As Jamaica seeks to take advantage of the opportunities in the digital economy, the use of a mobile payment gateway is a major part of the process. Mobile payment (m-payment) can be defined as any type of payment that is processed using a mobile device to initiate, confirm and authorize an exchange for goods or services. Using these virtual/digital currencies is convenient as it takes the hassle out of transactional businesses and facilitates payments on the go.
Today, most countries associated with the International Monetary Fund (IMF) are considering the implementation of digital currencies, with a focus on resilience and financial inclusion. Digital currencies can be centralized or decentralized. The decentralized currency value is determined by the people who use it and does not depend on any third party to function or operate. Cryptocurrencies are great examples of decentralized currencies.
The centralized currencies derive their value from an issuing authority. Centralized currencies are backed by a government or central bank, classified as legal tender. Many countries, including Jamaica, have implemented centralized bank digital currencies (CBDCs) for various reasons. A fintech article titled “Behind the Scene of Central Bank Digital Currency Emerging Trends, Insights, and Policy Lessons” by Gabriel Soderberg lists some of the main reasons for the implementation of CBDCs. These are greater financial inclusion focused on the facilitation and promotion of appropriate and affordable financial services, poverty reduction, more efficient payment processes, improved resilience of local payment systems (see things like natural disasters), and a reduction in the illegal use of money.
For the most part, the introduction of mobile money is aimed at financial inclusion and targets the unbanked population, as the main tool for this transaction is a mobile phone. However, research shows that most early adopters of this technology are educated and bank account holders. Locally, the unbanked, those in remote locations, and those who cannot afford data remain excluded.
A CAPRI 2022 report shows that 45 percent of employees receive payment by cash or check, and 72 percent of this population prefers cash because it facilitates payment. The report notes that the need for reliable internet is a major concern for individuals and companies that prefer to use cash when doing business or making payments. Digital currencies can revolutionize the way we do business and reduce the need for cash transactions that require large sums of money for individuals and businesses. However, its success depends heavily on reliable Internet services. Internet service providers need to step up their game.
Although the Internet penetration rate is said to be 68.2 percent, the quality of the service is substandard. The COVID-19 pandemic was testimony to the inadequacy of our internet resources. There were days when it took several minutes to get an internet connection. Since face-to-face business has largely resumed, connectivity issues remain, but to a lesser degree.
A Jamaica Digital 22 report shows that at the beginning of 2022, Jamaica’s total internet penetration rate was 68.2 percent. This means that 31.8 percent of the population remains offline. The rural parishes are most affected by the lack of connectivity. Although 43 percent of the population lives in these areas, they remain digital. People who live in areas that are difficult to reach and in which it is not profitable for private companies to invest capital are excluded. With the current infrastructure, it can take up to 15 minutes to complete a transaction using the digital currency in certain geographic locations. Long delays in completing transactions can lead to security issues, which increases reluctance to adopt digital transactions. Digital inclusion cannot be ignored unless Jamaica is only concerned with urban communities.
Since there is a direct relationship between reliable and stable Internet and the success of mobile payment systems and digital currencies, improved Internet and data service are key to the expansion and effectiveness of this offer. If we are serious about becoming a cashless society, addressing the level of internet connectivity should be a top priority for the government.
Using digital currencies does not necessarily require internet connection. However, it will require some form of technological communication channel such as mobile data service to complete these transactions. The COVID-19 pandemic has revealed the dismal state of internet connectivity. Service providers were “on the ropes” as demand for bandwidth increased. The quality of service was often mediocre, especially when online courses were in session and people were working. These are the busiest times for most traders.
Being offline from the Internet increases the need for connectivity via local networks such as a Bluetooth connection. Some early adopters of CBDCs emphasize the need to facilitate offline payments in areas where there is patchy internet service. The Bahamas and Sweden have experimented with offline transactions.
The Bahamas, in its early adoption of CBDCs, encountered challenges in meeting offline transaction goals due to the required introduction of local redundancies in the main communication system. A Swedish team is developing and testing a proof of concept to address some of the prevailing offline issues. At this time, offline transactions do not seem viable.
Recent announcements about a new provider give a glimmer of hope. We seem to be great at making announcements, but the implementation of these projects is usually woefully inadequate. The government’s recent announcement to invest in improving internet infrastructure is ambitious. However, internet connectivity for everyone will take a very long time and will require strategic planning and thinking outside the box. My hope is that we treat these issues with intention and that this is not another pipe dream.
Nadine Barrett-Maitland, PhD, is Senior Lecturer in the School of Computing and Information Technology, University of Technology, Jamaica. Send feedback to [email protected]