When Mark Carney announced last year that the Bank of England would be moving over to plastic notes from traditional paper ones, there was substantial media and public reaction. There is a degree of resistance in our country when it comes to tinkering with our money; it seems hard to believe the process of decimalisation was only completed in 1993 when shillings finally became demonetised. And yet our relationship with cash is changing rapidly – in Q3 2010, debit card use overtook the use of physical money for the first time. In light of this, plenty of business figures will be asking: where is our money headed?
Before looking to the future though, it’s worth appreciating how our relationship with money first began. David Birch, renowned consultant and author and director of Consult Hyperion, a firm that advises governments and corporations on electronic money and identity, explains small social groups originally would have relied on memory to keep track of what each individual owned and owed. “But as the scale and scope of the commerce grow beyond that, another mechanism was needed,” he says.
Whilst many early civilisations relied on written accounts, using ledgers to record each individual’s standing, this would have been impractical in classical civilisations where at any given moment in a marketplace hundreds of small transactions may have been taking place. “Instead we make coins and notes that are hard to counterfeit,” Birch explains. “The end result of that when I make a transaction is I don’t have to trust you; I just have to trust the £5 note that you give me.”
Evidently things have moved on somewhat in recent times. American author and socialist Edward Bellamy first coined the term credit card in 1887 in his speculative fiction novel Looking Backward to refer to an item used for the spending of a ‘citizen dividend’. Since then, from charge coins and charge cards, via AmEx, Visa and Mastercard, we have arrived in an age where alternatives to cash proliferate.
“Essentially, it’s the way the majority of physical retailers want to transact,” comments John Chaplin, chairman of Ixaris, the virtual payments firm. “Almost 70% of a supermarket’s transactions are conducted via card. Can you imagine if everybody went back to paying by cash? Supermarkets would fall apart.”
It’s not hard to appreciate why businesses have embraced the move away from physical money. “There is an inherent cost to cash,” explains Chris Wade, head of strategy and product management at Sage Pay Europe, the payment services provider. Anyone with experience working for a high-street retailer will be able to echo this: cash has to be handled, cashed up, reconciled with till totals, stored securely on the premises and eventually banked. This adds a significant labour cost, even if you ignore the potential wider economic effects such as the price of production or the cost of forgery. “You can circumvent all of this if you use an electronic payment mechanism,” adds Wade.
But these solutions have a much further reach than just the high street. Arguably the most significant innovation of the 20th century, the internet has utterly and irrevocably altered the way we conduct business but this wouldn’t have ever been possible were we still shackled to physical cash. “In an online environment, things can only really be done digitally,” says Chaplin. “If it wasn’t for electronic payment, there wouldn’t really be such a thing as e-commerce.” And this is obviously vital for businesses operating in the start-up space. He continues: “The most important thing for small retailer or SME is having the ability to sell products online.”
This has had a reciprocal effect on our shopping experience in a retail environment, as both consumers and businesses are beginning to want their experiences offline to reflect those online. “There’s got to be some kind of convergence there because people don’t want to be using two completely different services depending on whether they’re online or offline,” says Birch. “The question is then: is it possible that technology can come up with a better way?”
Whilst our cards may be a useful stop gap, more and more businesses are questioning whether they are the best solution, particularly when we are carrying round increasingly sophisticated devices on our hips that can pick up the load. “A mobile device is great in terms of a rapid checkout experience in the face-to-face world,” Wade says. “You’ve paid with your phone, it registers a transaction. You then go online and your transaction history naturally collects in one place.”
Another opportunity provided to retailers that open themselves up to mobile devices is that it makes it far easier to offer additional benefits like customer loyalty schemes. “Everybody wants to have loyalty programmes but it’s very hard to be able to afford them,” Chaplin says. “They’re not cheap.” For retailers using payment options like point-to-point transactions, it will become much more straight-forward to roll out these schemes because the development cost of an app, when compared to the sort of infrastructure supporting a scheme like Nectar Points, is comparatively low. “Mobile will enable more people to do that.”
But obviously the real benefit of the role mobile devices are coming to play is that they can do a good deal more than just make payments. “The other aspect of the mobile revolution is that mobile phones have become not just cards but terminals,” Birch says.
Traditionally, point-of-sale devices haven’t exactly been cheap. “Traditionally, you wanted to get a point-of-sale device from the bank, they’d charge £20 a month,” explains Chaplin. Whilst for larger companies and even most established retailers this may have been a justifiable outlay, for those running things like kiosks or street stalls this has made accepting anything other than cash prohibitively expensive. However, mobile point-of-sale (MPOS) solutions, in which these retailers can take payment over a mobile device, are making taking a wider array of payment much easier. He adds: “In that sort of street trader environment, MPOS will become very interesting.”
Given we are becoming less shackled to physical cash, however, there is a question that needs to be asked: as the cost of minting coins and printing notes is being taken out of the equation, are we likely to see increasing amounts of innovation in the area of currency?
It does seem possible that our relationship to individual currencies will gradually become more relaxed. “Once the complexities are taken away, all of sudden I no longer have to care about currencies,” Birch comments. “My phone’s taking care of it; I’m just buying things.” In his eyes, this means that a proliferation of currencies developing becomes much more likely.
Wade also feels that the importance of currency in transactions is set to become less important, making reference to shopping at retailers in Dublin. “You can use your credit card to pay in whatever currency they’re accepting,” he explains. However, he does feel even whilst our relationship with minted coins might weaken, it’s unlikely that the current world of being paid and storing wages in a national currency will change significantly. “I think what you’ll see is the emergence of closed eco-systems.”
This last point is echoed by Birch. “I think new currencies will be somehow connected to use,” he says. Rather than us taking a leaf from the euro’s book and creating a single global currency, it seems likely we will create an increasing number of currencies designed for specific tasks. “The idea you have different kinds of money and use them for different purposes sounds right to me.”
But, of course, it’s hard to talk of new currencies without addressing the crypto-elephant in the room: Bitcoin.
In Wade’s eyes, it’s a bit early to judge how Bitcoin, Ripple and their fellow crypto-currencies will affect the make-up of global currencies but they are at least opening the door. “Bitcoin is too difficult to understand for the average consumer for it to be adopted broadly,” he says. “But what it does embed in the collective consciousness is there is value attributable to stuff other than pound notes.”
One area in which these sorts of currencies may play a role is acting as an intermediary to facilitate the exchange of existing currencies, as Nigel Verdon, founder of The Currency Cloud, the currency exchange and conversion solution, explains. “My gut feeling is that there will be one or two currencies that are going to be useful as mechanisms to facilitate clearing payments instantly,” he says. “If two businesses are able to instantly settle within seconds, that changes society, changes commerce. That’s why if you look at Ripple.com, Anderson – one of the big VC firms – put a huge amount of money into them, even though they are still something of an experiment.”
It’s perhaps a little too soon to be making any firm bets on exactly what the future holds for our money. But one thing’s for sure: it’s going to be an exciting journey.