Who benefits from expansion of cashless payments in Ukraine?

Author : Mykyta Sinitsyn

Source : 112 Ukraine

In September, the real buzz among Ukrainian small and medium-sized entrepreneurs was caused by the expansion of the cash registers operations, as well as the introduction of an electronic check. After serious outrage, the bill was adopted in a somewhat softened form, but, as it turned out, its adoption will lead to unusual consequences for business
21:33, 25 November 2019

Open source

Cash not only from the ATM

On November 15, a message appeared on the National Bank website on the development of a draft resolution introducing changes to the procedure for cash transactions in hryvnias in the country.

According to the document of the bankers, it is proposed to give the holders of electronic means of payment, primarily bank payment cards, the opportunity to receive cash at the cash desks of trade, catering and service points that have registered PTRs (payment transaction registrars).

That is, the owners of bank cards will be able not only to habitually pay by bank transfer through the terminal, but also receive cash from it.

The National Bank explains that this innovation, in fact, is a consequence of Law No. 128-IX, which introduced changes in the procedure for the use of PTRs in trade, public catering and services, and should only benefit everyone. The National Bank expects that the application of the regulatory act will reduce the shadow economy, develop the non-cash segment, and increase the competitive environment in the financial and other services market.

Within a month, from November 15 to December 15, those who wish can submit their comments and suggestions regarding the document being prepared.

But what about cashless business?

The document proposed by the National Bank raises a number of questions due to the inconsistency of its main content, the principles developed by the country's central bank for moving away from cash circulation to non-cash, the so-called cashless.

In the analysis of the regulatory act, its drafters indicate that an alternative way to solve the problems the financial system facing is to use the full transition to cashless payments and the introduction of cashless economy. The last term means the introduction of the "electronic equivalent" instead of paper money.

A similar project was launched in Ukraine more than 2 years ago, and in February Oleksandr Yablunivsky, Director of the Payment Systems and Innovative Development National Bank Department, announced its completion. During the experiment, "electronic hryvnias" were issued for employees of the state regulator and interested payment market participants, which allowed a practical assessment of the effect of their implementation.

So the National Bank evaluated the e-hryvnia positively, since it allowed payments to be made instantly, without commissions, from an e-wallet or with a smartphone. The prospects of e-hryvnia were assessed as another possible form of payment along with cash and non-cash payments, with the prospect of the possibility of exchanging it for cash.

The candidate for presidency of Ukraine, Volodymyr Zelensky, spoke about the cashless formula in March 2019. It very successfully fit into the "state in a smartphone" strategy he later announced. However, in Sweden, having started the path to a cashless economy, in 2006 they brought cashless payments to virtually 98-99% of all payments in the country. True, in Ukrainian conditions such a breakthrough looked like sheer fiction.

Related: Laws on cash registers, fines for illegally issued checks passed to president for signing

Nevertheless, the National Bank declares successes in avoiding cash turnover. According to the results of 2018, 36,490 billion UAH (1,5 billion USD) was in cash at the cash desks of Ukrainian banks and 363,629 billion UAH (14,5 billion USD) in cash was in the hands of the population, and by the end of October 2019, the number of cash decreased to 32.376 billion UAH (1,3 billion USD) and 357,761 billion UAH (14,3 billion USD), respectively .

For the first quarter of 2019, 452.5 million non-cash payments were totaling UAH 113,2 billion (4,5 million USD) made through terminals. Also, for the first half of 2019, 85,4 million UAH (3,4 million USD) of electronic money was issued.

In August, the National Bank even promised to reduce the amount of cash to 9.5% of GDP in 2020.

However, it not only promises, but also takes concrete steps for this. So, at the end of October, financial analyst Vasyl Nevmerzhitsky reported on yet another mechanism chosen by the bank to deal with cash circulation.

It was about introducing a commission in the amount of 0.35% of cash received by the state regulator from Ukrainian banks, which would increase the cost of servicing cash, which would encourage banks to go either to cashless payments or to authorized by the National Bank institutions with less tariffs.

Life to become easier for the population and banks

How the National Bank proposed innovation will affect citizens in general is pretty clear: there will be more places where cash can be withdrawn, and theoretically this should be convenient for citizens. But there is a question: how will trade, food and service points react to an innovation that imposes new obligations on them, which is fraught with a loss of time and costs.

Experts interviewed by found in the future regulatory act both positive and negative sides.

Financial expert Borys Kushniruk unequivocally spoke out in favor of the National Bank decision on withdrawing cash at trade, catering or service establishments for bank cards holders.

"What does cash turnover in trade look like today? A person buys goods for cash and leaves them at the cash desk of the store. From the latter, cash is brought to the bank, where it is deposited into the account. The cost of collection and storage of funds for business is about 0.6-2 %. Then the bank takes a part of these funds to ATMs, from where they again enter the trade in the form of cash, "the expert describes the existing cash flow mechanism.

The changes proposed by the NBU, according to Borys Kushniruk, are able to break this circle for the benefit of all and a final reduction in cash turnover, as the National Bank once announced.

“After taking the decision, part of the cash from the store’s cash desk will be taken away by customers, which means that the owner will save on the delivery of fewer cash to the bank. The total number of cash that will be in circulation is also reduced. Here, at first glance, banks lose because they lose income received on the commission for collection and reception of cash, but they also have a gain.

The fact is that the cash that banks load into ATMs for customers does not "work", but simply leave the bank for the needs of customers. Now, when a client receives part of the cash he needs at the cash desk of a store or cafe, banks will be able to deposit less cash in their ATMs, and, for example, give the released funds on credit and make money on it.

Shops will get rid of part of the cash, banks will save part, by issuing non-cash money as a loan. As a result, the total cash supply will decrease, as the National Bank wants it, "- explains the interlocutor.

Related: Zelensky signs law on cash registers, fines for illegally issued checks

Of course, as acknowledged by Borys Kushniruk, in practice it will not be so simple: for example, it will bring some inconvenience to trading when making payments to those who wish to receive cash, but most likely they will do this through the terminals installed in stores so as not to distract the cashier. However, it is obvious that most of the owners of payment cards, desiring to receive cash, as before, will go to an ATM.

Vitaliy Shapran, a member of the National Bank Council, doubts that the decision will fulfill the goal of reducing cash flow, but will undoubtedly play a positive role for the financial sector.

“I don’t think that the innovation will lead to a significant reduction in the amount of cash in circulation. Rather, the initiative is aimed at unloading the banking sector. When your cash goes to the supermarket, it goes a long way before it gets to the population again.

At first, collectors take banknotes from the distribution network, then they go to banks, often go through the cash register, then are transported to branches and ATMs.

All these operations require maintenance - recounting, accounting, protection of storage places and transportation protection. This pleasure is not cheap, part of the expenses is covered by the commission of banks. Therefore, the ability to receive cash not only at banks optimizes cash flow and should improve the comfort of citizens when dealing with payment cards, unloading the banking infrastructure, "the expert describes the upcoming positive effect of the innovation.

The head of the Ukrainian Association of Distribution Network Suppliers Oleksiy Doroshenko is less optimistic about the innovation.

“The need to issue cash will entail additional time, a burden on staff, an increase in its number, a requirement for quality of work, which may increase the risk of an error during some kind of operation on the cash register. The penalty for such an error is at least double, or may exceed it dozens of times, how much will the store benefit from this?

We can talk about a maximum of 1.5-0.5% due to possible savings on cash collection and up to 1% - a commission for withdrawing funds at the cash desk of the store, "the expert cites arithmetic of trading, catering and service industries.

At the same time, according to Doroshenko, part of the business will benefit from the National Bank’s decision.

“It can obviously be in demand in rural stores, where there are far fewer ATMs. I’m sure that some businessmen will also try this offer.  First of all, those who want to try something new or get some competitive advantages.

Conditionally, if you can get more services in some store (even if in the form of withdrawals), most likely you will go there for purchases, which means that its sales will grow. As a result, those who take advantage of this decision and attract customers can strengthen their market position. True, this will take several years and will not be implemented without mistakes, and the risks will grow, "- the expert believes.

Related: Volume of cash transfers to Ukraine from migrant workers may reach $12 bln, - Ukraine’s Ministry of economic development


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