Cashless warnings still echo after Zimbabwe's EcoCash crash
Zimbabwe's infamous money problems got a whole lot worse last week when EcoCash, the nation's 'mobile money solution' failed for two days, distressing merchants and consumers alike.
One glitch and an entire region are unable to buy water, food or medical supplies for days. Therein lies the danger in an individual or a country relying entirely on non-cash payments.
Econet said the unexpected crash occurred due to a scheduled system upgrade, yet they weren't able to fix the problem for two whole days.
Recently, Visa's network crashed leaving card users and merchants across Europe in awkward, difficult and embarrassing situations when they couldn't settle payments bills for meals that had been consumed or pay for transport costs on their way home. Despite the struggles afflicting their customers that day, the private card company is continuing their discriminatory cashless challenge campaign.
The system failure should be considered a major concern. Nations and individuals each need to keep cash around for backup purposes if their economic situations are to survive the unavoidable technological turbulences plaguing digital payments.
We shouldn’t understate the impact the EcoCash crash has had on Zimbabwe. Shoppers were stranded in supermarkets and other shops for over two days. There’s also a real risk of money being lost from payments being suspended for so long...
Other options have to be available for a nation’s economy to remain viable. For Zimbabwe, it shows that an over-reliance on one private company’s ability to provide a service can have severe consequences for an entire country.
When a nation is in a crisis, people turn to cash. But in this Zim's case, that is easier said than done.
Almost 10 years ago, Zimbabwe gave up its currency in favor of the US dollar in order to combat extreme hyperinflation crippling the country's economy. While this helped stabilize the situation for a while, the past couple of years have witnessed a dramatic shortage of American greenbacks.
In response, the central bank dramatically lowered the cost for electronic transactions. Making the payments landscape irresistible for financial institutions and mobile operators hoping to dominate mobile payment services.
But while internet banking rose dramatically over the past couple years (growing from 168 thousand subscribers in 2016 to 278 thousand in 2017), fostering financial inclusion in a digital world should not mean eliminating cash altogether.
An article published in The Economist last year said it best, 'Zimbabwe is becoming the world’s first cashless economy, but not in a good way.'
“Previously only about 20% of transactions were being done electronically, and the remaining 80% was cash...But by 2017 the surge in electronic transactions saw that share rise to 80%, while cash just accounted for 20% of transactions. It was driven by necessity, there was no other option.”
Harare - Although mobile money has become the leading transaction platform in Zimbabwe, its weaknesses came into focus this week after the dominant EcoCash network in Zimbabwe went down for two days, and left many consumer businesses floundering in an already difficult economy.
EcoCash, which competes against smaller platforms run by state-controlled telecom operators NetOne and Telecel Zimbabwe, has more than eight million registered users in Zimbabwe and allows for remittances from expat Zimbabweans in South Africa and Botswana.
But in the past few days, the EcoCash platform experienced glitches, which Econet blamed on “scheduled maintenance” of the system that powers the platform, with just about all of the service options under EcoCash down, heavily impacting business transactions in Zimbabwe and adding to the country’s ongoing forex and economic difficulties.
Shoppers had been stranded in supermarkets and other stores for over two days, but the situation has since improved. Econet has been at pains to explain that the glitch was caused by a scheduled system upgrade and that it is now back up running. But frustrations have been running high, with social media platforms such as Facebook and Twitter largely giving a window into the raging angst against Econet.
“Customers need to be assured that money stored on their phones electronically is truly liquid and will retain its value,” says Brookings’ Chandy. “If customers get spooked, they may intuitively run back to physical cash.”
Despite its rocky monetary history, the country has seen a momentous and rapid shift into digital transactions, the surprising consequence of a new economic crisis...
The circumstances that have driven Zimbabwe’s fast-paced flight from cash are unusual and unique but reflect the huge growth potential of cash-free transactions in markets across Africa.
There is, however, still a long way to go before many of these markets become cash-light let alone cash-free.
- Stems back to rampant inflation, which killed off the old Zimbabwean dollar in 2009
- The US dollar and South African rand became the main currencies in daily use
- In order to stop US dollar notes leaving the country, leading to the cash shortage, local "bond notes" were introduced in 2016
- Bond notes were intended to replace dollar notes
- They were meant to be pegged to the US dollar but $1 usually exchanges for between 1.20 and 1.50 bond notes
- Because of a fear of inflation people do not like to hang on to bond notes for long - and prefer US dollars or EcoCash, a mobile phone payment system
- Banks now only issue businesses with US dollars