By: Prasad Purushothoman
When the corona virus pandemic restricts the use of physical currency, the number of cashless operations is growing.
Several governments and retailers all over the world took action following a statement recently issued by the World Health Organization which recommended citizens to make cashless transactions against the spread of Covid-19.
Throughout China alone, thousands of banknotes have been destroyed or sanitized to prevent the virus from spreading. South Korea followed suit and, once the Federal Reserve was recirculated back to the economy, it began storing banknotes in the US from Asia.
Most retailers have banned the use of cash in their stores, to keep staff and customers safe. Internet shopping is meanwhile a life-block for those who live only in their homes. Even the toughest are eye-catching.
Necessity over convenience
Digital payments, once born out of convenience, have become a necessity for some. Yes, there might still be a number of people who hoard cash – as is often the case in times of crisis – but others will cease to see the point if they are not able to use physical money to buy essential goods and services. Luckily, we live in a time where much of the infrastructure required to complete an online purchase is already in place. This may not have been possible even ten years ago.
Payment volumes are down across the board and you would agree that the number of digital transactions relative to physical cash transactions is soaring as more and more countries are into lockdown.
"One good thing to come out of this crisis is that I think more and more economies will start going cashless,"
Benefits and challenges
There are plenty of benefits to going cashless: digital payments are convenient and – in current circumstances – are increasingly necessary. More importantly, however, they are a lot cheaper to process than their cash equivalents.
Governments spent millions of dollars to print, store and distribute cash in some countries. The cost would be a fraction if all payments were digital. There is also the argument that digital offers increase financial inclusion, as more and more people are able to open bank accounts online and digitally without ever entering a branch of a physical bank. But it's not all easy to transition from cash to cashless. Online payments seem easy enough, but a system that delays payments and creates bottlenecks still remains un-standardized.
Until technologies are much more commonly used, the fragmentation in the payments space will be another barrier to fully cashless societies. Furthermore – and possibly more importantly in the present context – bank liquidity is essential to the success of a non-cash society, the preservation and use of technologies like artificial intelligence that help institutions to implement and maintain the banking process in the modern world.
AI and Digital banking – post covid-19
The digital banking industry is characterized by a wide range of processes which support large numbers of customer interactions in banking every day and generate large volumes of data. In particular, in areas like fraud detection, prevention, payments and onboarding, there are significant opportunities for AI.
AI may help to prevent and detect fraud through the latter, for instance, if the amount involved is extremely large, or if the transaction was unforeseen or the organization has never transacted previously with the payment company or country. Additionally, AI tools can detect and monitor unusual behaviors in staff, such as logging on to banking systems out of hours.
Payments are also important for use. AI can be used by reducing the extent to which people are required to participate to improve the paging process speed and efficiency. The process of paying a simple invoice today, for example, can include significant human intervention for companies as well as their banks, but AI can facilitate direct processing of payments via automating workflows, supporting decision-making and the application of image recognition to documents. Developments in voice recognition technology also allows companies, where the initiator has a sophisticated smartphone or a smart speaker, to process payments increasingly via voice.
AI is, without doubt, part of cashless and digital banking in the future, but how widespread it will be used is not yet easy to predict. The huge amounts of transaction bank data, interactions, processes and transactions make them suitable for technology applications. With AI, banks gain from enormous data processing skills at low cost, while customers benefit from enhanced safety and customer experience.
Naturally, the extent to which AI's power is realized in digital banking depends upon the organizations' creativity and skills. AI is very much in progress today, but both the banks and their customers will benefit greatly if we can overcome the challenges of using technology. In future, AI will be central to digital banking – we need to be prepared and willing to embrace it in the light of the pandemic as the revolution is coming.
Regulatory compliance is another area where AI is likely to have an impact on transaction banking. The technology could be used to validate customer transactions and penalties, and to identify patterns of illegal activities. Although there is still no evidence that AI is used for this purpose, it will probably happen in the future.
With all the paradox that we face right now: while a viral pandemic lead to the foundation of cashless societies there is no pressure on the banks and AI can help these institutions fast track their transit through this journey.