New Catalyst in Financial Transformation: COVID-19

11.4.1 Digital Transformation

Before the COVID-19 pandemic, technological developments in mass media entered a rapid pace of change, especially towards the end of the twentieth century, as was the case in all areas of life.

The common denominator of all new developments is a phenomenon of “digital transformation” that started from the beginning of the twentieth century and has recently made itself felt more intense. Many authors and researchers have focused on a key concept in transformation since the mid-twentieth century. We see important events occur today in society and economy similar to those occurred, throughout history, upon the changes that started with the agricultural revolution and, much later, with the industrial revolution. In this context, Space, Information and Electronic ages are mentioned. While Zbigniev Brzezinski was talking about the “Technotronic Age”, sociologist Daniel Bell described the “Post-Industrial Society”. Soviet futurists spoke of the “Scientific Technological Revolution”. Alvin Toffler calls it “Super Industrial Society” (Toffler 1981). An economic manifestation of this new order put forward from different segments has inevitably started to occur.

11.4.2 Modern Payment Systems

In the booklet issued in 2014, the Central Bank of Turkey expressed payment system as, “... covers the tools Whichfacilitate the exchange of goods and services between economic units, regulations and standards, institutional and organizational frame­work, the operating processes and communication network” (TCMB 2014).

As of the twenty-first century, there are also electronic methods that function as an exchange between economic units such as banknotes and coins, but not put into circulation by any government and not organized and managed by any financial institution.

Table 11.3 Ratio of use of cash in 2018 (%)

Source G4S Cash Solutions and Payments Advisory Group (2018)

In all this framework, a payment instrument recognized by a state, which is a legal payment (legal tender), is cash; that is, it a means of payment recognized by a legal system to be valid for the fulfilment of a financial obligation. As mentioned earlier, paper money and coins are common legal forms of payment in many coun­tries.

11.4.3 COVID-19 Being Included in the Process

With the COVID-19 epidemic turning into a global pandemic, it is inevitable that in the future perspective, production, consumption and trade data for 2020 and 2021 will be examined and the shock and recovery processes will be monitored by many researchers (Mann 2020). However, the transformation process in financial instru­ments, which continues routinely, has begun to follow a different course with an extraordinary factor. The impact of the pandemic required sharp measures and rapid adaptation of individuals, governments and financial institutions to these measures. The interconnection of financial markets can show a domino effect and make it inevitable that the entire economy will be driven into an impasse.

As an example, in the opinion presented by the World Bank, it was emphasized that properly functioning money markets are of critical importance for well-functioning capital markets. During the COVID-19 pandemic, the authorities stated that they should focus on efforts to improve the functioning of the money market in order to create adequate bases for capital markets recovery (The World Bank 2020a).

On the other hand, it was estimated by the World Bank that international remit­tances would be declined sharply by about 20% in 2020 due to the economic crisis caused by the COVID-19 pandemic and the closure at the borders of the country. Projected as the sharpest drop in recent history, it is emphasized that this will largely stem from a decrease in wages and employment of migrant workers, who are more vulnerable to loss of employment and wages during the economic crisis in a host country.

In the last report published by G4S Cash Solutions and Payments Advisory Group in 2018, just before the COVID-19 outbreak, the increase in the use of mobile phones and electronic wallets also encourages the use of electronic payments over cash. Combination of these technologies and devices allows it to quickly complete trans­actions in a consumer-to-consumer (C2C) or face-to-face, electronically and instantly in retail environment. These forms of electronic payment are increasingly taking over the valuable features of payment tools that previously only received cash, such as direct placement, availability and convenience/ease of use (G4S Cash Solutions and Payments Advisory Group 2018).

Some companies that switch to online orders resort to cash on delivery as they cannot accept online payments or most of their customers cannot pay electronically. The most recent World Bank Findex study revealed that 31% of adults worldwide still do not have access to a financial account. Cash on delivery may be the second best option, especially given the need for social distancing. Contactless online payment can eliminate the need to exchange cash in person. In the COVID-19 process, govern­ments can support the use of contactless payments by raising awareness of public health benefits and working with financial institutions to ensure everyone has access to these payment methods (Ungerer and Portugal 2020).

Table 11.4 displays the use of credit card (physical environment) in domestic shopping in Turkey for the first six months of 2019 and 2020. The epidemic began in the fourth quarter of 2019. After this period, in the period until the second quarter of 2020, a decline of 10-15% has started in both the number of transactions and the transaction amount of the credit card

Table 11.5 displays the payment card transactions made in the Internet in Turkey for the first six months of 2019 and 2020.

Table 11.4 Using credit cards in domestic shopping (Turkey)

2019

2020

Source Merkezi (2020a)

Table 11.5 Pay online with debit or credit cards (Turkey)

2019

2020

Source Merkezi (2020b)

increase with the COVID-19 outbreak in the fourth quarter of 2019.

Of course, non-cash use with the epidemic process brings some negativities that affect this transformation process. In his speech at the Consensus Blockchain Confer­ence, Kenneth Blanco, President of the Financial Crimes Enforcement Network (FinCEN), which operates under the US Treasury, listed the cybercrime types rising during the COVID-19 outbreak (Blanco 2020) as follows:

• Using COVID-19 information as a bait;

• Targeting vulnerabilities in applications that support remote work such as virtual private networks and remote desktop software to steal information and compromise transactions;

• To exploit COVID-19 for the sale of fraud, extortion, ransomware and fraudulent medical products;

• Digital images use “filing credentials” attacks to facilitate “deepfake” manipula­tion and account takeover.

11.4.4 Technological Competence

It is particularly important to assess, in a realistic way, the risks of contamination through cash, as avoiding cash can have distributional consequences. If cash is not accepted as a means of payment across the community, it can lead to an inequality “payments divide” among those who have access to digital payments. This can have a particularly serious impact on non-bank and senior consumers. It is expected that digital payments will be used more by the economic authorities in the near future. However, in the emerging market and most emerging economies, access to such alternative payment instruments seems far from universal (Auer et al. 2020). There are proflt-oriented investment strategies in countries where telecommunications industry is not under the state administration. The industry’s reluctance to make a significant investment in markets that represent a small percentage of the revenue stream is quite obvious. Therefore, it is likely that technical problems will continue to hinder rural access for a while; the cost of equipment and monthly expenses pose a problem with low socio-economic groups in both rural and urban areas (Cullen 2001).

However, with the pandemic, the first trend has been towards the social protection and social assistance programmes that can be expanded rapidly and whose scope can be expanded. Many developing countries have already tried and tested programmes from the past to the present. Cash transfers and public spending programmes can be strengthened for this purpose. Such programmes can be supported through mobile or digital payment channels where such platforms have sufficient coverage, can establish their identity and have beneficiaries’ accounts (The Word Bank 2020c). This way, the rate of access to digital and the usage rates of electronic payment methods may be increased.

As an example of this, millions of US taxpayers had to wait a long time for promised incentive payments of up to $1200 per person as the COVID-19 outbreak turned into an economic crisis. Payments are still expected to be made to those married to immigrants who have not received tax returns in recent years and who do not have a bank account or a registered bank account with the Internal Revenue Service (IRS). On this very situation, the advocates of the Digital Dollar and Central Bank Digital Currencies believe that a digital currency system can solve the logistical problem of how to quickly distribute large sums to many individuals with access to diversified banking services (Thiruvengadam 2020).

This move towards digital money has gained rapid momentum with the COVID- 19 outbreak. Although the risk of transmission is low, societal concerns that the virus can be transferred in cash are expected to result in individuals making less preference for cash currencies. This trend towards digital payments is growing worldwide; many countries, including Australia, Sweden, South Korea, Russia and the UK, are seeing a transition towards a cashless society. However, China is at the forefront of the transformation in digital payments. People living in major cities of China usually pay for goods and services through smartphone applications such as AliPay or WeChat, which are linked to their bank accounts (Freidin 2020).

11.5