The high potential for theft with cash is motivation for
businesses to make use of safe electronic methods for storing and transferring
funds. With the onset of plastic and mobile wallet technology, secure storing and
transferring will only continue to improve. Cash-only transactions also greatly
inconvenience the customer who must locate an ATM to visit the store. In an
American-based study, it was found that the average customer carries only about
$20 cash. This sales a loss in business because the customer may forgo the trip to
the ATM and instead spend the $20 at a cashless store. By accepting ePayments, a
business is able to cater to the customer's preferred paying method and capture
sales that would have otherwise been lost. Absence of cash transactions also
simplifies accounting processes. E-payment transactions are already trackable and
logs can be exported for simple importing into accounting software. This is
especially useful for at-home businesses or small business owners who may further
simplify accounting by merging personal and business e-payment accounts. Cash
transactions provide no tracking, require separate cash register reconciliation, and
are susceptible to a high percentage of accounting errors. E-business has much to
gain from cashless transactions. This can be seen with a modern trend toward beta
release of software with initial cashless-only billing. An early adopter of this system
is Blizzard Entertainment who has recently opted to require credit card owners to
pay for World of Warcraft subscriptions through auto-renew ePayment
transactions. This billing method is convenient for both the customer and business
and uses a system where the customer can sign up for the subscription using a free
trial credit card without obligation to sign up for future payment. This is just one
example of how ePayment-only business models are becoming both practical and
efficient. A recent study found that with all factors considered, a cash transaction
costs a business on average 10.3 cents more than a credit card transaction of equal
value. Credit and debit card swipe fees are already known to consume the gap
between interchange fees and fees charged to customers for card services and it is
likely that future pricing competition between various types of ePayment will result
in higher fees for the most costly transactions, possibly debit cards and paper
checks, and lower fees for cheaper electronic transactions. E-Payments are just
more efficient and as the cost difference continues to grow, it will make less and less
sense for a business to accept cash. A tipping point is likely to be reached where
business services or goods of low value will no longer accept cash as it will cost less
money to exclude a small portion of customers than to facilitate their cheap
transactions. High-value goods and services will attempt to persuade customers to
25
use ePayment with cash exchange still being a viable option. This could be
accomplished by added incentive or charging additional fees for cash transactions.
(Armelius et al., 2020)
. Implications for the Economy
On the other side, cash or money as a physical form of transaction can be seen as
standby for individuals using it because of their access to financial products and
services. For example, credit. They will only manage their money to be distributed
into credit and use the credit as a form of transaction. However, the lack of
understanding in using credit can cause a bad impact as they will just use it
alternately from the credit and make double transactions with no clear calculation.
(Saleh and Abu Afifa, 2020)
The rise of e-payment in society has brought a lot of changes to the economy. One of
these changes is financial inclusion, which acts as a two-way street between
individuals or businesses on one hand, and the range of financial products and
services on the other. This enables them to access and progressively move into
according to their needs. They can access and use it in convenient manners. The
result is cash shrinkage, and the implementation of e-payments will bring a positive
impact towards financial inclusion and economic growth in a country. (Nwobu,
2022)
. Financial Inclusion and Economic Growth
There are numerous factors that come into play in assessing financial inclusion - the
degree to which a country's financial system serves the needs of individuals and
firms - and its effect on economic growth. According to the 2017 Global Findex, 69%
of adults worldwide have an account at a bank or with a mobile money provider, up
from 62% in 2014 and just 51% in 2011. This still leaves 1.7 billion adults (or 31%)
without a traditional account, and although great strides have been made in
increasing account ownership in developing countries, there is still ground to be
covered. With e-payments and services increasingly being made available through
mobile phones, financial inclusion will likely grow. E-payments can bypass the need
for a traditional bank account, often at a lower cost, and can be made through a
plethora of alternative financial service providers. This can make it easier and
cheaper for the poor and underprivileged to save, make a payment, or send money,
opening doors to more advanced financial activities and ultimately raising their
standard of living. Measures of financial inclusion are low in developing countries,
but the adoption of digital financial services, particularly by the accountless, could
change this. The causal impact of financial inclusion on economic growth is a tough
one to assess, primarily because of the nebulous nature of "financial inclusion" and
26
the difficulties in gathering data to devise clear correlations. That said, wider access
to financial services carries strong potential in converting economic growth into
poverty reduction. (Simon, 2020)
. Reduced Informal Economy
The informal economy can be defined as economic activity which is neither taxed
nor monitored by a government. This is made up of mostly cash transactions which
are not written down and often go undeclared. With a higher percentage of people
using card and electronic transactions, we are likely to see a decrease in the size of
the informal economy as off the books cash transactions will become more difficult
and expensive. This has two opposing effects on the formal economy. Firstly, it will
increase the size of the formal economy because workers in the informal economy
will be forced to declare their income so that they are able to use electronic payment
methods. This will result in a higher paid labour force and a larger tax base. The
second effect is that a smaller informal economy will lead to more unemployment as
it will be too expensive, for example, in Maidstone, to pay migrant workers cash in
hand to remove them from the UK. This will lead to workers returning to their home
nations and seeking employment there because they will no longer be able to
sustain themselves in countries where the cost of living is high.
Another negative impact on the informal economy will be increased crime rates. As
there will be less undeclared money floating around, the cost and benefit of a life of
crime will decrease. Some will argue that this is a positive thing for the economy
because the unemployed workers from the informal sector will be able to find
employment in different sectors. However, it is inevitable that there will be a net
loss to the economy from this. As it is mostly the unskilled workers from the
informal economy who turn to a life of crime, they will take the skills that they have
and use them in legal sectors adding to the unskilled labour force and driving down
wages for unskilled work across all sectors. This will result in a decrease in
disposable income for the working class and the cycle of consumer borrowing will
continue. (ELMS, 2021)(OGUNBELA et al.2021)
. Monetary Policy and Central Bank Control
Inflation and deflation in the economy can be monitored and potentially controlled
by the central bank. Although a cashless society will not affect the actual rate of
inflation, it will make it easier for the central bank to control inflation. With
electronic figures of all transactions stored on a database, it is possible to monitor
the rate of inflation more accurately than is currently possible with the consumer
price index. The central bank will also be able to control an economy-wide price
level by adjusting the money supply, as a decrease in demand for money could cause
an increase in inflation. But if the price level was increased, the central bank could
27
counter this effect by reducing interest rates to increase consumption and
investment.
Due to the ease and speed with which electronic funds can change hands, the
demand for money falls. Money is not only cash; it is anything that can quickly and
effectively convert into purchases. When the demand for money falls, individuals
will tend to lend or spend excess funds. This will cause interest rates to further
decrease and stimulate investment and spending. An increase in aggregate demand
will cause a movement along the short-run aggregate supply curve but can also shift
the curve to the right if unused resources are brought into production. (Rahayu,
2022)
The interest rate is a significant tool of monetary policy, as it affects spending and
investment in different ways. Lower interest rates will usually promote investment
and spending in the economy, as borrowing money is cheaper. When individuals
move from using cash to using cards, the likelihood that they will make purchases
on credit as opposed to debit is higher. This is because the individual knows that
they will not have to pay the money until a later date, so they would prefer to have
an interest-free loan until that time comes. This, in effect, increases the money
supply.
Challenges and Risks
Technological infrastructure is said to be the most important factor in determining
the success of e-payments because new payment methods are dependent on the
availability of a reliable and secure system for funds transfers. This includes access
to the internet which at the moment does not exist in some places, including rural
areas. The impact is twofold with the youth demographic in rural areas migrating to
the city because they are too used to e-banking. It was noted that the e-payment
activity was higher among urban youth that was also multivariate of their income
level. Rural Malaysians may miss out on the effectiveness and convenience of epayments, and excessive migration may escalate social problems. The availability of
mobile devices is another factor, especially for e-wallets, which need a mobile
application that acts as the front end for consumers. To encourage the use of epayments, merchants should consider giving discounts for payments made using ewallet to encourage usage. However, offering various pricing for the same product
may create price discrimination and at worst fragment a society into e-payment
'haves' and 'have-nots', and the e-wallet applications being targeted at different
income groups may further reinforce societal stratification. Step of one sizable epayment success may also lead to foreign e-payment companies offering their
services in Malaysia. While the access to alternative services will be good for the
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people, having different forms of e-payment may be confusing, and most foreign epayment services are not suitable to be used for remittance. This could tempt
foreigners in Malaysia to send and maintain their funds using the foreign e-payment
services, and e-money usually being non-fungible and traceable may lead to leakage
of national income when they transfer the funds back to their country of origin. This
would pose a risk to national income. E-money, which is also moved on a borderless
basis, has the potential to impact currency exchange rates with the possibility of emoney speculation and affect the Central Bank's management of monetary and
exchange rate policies. Lastly, the availability of e-banking will have wide
implications on credit markets. Reduced usage of cheques will encourage banks to
reduce cheque processing facilities and thus reduce payment for cheques, which will
lead to a fall in cheque activity, which is a method for obtaining credit by delaying
deposit. This could cause credit and loan markets to become further integrated with
funds markets and, in the very long term, has the potential to reduce credit
availability for lower-income groups. It may also lead to a cashless society scenario
where a bank discontinues cash a cash deposit and withdrawal facility. (Che Nawi et
al., 2022)
The growing trend of e-payments could put the proper functioning of the payment
system at risk should it prove impossible to operate a mixed system where there is
widespread use of both cash and cashless payment. The central bank in the country
must be prepared to adapt and upgrade its payment system using the latest
technology. It must also provide efficient and reliable technology-based payment
services so that the society is not fragmented with the shift to e-payments, excluding
certain groups of people. This is to ensure the payment system remains inclusive
and made accessible to all members of the public. A major risk here is the change in
behavior pattern of the consumer, where a successful campaign to change the
mindset of the people and get them using e-payments might lead to an overspend by
certain individuals due to the perception of e-money as unlimited.
. Technological Infrastructure
The technological infrastructure for e-payments involves a complex system that
links together individuals, businesses, financial institutions, and payment service
providers, and the enabling platforms without which e-payments would not be
possible. The technological infrastructure for e-payment adoption is still at an early
stage of development and differs between regions and countries, but in general, it
requires a reliable and secure telecommunications network, secure online systems
for banks and other financial institutions, electronic cards, and a system for their
authentication, the internet and e-commerce systems, and a legal infrastructure to
support electronic transactions. Telephone banking and e-cards are a form of e29
payment and are supported by the use of credit or debit cards and a PIN number
and an internet service to authenticate the card. Despite the popularity of credit and
debit cards, the primary enabler for e-payments that poses the greatest future
potential is the internet because of its ability to link vast numbers of consumers and
sellers in a global marketplace. This development has been furthered by the rise of
mobile phones and smartphones that allow individuals to make e-payments or
person-to-person payments from any location with the added benefit of mobility.
The recent media trend towards the development of a 'cashless society' with
electronic money as the primary form of currency suggests that e-payment adoption
will continue to increase and the use of traditional cash payments will decline. An
example is that recent COVID-19 lockdowns and quarantines have resulted in
several businesses banning the use of cash for payment over fears of virus
transmission and a shift from traditional to electronic payments.
. Cybersecurity and Data Privacy
Concerns about the security of online banking and payment systems are already
influencing consumer payment choices. In a recent survey undertaken by the
Australian Payments Clearing Association, security was ranked as the most
important attribute of payment methods, and the use of cash for online purchases
was increasing, despite a decrease in overall cash usage. Measures to mitigate the
risk of cyber attacks will likely involve increased investment in security
technologies, and the costs of such measures may serve to make electronic
payments relatively more expensive than is currently anticipated. High costs and the
possible inconvenience of compromised system usability may stall further
migration to electronic payments by consumers and merchants. (Świecka et
al.2021)
Data security is a significant risk for societies evolving towards electronic payments.
A shift from paper to electronic payment methods increases the scope and
complexity of networks required to support such payments. The interconnection of
these networks and the use of open networks such as the internet increase the
likelihood of penetration by an unauthorized party. Computer hacking, the
deliberate unauthorized access to or alteration of computer systems, is a growing
practice and poses a distinct threat to electronic payments. Hackers may seek to
alter data, redirect payments, or misuse sensitive consumer information, resulting
in financial loss for payment system participants. The risk of cyber attacks also
increases the potential for large-scale and widespread fraud on electronic payment
systems. The near-instant transfer of funds, the use of irrevocable payment types
such as e-cheques, and the global nature of some payment systems make it difficult
to detect and counter fraudulent activity.
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. Digital Divide and Inequality
The rapid shift towards a digital economy leaves certain demographics behind due
to lack of access and knowledge. As transactions become increasingly electronic,
those who are not familiar with the internet or do not have access become further
marginalized. Studies show that those with low income and lower education are less
likely to use the internet or have access to it, indicating that the further we move
into an electronic age, the more we leave behind the less fortunate. The transition to
plastic and electronic currencies could pose a problem for the elderly as well. Older
citizens show a preference for cash and it has become so integrated into their daily
lives that many do not use checks or debit cards. A study in the United States
showed that while the 18-24 year olds make an average of 24 electronic
transactions a month, the 55+ age group make 8. These elderly individuals often rely
on fixed incomes in the form of pensions which are also becoming electronically
distributed. Failure to adapt to these new methods may leave the elderly with no
viable way to pay for goods and services. Step back from the global level and there
are still problems for the rural populations of many developed countries. Internet
access is far from universal in areas such as rural America and its cost can be
prohibitive for some. E-payment also requires reliable access to banking services,
something which is disappearing in rural areas of many developed nations as banks
close branches in order to cut costs. Failure to address these issues could mean that
the most vulnerable in society are at risk of being further marginalized from
economic participation. (Cullinan et al.2021)(Azubuike et al.2021)
. Government Regulations and Policies
Furthermore, greater protection for consumers is also necessary to encourage
greater use of e-payments. As credit and debit cards are the most common form of
e-payment, laws pertaining to consumer protection must also include the protection
of credit and debtors. Credit cards are essentially credit facilities provided by the
card issuer to the cardholder. A credit card transaction requires the card issuer to
pay the merchant for the goods or services on behalf of the cardholder. A debit card
is a payment instruction from a bank customer to a bank to transfer money from his
bank account to a third party. In Malaysia, credit cards, charge cards, and deferred
debit cards are regulated by the Central Bank under the laws of the Card Act 1984,
which provides guidelines for the operation of credit cards and card associations.
This includes the requirement for a license to operate a credit card scheme or
business and the setting up of a Credit Card and Charge Card Council. It is essential
for laws to ensure that consumer protection rights are extended to new e-payment
alternatives to credit and debit using similar laws that have been put in place for
credit and debit cards. Failure to provide adequate protection may result in card
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consumers continuing their use of traditional cards instead of migrating to new epayment alternatives. (Alhusban et al.2021)
Government regulations can play a significant role in determining the success and
impact of e-payments. The legal framework for e-payments would have a direct
impact. For instance, in Malaysia, the enactment of the Electronic Commerce Act and
the Digital Signature Act in 1998, and the more recent enactment of the Consumer
Protection Act 1999, have provided the necessary legal infrastructure to facilitate epayments. Also, the enactment of the Payment System Act in 2003 was to provide
for the regulation and supervision of payment systems in Malaysia with the
objective of ensuring the safety and efficiency of the payment systems. These laws
were implemented with the intention of increasing public confidence in e-payments
and to provide adequate protection for consumers.
. Legal Framework for E-Payments
Both the FSA and IFSA were developed to provide better protection for consumers
and payment system participants and to promote the integrity and efficiency of the
payment system. Under section 124 of the FSA, Bank Negara Malaysia (BNM) is
given the power to oversee and enforce the provisions of the act within the context
of promoting a sound financial structure and to ensure BNM is consulted by the
other authorities given the enforcement powers for any regulations and orders
made under the FSA. Coming under the administration of the regulatory provisions
and orders, BNM can make regulations and orders for the maintenance of payment
systems or the provision of payment instruments and has the power to designate a
payment system or payment instrument. This is the same as what's in IFSA, except
for the consultation part.
Under section 2 of the FSA, e-payment is referred to as a 'designated payment
service' which includes the issuance of payment instruments and acquiring payment
transactions. Although simple and not elaborative, this definition seems to cover a
wide range of e-payment activities. Hence, it can be said that e-payment activities
are regulated under the FSA from the perspective of payment systems. The FSA is
the first legislation in Malaysia to have provisions concerning payment systems and
payment instruments. As for IFSA, it has the same provisions as the FSA, but IFSA is
only applicable to Islamic financial institutions.
In terms of the legal framework for e-payments in Malaysia, e-payment is regulated
by the Financial Services Act 2013 (FSA) and the Islamic Financial Services Act 2013
(IFSA). Both the FSA and IFSA were enforced on 30 June 2013. However, the Money
Services Business Act 2011 (MSBA) and the Exchange Control Act 1953 have some
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provisions concerning e-payment which are still relevant until the development of
the regulatory framework for e-payment.
Consumer Protection and Rights
Privacy Disclosure legislations such as the US Gramm-Leach-Bliley Act and the
European Data Protection Directive and a directive by the Australian Privacy
Commissioner on Electronic Payment Systems require that e-payment systems have
to follow clear privacy policies and practices that describe how personal
information is collected and how it is used and disclosed. Failure to comply with
these will result in the loss of consumer confidence in the e-payment system. This
would be a loss of consumer rights, as consumers will shy away from doing
transactions because they doubt the credibility of the e-payment system provider.
Failure to comply constitutes deceptive trade practices.
A refund policy is extremely important for consumers since there is a risk of
dissatisfaction when he does not have the good in his hands. Under the existing
laws, most transactions by e-payment for goods (no matter new or second hand) are
covered by implied terms and consumer guarantees under Part V of the Sale of
Goods Act (Cap 393), which indicate that the product must be fit for its known
purpose, of merchantable quality, and must meet the consumer's expectations
among others. Failure to do so entitles the consumer to a full refund. The current
absence of a clear universal rule and practice on e-payment transactions has led to
varied refund policies, where some are very consumer-friendly, others tend to be
restrictive and specific to save costs on possible refunds. This is consumer
protection at the crossroads, and it is important for the future of e-payment systems
to ensure that it accommodates a consumer-friendly refund policy.
Consumer rights are important elements in ensuring fair play in commercial
transactions and fostering consumer satisfaction and confidence. E-payment
systems have to ensure that various existing consumer rights are preserved, due to
the fact that there are various cons with the pro of cashless transactions. E-payment
system providers should provide clear information to consumers on terms and
conditions including the description of the goods or services, the price, the delivery
arrangements, the refund policy, and the privacy policy. This information has to be
disclosed before a transaction takes place and has to be clear and understandable.
Failure to comply with this will lead to a fallback to traditional shopping methods.
. Collaborations and Partnerships
Partnerships between the public and private sector will also play a significant role in
shaping the future payment system. Governments have an interest in improving the
payment system to bring about cost savings and greater efficiency, increased safety
33
and security, and expanding access to the formal financial system, especially to the
unbanked. This interest is usually driven by the potential economic benefits and
social welfare gains resulting from a payment system that functions well and is
more inclusive. In some cases, the government's desired outcomes for payment
system improvement are best met by the private sector, and as such, there is
increasing outsourcing of payment system operation and the use of industry selfregulation and standards setting. In other situations, it may be more appropriate for
the public sector to be directly involved in the provision of certain payment system
services. An example would be the disbursement of social benefits to the elderly and
disabled. In both cases, cooperation between the public and private sector is crucial,
and there needs to be a clear understanding of respective roles and accountabilities.
In recent years, many countries have seen joint initiatives between various payment
service providers (PSPs) to develop shared infrastructure, standards, and common
payment solutions aimed at benefiting individuals, businesses, and governments.
One well-known example is the creation of the Single Euro Payments Area (SEPA),
which is an ambitious payments integration initiative involving countries within the
European Union and also non-EU countries. Several global and regional bank card
alliances are other examples of the private sector coming together to improve
payment systems and reduce the use of cash. While some of these collaborative
efforts are driven by profit motives and remain proprietary in nature, others are
open-loop and competitive but still involve in setting common rules and standards
that benefit the payments industry and end-users. Easier said than done, achieving
meaningful collaboration and union across different payment systems and various
industry stakeholders can be a challenging and protracted process.
. International Perspectives
In recent times, there has been substantial growth in the use of non-cash payments
around the globe. Cashless payments have grown at an average of 7.1 percent
annually since 2000, increasing in volume from 216 billion to 388 billion in 2008.
Projections show that by 2012, global non-cash transactions will have reached 333
billion. Accelerating this trend are advanced e-payment systems and new banking
services that are helping to extend the benefits of the formal financial sector to more
people, in domestic markets as well as in cross-border trade and finance. This, in
turn, is likely to lead to a positive impact for individuals. Broader access to the
benefits of non-cash transactions can provide consumers with financial inclusion
and the ability to save, make payments, access credit, and manage risk more reliably
and effectively. Meanwhile, businesses will benefit from the expanded use of epayment systems through lower costs and improved efficiency in making and
receiving payments that are expected to lead to greater investment and trade.
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Domestically, the main driver of cash to e-payment substitution has been the
development of new payment products and services that provide greater security,
reliability, and overall value to end-users. Governments and the private sector have
worked to create competitively competitive payment systems that offer a range of
cost-effective options for making payments, and in ensuring the development and
use of efficient payment methods are able to further its activities in setting policy
interest rates and implementing monetary policy. Finally, the increased use of noncash transactions in international markets represents a portion of an ongoing trend
in which economic activity is becoming less dependent on the physical exchange of
currency. This has recently been demonstrated by the greater use of e-payments to
settle transactions in global capital markets and highlights the impetus for G30
countries to take measures to reduce barriers to non-cash transactions in order to
fully realize the benefits that payment system improvements can deliver.
. Global Trends in E-Payments
The actual infrastructure of payment systems varies significantly between
developed and developing countries. With developed countries already having wellestablished systems in place, the focus of e-payment methods is more towards
convenience and security for consumers. On the other hand, developing countries
are looking to improve and replace their current cash payment systems. This is a
costly and time-consuming process as it requires building a new payment system
from scratch. The decided method is usually to skip building a paper-based system
altogether and starting with an e-payment system.
A more recent development for consumers to make payments is through the use of
mobile phones. In Asia, e-payments have moved directly from cash to mobile
phones, skipping credit and debit cards altogether. This method allows easier
payments for online purchases and has the added advantage of being able to send
money securely to friends and family. An example is with the Philippines and the
adoption of Gcash, an e-payment service which allows its users to send money over
text messages.
In the last few years, the number of non-cash payments worldwide has increased
significantly. As a global trend, developed and developing countries alike are seeing
the rise of e-payments while the usage of cash and checks is reducing. The main
driving force behind this trend is the advances in technology and growing number of
internet users. In developed countries, the popularity of credit and debit cards
combined with the internet has led to a well-established e-commerce market. In
comparison, developing countries are major users of prepaid cards as it provides a
safer alternative to keeping and sending cash. This is especially important in areas
that may suffer from political instability, take Zimbabwe for an example.
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1.2.1. The E-Payments Revolution
. Cross-Border Transactions and Remittances
E-money and mobile phone services are still at an early stage for cross-border
remittances but have the potential to provide low-cost P2P transfers in remote
places that lack physical infrastructure for existing money transfer services.
Internet banking and bill payment services have also made progress for small-value
cross-border transactions as consumers are becoming increasingly comfortable
with using these services to pay utilities and other bills in the home country.
Another method gaining popularity for cross-border remittances is stored value
card products. These are essentially electronic wallets that can store funds in
multiple currencies and have co-branded affiliations with major card networks like
Visa or MasterCard. Transfers can take place between cardholders, and the sender
can reload value to the card at any time.
The rise of e-payments has had a diverse impact on cross-border transactions and
remittances. Developments in e-banking services, especially internet banking and
the availability of mobile phone services, have provided consumers with low-cost
integrated solutions for cross-border transactions. Medium to large-value crossborder transactions are taking place increasingly through online money transfers
and foreign currency payments facilitated by specialized FX brokers or online
services provided by commercial banks. This is because consumers have better
access to real-time information on exchange rates, and low-cost online services can
offer tighter spreads on rates compared to foreign exchange transactions carried out
at bank branches.
An important characteristic of remittances is that the sender generally wants to
convert the money to the local currency at the best possible rate and get the highest
value for the funds sent.
Cross-border transactions are relatively complex and involve the movement of
funds in various forms like foreign direct investment (FDI), foreign portfolio
investment, or simply speculative flows of money in foreign exchange markets. On
the other hand, remittances are quite straightforward and are usually person-toperson (P2P) money transfers where a migrant worker is the 'sender' and the funds
are expected to benefit a recipient in the home country. The person sending the
money generally uses commercial bank wire or banking services or money transfer
companies like Western Union or Euronet. The funds can be received by the
recipient in cash or directly credited to an account.
36
Cross-border transactions and remittances typically go hand in hand since both
involve the movement of money in and out of different countries. Remittances are
transfers of money by foreign workers to their home countries. Cross-border
transactions and remittance activities have grown significantly over the past few
years and are supported by easily available retail cross-border payment services.
. Harmonization of Standards and Regulations
Another aspect is the protection of consumer rights, where each country would have
differing laws that affect the protection of the consumer concerning relative issues.
An agreement of a standard can be seen as a positive for any consumer as they will
have more concrete awareness and rights if something were to go wrong in a
transaction. An example would be the Japanese commonly use of the 'Furikomi' or
the 'Bank Transfer' for the transaction of money in relation to the extremely rare
use of the same action in Australia. This would give Japanese consumers doing
transactions with Australians the right to know that it is different from what they
are usually doing and also a certain right to inquire what would happen if the money
were to be refunded.
Currently, in terms of e-payments, varying standards and regulations would lead to
a minefield of uncertainty with the risk of legal implications and extra cost for
accidental mistakes made in the business of transacting e-payments. When the
mistake might not be the fault of the person actually doing the transaction, it is still
possible that a right action could turn out to be wrong due to the difference in
regulation and standards concerning the rule of law. An example would be with the
EU and USA, where a businessman from the EU doing a business transaction with
another businessman from the USA might get taxed for sending the money, whereas
in the USA, the same action won't get taxed due to a difference in regulation of how
one defines the taxation of sending money. This action would leave both parties
confused, and the businessman from the EU might have paid more than he should
have. This can be countered by the formal agreement of directly involving the
harmonization of a specific regulation, in this case, the taxation of sending money.
It is important to realize that the world has different cultures and history that has
led to different practices and regulations towards finance. Harmonization of
standards and regulations could potentially bring about huge benefits in terms of
ease of understanding, actual doing of transactions, and certainty in the levels of
legality concerning e-payments. It is strongly agreed that these mentioned factors
regarding e-payments will be further enhanced by the globalization of economies
and the further propagation of the internet.
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. Case Studies
In the case of Sweden, there has been comprehensive statistical research, including
approximation of the accumulated social costs and benefits of abandoning cash. This
research included computer-simulated predictions of the future effects of changes in
payment patterns. These studies have continued to actively use the notion of
building a welfare state through the use of cashless social security benefits, a
method of reducing state payments. An increase in the number of consumers using
cards instead of cash was viewed as a cost-curbing measure. The increase in card
usage would result in increased transactions and would make it possible for banks
to gain larger profits through a change in interest prices between the Riksbank and
commercial banks. This increase in profits and taxes on card transactions would
lead to approximately equal the revenue loss of previous taxes on salaries and
pension benefits. A recent study is an investigation into the eventual denigration of
cash and where offering cash as a payment would incur taxes.
Sudan has suffered repeated economic and political crises. In the past, a slump in
the economy led to a deterioration in the social welfare system. Sudan decided to
modernize its infrastructure, especially in the social security and employment
systems, using the computerization of accounting systems as a starting point. The
Sudan Ministry of Labor anticipated that as benefits were to be doled out through
banking systems, there would be a decrease in the number of persons claiming
benefits fraudulently. A bank system was adopted for the payment of
unemployment benefits and welfare benefits in 1983 and proved to significantly
reduce the number of ghost recipients, making it possible to effectuate substantial
savings. At the same time, the banking industry benefited from an influx of largescale funds. Measures for unemployment relief, such as relief employment creation,
were also carried out through the use of banking systems since it was viewed as a
temporary transfer to low-income workers in the public sector. A simulated
experiment in transferring relief employment creation wages into accounts was
conducted and proved to allow for feasibly carry this out through the use of cash
cards. This would then bring about an increase in the number of people at the lower
end of the wage distribution to use banking services.
. Successful Implementation of E-Payment Systems
This section examines what organisations have done to successfully implement epayment systems. It is based on case studies involving seven organisations in
Europe, South Africa, Australia, and USA. The case studies were developed from
information gathered from 2001-2003. During this time frame, a series of
interviews were conducted with the intention of identifying which business-tobusiness e-commerce enablers and inhibitors were most critical and how
38
enablement could be facilitated. The studies seek to identify the key lessons learned
from the research and provide insight into this evolving commerce environment.
The results of this study were used to discover how e-payment systems can be used
as an enabler to e-commerce between businesses and with consumers, therefore
facilitating the growth of the electronic economy. Three of the organisations studied
had successfully implemented e-payment systems and are detailed in the sections
that follow. (Lai et al.2023)
. Lessons Learned from Failed Initiatives
In Canada, proposed initiatives at the time of the NPP were considered essentially IT
implementation measures. Although the Canadian payments industry had done
substantial work by laying the foundation for a new payments system through the
creation of the Canadian Payments Association (1996) and the subsequent passing
of the Canadian Payments Act (2001), this included significant payments system
legislation changes, a necessary condition for a successful payments system change.
Despite these measures, various reports on the Canadian payments system show
that there has been no identified public or private sector organization that would
take onus for changing the future of the Canadian payments system. This inaction
has cost Canada dearly as it has a highly developed and efficient 1970s payments
system with no developments since. High-quality education in existing payments
systems would show that sunk costs and efficiency in certain payments systems
components can actually be detrimental to the economy if left for too long. This is
due to increasing opportunity costs as the payments industry modernizes itself, as
well as potential efficiency losses if sunk costs are so great that there is reluctance to
switch to new payment methods.
The UK is possibly the most prominent case in recent years. A National Payments
Plan (NPP) was launched in 2000 with the key goal of creating a modern, costeffective, and innovative payments system to support the needs of UK businesses as
well as individual consumers. To the credit of the UK payments industry and the
Bank of England, the plan did succeed in substantially modernizing UK payment
systems. The restructuring of payment system boards was designed to encourage
competitiveness, innovation, and investment in payment system infrastructure. A
key outcome was the implementation of the Faster Payments Service implemented
in 2007, which was a world-class real-time payment system at its inception. Despite
these significant initiatives, there are increased indications that the cash mode of UK
retail payments is not declining in abundance as in other countries that have not
implemented e-payment systems. The UK appears to be at similar levels of cash
payments that have plateaued between 2005-09 at around 9 billion transactions per
annum. More notably, there will likely be a net increase in ATM withdrawals during
39
the transition of polymer banknote introduction between 2016-2020. This contrasts
the withdrawal of cash as a net 17 billion GBP between 2004 and 2014 to support
growth in the use of cash (35% increase in value) over the same period. The UK cash
cycle also explains that cash payment and availability are more common among
lower-income and small business consumers. Failure of the NPP to migrate paperbased payment users to more cost-effective electronic alternatives is significant as
these users transfer the relative costs and time inefficiency of paper-based payment
to e-payment and are likely conducting "dual mode" payments. This, of course, has
led to an increase in cash and cheque imaging and clearing costs compared to epayment alternatives. The overall reasons for failure to convert paper-based
payment users are not clear-cut; however, certain implementation flaws and
macroeconomic influences can be determined as discussed below in the case studies
of other countries.
Despite the forecasts and the bottom-line economic contribution of a reduced cash
mode of retail payment, there are several instances where expected benefits of epayments have not materialized in a move away from paper-based payment.
Case Studies: Lessons Learned from Failed Initiatives
. Future Outlook
The digital age has been changing the way the world conducts businesses and
transactions. Transaction consolidation has been taking place in recent years and
has become a trend that everyone is moving towards. In Singapore, the largest
banks have come together in a consortium and have created an automated interbank payment system in which all of them are connected, enabling fast and efficient
fund transfers. This system can also integrate with a company's in-house system,
allowing straight-through processing from the company to the bank and vice versa.
It is proven that using this electronic payment can help businesses save man-hours
and costs as they outsource less to banks to do fund transfers and payroll
processing. This technology has been translated into something simpler called GIRO.
MNCs and government organizations are using GIRO to disburse payroll and several
other types of payments, e.g. refunds, government payouts, etc. This shift in
technology has made it increasingly tough for businesses to continue holding on to
these allowances in cash as the transactions are less tangible and are being done
through clearing of bank accounts. This is only the beginning, with several other
systems in place or in the pipeline, businesses are slowly being forced to go cashless.
An example would be in the F&B industry where fast food chains and restaurants
are implementing stored value cards as a mode of payment. This mode of payment
is also extendable to all forms of public transport. This will, in turn, generate more
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active use of e-banking payment systems, something which has been less utilized by
the population. All of these technology shifts and new innovations will result in
shrinking the cash-based economy. Again, the movement for this shift is largely
driven by the efficiency of processing and cost savings. With trade having a direct
impact on the e-payments, it becomes the gateway to all transactions, big or small. It
is expected that changes to payment clearance to only certain modes or integration
to foreign payment systems will lead to elections of e-payment modes which are
more universally accepted. The future of e-payments is parallel. An equivalent is
made in the e-world for anything that was done with cash. This then leads to a
global society. E-payments are transcendent; they are not an isolated system of
trading. This level of trade will be the future face of transactions. E-payments have
proved to rival cash transactions while offering added security and increased
efficiency. This is appealing and will lead to a cashless economy in the long run. With
regard to the government's urging, Cashcard top-ups can now only be done via
internet bookings! This impels the use of the card by making it the only means for
certain transactions. This is happening all over the world with companies such as
Visa, who are limiting acceptance of certain cards that are not their own. Visa
predicts that by 2012, cash will be used in mere three transactions a week. The
private and public sectors will also align as hospitals and healthcare provision are
looking for new ways to bill patients, and insurance companies are encouraging
payments that have a digital trail.
Emerging technologies and innovations
. Emerging Technologies and Innovations
By implementing this development, it will make it much easier for world consumers
to conduct an economic transfer with only internet access. Besides that, these
payment gateways tend to lower the cost and time. This is because when wire
transfer is done through a local bank, it usually takes a longer time and higher cost,
especially towards international consumers due to the source currency and
destination currency involved in it. With e-payment, virtual trading or shopping can
be done with only an instant electronic-economic transfer. This is really promising
as there are high probabilities that cash shrinkage will accelerate to the phase
where cash will be considered inconvenient, high risk, and not cost-effective in
doing a transaction. This development possesses a high probability to make the
future generation only consider it as the e-payment generation.
The realization of this matter has led popular credit card companies such as Visa
International to show proof of support by announcing that Malaysia is the first
country in Southeast Asia to test a platform developed by Visa International that
enables transactions using mobile phones, PDAs, and other handheld devices. A
41
local bank such as Public Bank Berhad has taken the lead by signing a Memorandum
of Understanding with Maxis Communications Berhad to collaborate in a strategic
alliance towards becoming one of the leading providers for financial and
stockbroking services, using wireless technology. This initiative included an
agreement to jointly market an electronic payment gateway and to explore the
development of mobile banking services for Public Bank customers.
The emerging information age possesses progressive scientific and technical
knowledge. One of the most promising innovative products is the e-payment
technologies. E-payment has become one of the focuses worldwide on the
development of digital cash and e-wallet. This is due to the popularity of using the
internet as a means for global information sharing, trade, and business.
. Potential Disruptions and Transformations
Another possible result of the decline of cash is the overhaul of the way in which
certain welfare is dispersed. In the UK, there has been a movement for a more
electronic form of payment of benefits. Allegedly, this move has been made to bring
the social security payment system into the modern age. The government has been
accused of using this method to provide systematic savings upon payment out to the
most disadvantaged members of society. The decline of cash may also leave many
old and disabled people vulnerable, considering that their regular carers or cleaners
may no longer accept cash-in-hand payment. Ironing out this issue may involve
further expenditure from the state.
The ripple effect caused by cash shrinkage has already given the world a glimpse of
the declined uses of cash in every aspect. Although some of the potential
transformation and disruption may seem farfetched, we consider cash shrinkage as
the tipping point of further electronic and non-cash payments and will use it as the
baseline for the following scenarios. As cash declines further as a general medium
for transactions, there will be less usage and less money generated from its usage.
This will effectively cause a decline in revenue from taxes generated from cash
transactions, which may result in governments considering other forms of taxation
to ensure they receive sufficient income. The decline in cash transactions will also
cause cash-in-transit companies to rethink strategies and could even damage the
economy; there may be an increase in unemployment for unskilled workers. Sweden
has already seen a major decline in demand for banknotes and change, with the
estimated cost for handling cash being 80% of retail companies' profits from cash
transactions. If this were to become a common scenario throughout the world, cashin-transit companies will see a major decline in their services.
42
Businesses rely on cash because it allows for cheaper prices on products as there
are no intermediaries involved between banks and there is immediate settlement of
transactions. Cash is a low-cost and widely accepted form of payment which is
useful for making small value payments and paying for goods and services in
underdeveloped countries. E-payment is a quick and easy method that has been
made possible via technological advances. It is estimated that 1.6 billion people
worldwide will use m-payment services by 2014. M-payment services allow those
who do not have access to a bank account to send and receive money, or pay for
goods and services. This is much faster and more secure than sending money in an
envelope by mail. E-payment allows easier management of personal finances and
reduces the risks of handling cash for businesses. The impact of e-payment in
developed and developing countries is significant and will have long-run effects.
In any case, cash remains an essential form of payment and will still be used in the
years to come. There are arguments that the cost of cash transactions is higher than
e-payment due to storage and handling, including interest costs on cash holdings
and activity related to preparing, moving, and then settling cash. However, these
costs are very difficult to quantify. Cash allows low-income individuals to maintain
independence in budgeting and spending money because it is tangible. The
anonymity of cash is preferred by some consumers who do not want every
transaction they make to be recorded.
It is fair to say that cash is a significant part in everybody's day to day life and it has
consequences. It is very easy to see and handle, and it provides an accurate record of
transactions. Small businesses have a greater opportunity for theft when handling
cash. However, the rise of e-payments has provided a new and improved form of
payment. Consumers believe that e-payment is a safer method. It offers a two-way
flow of information between merchants and consumers and allows easier
verification of payment. It is more convenient for consumers as they no longer need
to carry around wallets full of cash, but instead a card.
43
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