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Cashless Society - To be, or not to be?
To replace any commodity that is in existence for hundreds of years in trade is a phenomenal task. Statistics from European Central Bank show that banknotes in circulation is on the decline, since 2015. The graph on below link shows the net circulation of number of banknotes and coins in Euro Area. This is a mild indication that perhaps Europe is slowly becoming cashless society voluntarily. Market preference and customer preference is changing gradually from a cash friendly culture to a convenience friendly cashless culture. Also in this fast paced world, it is much easier to integrate with a gamut of digital applications if data is readily available in a digital format.
Ref: Net Circulation - number of banknotes/coins in circulation in Euro Area
Central banks around the world are advocating cashless society. What about Ireland?
Q2 2017 in Ireland, marks a stage where contactless payments has crossed 50 million in volume and over €600 million in value. Digital banking transfers has seen a rise from 34.5 million to 41.2 million in the first half of this year, as compared to 2016. Clearly digital banking is on the rise! However, with more than 3000 ATM’s in the country, average volume of cash withdrawals stays above 30 million, since 2015. The central Bank of Ireland initiated a rounding rollout of 1c and 2c on a voluntary basis since Oct, 2015. Rounding applies only to cash transactions and will be done to the nearest 5c. It costs more to make a 1c and 2c coin than the actual value of a coin! To me, it is more than obvious that Ireland is steadily adopting digital method of payments. [1]
Ref: Payments Monitor Q2 2017
What are the observations and challenges in Ireland, for cashless society, so far?
These two are first hurdles that financial institutions in Ireland need to overcome if the country is serious about moving towards cashless society. A small business owner or a sole-trader who is dependent on daily circulation of funds, shall not find it convenient to wait for a day or more (in case of bank holidays) to have access to their funds. It is not an improvement on their current process.
What’s the immediate future?
Fintech’s and challenger banks shall help to redefine this space in Ireland in the near future. PSD2 and OpenBanking are two major drivers for innovation to this aspect. If banks do not come up with solutions or integrate with solution providers for its customers, then customers shall automatically digress towards solutions that provide them with such services. The increase in challenger banks providing business banking functionality for sole-traders and small business enterprises should be an indication for this. I expect to see a huge rise towards mobile applications that help consumers and business operators in everyday transactions in 2018. Open-Banking shall support fintech and technology giants to corroborate effective banking solutions. #GSMA and #GAFA has already begun their march towards enriched payment experience for their users. By integrating within their existing ecosystem and services, they are able to appeal across different segments.
What’s the future?
Cash provides absolute power and control, as it is a bearer instrument. Cashless infrastructure and policies need to be drafted to ensure that the sanctity of a bearer instrument is not lost in the process of digitisation. Diversity in payment methods is essential to avoid monopoly. Many of us might remember that major payment carriers introduced a blockade for payment/donation to wikileaks few years back [3]. By allowing control of technology and infrastructure (in the hands of a few), they become choke-points of interconnections for digital economy, interfering with freedom to spend. I recently started reading about blockchain and cryptocurrency. While cryptocurrency’s and ICO’s are at the moment merely a high-risk speculative commodity without any main-stream economic contribution, it is nevertheless a proof for blockchain framework. In future, blockchain and hyperledgers may act as a layer for replacing cash. It's security, control and anonymity helps in replacing cash as a bearer instrument. Nevertheless, this need to pass through rigorous regulations from policy makers, undergo multiple failures-point-checks before it replaces cash.
For, cash as a commodity, has paid its dues to societies, over thousands of years, to be what it is now!
#CashlessChronicles #CashlessInDublin #Payments #OpenBanking #PSD2 #BlockChain #Hyperledgers #Cryptocurrency #FinTech #AlternatePayments #DigitalBanking
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Paula Hunter Executive Director at Mojaloop Foundation
23 August
Shiv Nanda Content Strategist at https://www.financialexpress.com/
22 August
Alexander Boehm Chief Executive Officer at PayRate42
Alex Kreger Founder & CEO at UXDA
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