Recently, I’ve come across an article by Kevin McSpadden on the e27 website. In it, McSpadden presents a critical view of Prime Minister Lee Hsien Loong’s emphasis on gearing Singapore towards being a cashless society. The bulk of this entry will deal with the problems that I found in his article, which I’ll discuss later. For now, I must admit that his criticism is almost refreshing.

The Cashless Craze

After all, a large part of the narrative regarding China’s wonderful cashless society is based on its novelty. Videos such as the one below featuring CNN’s Will Ripley are a common sight. They show how great it is that you purchase local fare, pay rent, or hail a cab all through your smartphone.

Elsewhere, such coverage serve to bring out the techno-optimist in us. They provide a glimpse of how technology might advance and be adopted within society. From the perspective of the developed world, this is all the more impressive, considering how China went from the world’s factory to the world’s model of cashless payments in the span of last 20-30 years. From the same view, it is hard not to be envious, at least slightly, such as when author Paul Mozur writes in his article for NYTimes how “Even the buskers were apparently ahead of me.”

McSpadden’s criticism therefore, is refreshing in that it keeps the techno-optimist in its place. In pointing out the potential flaws and problems of transitioning to a cashless society, he challenges us to be critical and self-thinking.

However, this is not to say that we should accept criticism for criticism’s sake. And in the following I’ll be addressing some of my main gripes with McSpadden’s article.

Missing the Point

Firstly, it is worth pointing out how in the article’s introduction McSpadden misses the point on PM Lee’s speech. While he is correct in pointing out that PM Lee advocates for cashless payments, it is not, as McSpadden puts it, “simply because it works in China.” The larger issue concerns the idea of Singapore as a “Smart Nation”. In PM Lee’s speech, this is described as follows:

Smart Nation is about Singapore taking full advantage of IT. Using IT comprehensively to create new jobs, new business opportunities, to make our economy more productive, to make our lives more convenient.

In essence, PM Lee is advocating the most efficient use of technology to improve society. The reference to China is therefore both an ideal as well as a reflection of our own shortcomings. This is as Singapore already has some inklings of a cashless society such as debit/credit cards or mobile payments, but that the lack of uniformity between these systems puts a burden on consumers and businesses, which discourages widespread adoption.   Succinctly, PM Lee summarizes the problem as such:

In Singapore, we too have e-payments, but we have too many different schemes and systems that do not talk to one another. So people have to carry multiple cards, and businesses have to install multiple readers. It is inconvenient for consumers, it is costly for businesses. And the result is, most of us still prefer cash and cheques – 6 in 10 transactions are cash and cheques.

Therefore, as much as PM Lee’s China anecdotes imply otherwise, the deeper message is improving the current payment systems to alleviate its burdens to consumers and business. As PM Lee puts it, “We must simplify and integrate our systems.”

Next, I’ll be looking at McSpadden’s thesis and seeing the strength of his arguments. Cheifly, he is trying to argue the point that Singapore’s push for a cashless society is a “misguided allocation of resources that more directly benefits the wealthy in society and actively harms the poor.” Thanks to the structure of his article, it is easy to see that he has 3 main arguments to back up this thesis, ‘Big data and big banks’, ‘Building an infrastructure for those who can afford it’, and ‘Fixing other problems’.

Direct Benefit to whom?

The first of these, ‘Big data and big banks’ is confusing to me. While McSpadden paints an ominous picture about how increased information about our purchasing habits can influence bank’s lending decisions, it is unclear how this “directly benefits the wealthy in society and actively harms the poor.”

After all, since his main point is that paying for impulsive purchases without cash can negatively impact your borrowing ability in the future, how is the wealthy treated differently from the poor? If a rich person splurges on alcohol and gambling, are banks more willing to lend to them instead of the poor person who does so?

Perhaps it is implied here that a rich person might have assets to which he can borrow against, or that he has the means such that he does not even have to borrow from the bank at all. But these rebuttals are weak, since in either case the advantage is inherent rather than as a result of Singapore going cashless! In other words, it does not show how the wealthy are directly benefited.

Is Big Data inherently bad?

Moreover, it is worthwhile to address McSpadden’s problems with big data with regards to going cashless. He mentions Cathy O’neil’s book, “Weapons of Math Destruction” to bring up the point about the flawed algorithms used by banks. Here is an excerpt from his article below:

However, imagine if the kimchi-soup cook is financially secure or successful previously. In this case, wouldn’t it better for them to hand over their financial data as evidence? How does this argument support his anti-cashless stance? If the kimchi-soup cook really were that fantastic, wouldn’t they want to disprove the prejudices and assumptions within those algorithms? In other words, if algorithms set standards for lending based on data points and you exceed those standards, it is in your best interest to inform the bank, not hide information from them!

Of course, this does not disprove McSpadden’s point about algorithms being flawed. Individuals do and are punished for built in prejudices based on collected data or faulty models. But let’s take a step back and consider why banks use software and algorithms in the first place. Before big data and algorithms, banks would assign a loan officer to parse through your financial data before approving a loan. However, because banks generate interest income based on the size of the loan, it would be much more economical (more income generated per hour spent analyzing client details) to serve bigger clients such as big businesses or wealthy individuals. As a result, banks often turned away small personal or business loans, and loan sharks and payday lenders came to fill the gap.

Consider then how this all changed when banks started using software and algorithms. Because such methods are reliable at making lending decisions and much cheaper than humans (don’t need bonus, wage, insurance, etc), it now made economical sense to serve the smaller loan orders. In other words, big data and algorithms helped the poor. And with the constant improvement in modelling techniques and data sets, companies such as Wealthfront or Advice-Robo have popped up to provide more competition and find better ways to serve middle or lower class clients.

Therefore, the solution to problems such as prejudice in algorithms are not solved by using cash to hide purchasing information but rather by giving over information. Furthermore, while biased algorithms affect lending decisions negatively on the margin, the poor are overall better off due to increased lending access provided by a bank or a robo-lender instead of a loan shark. The best part about software-driven lending and algorithms is that techniques improve and biases can be corrected over time, which provides improved access at lower costs. A true win-win for all.

The infrastructure issue

Having discussed the perils of big data and its impact on lending decisions, McSpadden next pursues the issue of infrastructure.

In my opinion, I find this to be the most pressing in China’s cashless craze. In Paul Mozur’s article, he notes that “it is slowly locking out people unable to get onto those networks.” This refers to the difficulty for tourists or foreign business to open a Chinese bank account and link it to their mobile phones. As a result, tourists still rely on cash, and foreign businesses risk being less competitive (in terms of accepting payments) to their local counterparts.

And indeed, McSpadden is well aware of such “locking out” effects. As he alludes, this will be most detrimental to the poor, as people who do not have access to smartphones and data plans will be unable to participate in any cashless transactions.Furthermore, the locking out also extends to another demographic which McSpadden describes as wanting to “manage their money outside of the DBS/POSB/OCBC bubble.” In China, where most mobile transactions center around Ant Financial, Tencent, and the massively popular WeChat app, this is an understandable concern, particularly if Singapore were to follow a similar model and build the cashless infrastructure around the DBS/POSB/OCBC bubble.

Inclusion, not exclusion

However, while Mozur admits that this is a temporary issue as Alibaba and Tencent continue to expand their cashless infrastructure, can the gap between the phone and the phoneless be bridged? According to data provided by the China Internet Network Information Center (CNNIC), China now has 731 million internet users, with 95%, or 695 million accessing the web through mobile phones.

This data is remarkable as it shows evidence of increasing participation, not isolation, from the Chinese demographic. In fact, the cashless society in China is probably where it is today due to the growing needs of the mobile population. And what about Singapore? Amazingly, the island state boasts the highest rate of smartphone penetration in the world with a blackbox white paper reporting 88% in 2012 and a 2015 survey by Today finding that 9 out of 10 respondents have access to a smartphone. And as more and more people go mobile, such as those in India as Eric Bellman’s article in the Wall Street Journal describes, the narrative of inclusion and benefits from technological advancement will become much stronger.

So what does this mean for McSpadden’s claims? Well, it reveals that those “locked out” are a minority, somewhere around 10% of the population. Furthermore, the CNNIC data show that the phrase “cashless society” is somewhat of a straw man. For while you can live without cash, it is by no means irrelevant, since at least 40% of the nation are still dependent on it; just because a vendor accepts mobile payments doesn’t mean that they won’t accept cash. Crucially, this implies that going cashless is an option, a luxury perhaps, and not the norm. Therefore, for the consumer who is outside of the digital economy, their lives are not anymore or less worse off just because their vendor accepts cashless transactions.

Ultimately, the point is that McSpadden is over emphasizing the detriments to the marginalized. Yes, undoubtedly, there are a myriad of transactions that the consumer would not have access to without a smartphone and mobile payments. However, if you were already out of the loop before, making mobile transactions more ubiquitous is not going to affect you any more or less.

Simplify and Integrate

Lastly, McSpadden’s final point summarizes his article by discussing the other areas where Singapore could focus on instead of pushing the cashless initiative as a top priority. To this end, he mentions areas such as public health, education, and the the country’s ecological footprint.

Firstly, nowhere in his speech did PM Lee call for cashless payments as a “top national priority” (another straw man) as McSpadden suggests. Aside from the topic of cashless transactions, PM Lee discussed other issues including improving pre-school education facilities as well as dealing with the nation’s obesity problem. And even in the section on the “Smart Nation,” PM Lee brought up areas such as better utilizing data for national security or installing parking apps to replace the outdated coupon system.

With regards to the “Smart Nation” discussion however, it is worth reiterating that the focus is ultimately about making better use of technology to improve our lives. China has close to 700 million mobile users and has figured out a way to make a payments system that is cheap and easy to use. Singapore has the highest smartphone penetration rate in the world and a bunch of payments systems including credit/debit, paywave, and mobile, and yet 6 in 10 still use cash and cheques! What does that say about the efficient use of our technology if the infrastructure is in place but most still don’t use it!

It is therefore mind-boggling to me when McSpadden makes the claim that going cashless is “a moderate change in the lives of many people” when Singapore probably hasn’t even experienced anything close. From the retail side, having a payments system using QR codes is multitudes cheaper and easier than installing terminals to accept cards. In fact, you can have customers just scan the code from your phone directly, or print out a copy of it at next to no cost. Any hawker vendor can do this, and even if they don’t or can’t use a phone, their kids can probably aid them in this respect. Heck, even some beggars in China use QR codes to accept donations as Mozur mentions in his article! Talk about helping the poor!

For the consumers, we don’t have to worry about cash, and can likely receive some minor cost savings from retailers. Ideally however, the best case scenario would be one in which an integrated platform emerges where it can support the digital infrastructure of businesses old and new. China has WeChat, Indonesia has GoJek, it shouldn’t be unfathomable for Singapore to adapt to such structures or create our own unique version.

Once more of us adopt, we will be able to receive the real benefits of technology; a digital economy where various products and services can be bought and sold at the touch of a button, a seamless integration of the digital and the physical world.

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