02 September 2014

Payment and Identification

Antti Larvala - CAL360 Degrees

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Payments strategies 2015-2020-2030

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Future of cash is electronic cash

27 September 2012  |  3747 views  |  1

Cash don't disappear- that is a fact. Don't deny it. Or is it possible to replace cash with alternative low cost solution. 

For laymans terms, cash is low cost payment method. But as everyone who knows thing or two behind cash, it is expensive, hard to control and unreliable payment method- but so hard to replace. 

Over the centuries, cash payment infrastructure has been build. Currently it doesn't need too much installation or hardware configurations. That is the reason why cash is so hard to replace with mobile or electronic payments. Cash is really nice for consumers. Everywhere you go, you can pay with cash.

But there is also a cost of cash. Every time merchant accepts cash, it comes a motherload of other cost with it. At the end of day merchant is counting money, carrying over to bank which count money again and then puts money to account of merchant. That means a lot of hidden costs.

Last 20 years there has been several attempts to create low cost alternative payment models, mostly related to mobile phones. Problem is that this means totally new ecosystem with a lot of new players and lots of new investment not only payment side but how to syncronize merchants and consumers. This egg and chicken situation where new payment system is available, but not too many merchants where you can use new method creates a situation where cash always beats new mobile payment model.

To compete with old cash model, there is a possibility to upgrade cash system to new level with electronic cash. Idea would be like this;  

  1. I go to ATM to withdraw cash. I select electronic cash. ATM prints me paper note saying this note is worth of 100 € with scanning codes.
  2. I go to store and buy goods worth of 20 € with electronic cash. Merchant scans my paper slip and prints me new electronic cash slip worth of 80 € with scanning codes. 20 € of my purchase is registered to cash system and already counted as total sale of merchant.
  3. At the end of the day this money is send straight to account of merchant.
  4. Me as a consumer can use ATMs again to add up all my un-used paper slips and make it as one bigger electronic cash slip. Or using mobile phone, I can scan my slips and create electronic cash codes for other purchase. 


Benefits of this system are:

  1. There are already ATM systems available- with slight modification ATMs could "print money"
  2. Mercants are already using scanning system and upgrade of electronic money software can't be too expensive investment
  3. Mobile apps can be build for scanning paper slips for consumers and merchants.
  4. Electronic cash is easier, low cost model, which can be linked to bigger systems and sociaty can follow the money movement is needed.
  5. If paper slip is used, it can't be reused- safety

Now you say, there will be a lot of paper slips. True, there will be paper slips but as long as whole world is not using electronic devices, there will be a need for hard currency in paper form. But it doesn't have to be real cash money, It could be electronic money in paper slip form. 

 

 

TagsPaymentsRetail banking

Comments: (2)

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 29 September, 2012, 11:52

Interesting idea but I see a few hurdles before it can gain mainstream acceptance: (1) ATMs print on thermal paper which fades away in a few weeks. Okay for transaction slips but not okay for e-cash. We're advised to photocopy such papers if we want to preserve them, but this is obviously not okay for e-cash printouts (2) When I get cash from ATM or merchant, I can count and verify the amount. How do I do that with e-cash? (3) As I've pointed out here, cash is only costly for middlemen like banks and governments. For the two primary players in a transaction, namely, payer and payee, cash is the cheapest MOP. Therefore, e-cash holds no compelling value proposition over cash for the consumer and the merchant (4) Stored Value and Prepaid cards already function more or less the same way as e-cash, so why bother with another form factor?

Antti Larvala - CAL360 Degrees - Brussels | 01 October, 2012, 13:53

Good comments indeed. Of course would be nice to live in a world where all money transactions would be electronic and cash would disappear. But we are still quite far away this kind of society. There are countries where cash is disappearing but still not as fast as I could wish.

What comes for ATM printing paper, at least in Finland, US and Belgium where I have used ATMs more than once, pritning paper is really good. My local store in Belgium prints every day value cupons in real paper. 

Checking value of money would be done with scan reader same way you can check the price in supermarket. Cost of cash is not for banks or middlemen, but real cost is carried out by merchant or end user in the price of goods. If company brings everyday real cash money to bank, they will charge for counting money and depositing that money to account of merchant. Plus if supermarket has piles of cash, they will transfer this money with security company to their local bank. This makes also big bill for mechant.

Using electronic money would save huge amount of money and make us one day cashless society, where transparency of money movement would be better helping also goverment to collect better their earnings (taxes).

 

 

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Antti Larvala

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