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?

• Faster or immediate payments is yet to take roots in Ireland. SEPA Instant Credit Transfer scheme is all set to roll out on Nov, 2017. It promises a rise in digital transactions as beneficiaries shall receive their funds in seconds. So far, 10 Clearing and Settlement Mechanism (CSM) organisations have announced to be compliant with SEPA Instant Credit Transfer scheme [2]. The ease with which parties involved in a transaction, exchange their funds, is a necessary factor for cashless society. Transacting with cash is fast, so digital and technology advancements to replace cash need to ensure that they are as close to real-life cash transactions.
• The second thing which I would like to highlight is the absence of 24x7 banking, thanks to the legacy systems still under operation with banks here. Cut-off timings still apply for EUR-EUR transactions within Ireland. While moving towards a digital cashless society, it is imperative that transactions should be possible anytime, any day. Cash does not have any holidays, so why should its digital equivalent?

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.

• The next observation I would like to discuss is the absence of alternate payment methods. After cash, the favourite payment method seems to be card and mobile payments apps launched by banks. In order to attract a multi-dimensional society, payment institutions and payment service providers should enable access to other methods of payments. For example, NFC fund transfers between mobile phones, QR code based transactions (#BharatQR), Integrated card applications (#Swyp), wearable payments (#Kerv) etc. When multiple avenues of payment methods are introduced, market shall self-steer towards a favourite solution/s (Charles Darwin - Survival of the fittest?). Ireland is a country which attracts talented individuals and tourists from all around the world. Therefore it is quintessential to provide services, where a large segment of users shall feel comfortable with.

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