28 Mar 2017

Cashless Future is Dawning

On the day that the new pound coin is officially launched and just a few months before the plastic £10 is released, an interesting report from Citi and Imperial College London says that the world is slowly but steadily marching towards a cashless future. Their report was presented during the annual Citi Digital Money Symposium last week.

According to the joined study, the UK is the fourth country in the world prepared to welcome a future where no banknotes will be needed. However, the researchers are quite moderate in their expectations saying that the level of the banks’ services and electronic payments are still underdeveloped even in the most advanced countries.

Analysts believe that only a 10% increase in any form of digital transaction will have a tremendous impact on the world’s economy. That percentage will equal 220 million people around the world using cashless services and that will bring an additional $1 trillion new flow in the economy and potentially $100 billion in tax revenues.

Singapore is currently ranked as number one from top 90 countries in the Digital Money Index, followed by the USA and Finland. The Digital Money Index is based on four factors: support from government and markets, technical and financial infrastructure, solutions for digital money and adoption tendency.

On the segment of digital money solutions, the UK is one of the best countries in the world, surpassed only by Finland. As equally positive is its score on propensity to adopt, where Great Britain is third after Sweden and the USA.

The biggest improvement in the area this year is made by India. The country emerged with a digital score of 9.7% and beat by 2% its main rival in the region – Bangladesh. The Indian government is trying hard to persuade the ordinary citizens to use plastic and digital money in order to avoid tax evasion, corruption and the use of hard cash in crimes. It started with the ban for using banknotes of 500 and 1000 rupees and let to the launch of BHIM (Bharat Interface for Money) at the end of last year. BHIM is a mobile app that facilitates e-payments directly through banks. The app was downloaded by 19.6 million people, however, only 26% of them are actively using it. This year the government plans to implement an educational program for the app and to reach 25 billion digital transactions. Even more ambitious are the prospects for the next 3 years: $500 billion in digital transactions, which is 10 times more than now. “Developing countries, it seems, have salutary lessons to offer even the world’s digital money leaders,” Citi global head of digital Greg Baxter commented.

Back to the UK

Ironically the statement “The pound won’t be round for much longer” pops on the promotional page of the Royal Mint. Some specialists believe that the last alternation of the £1 coin will be the last in the history. “With the rise of alternative payment methods in the last few years, from contactless to mobile payments, it is nearly impossible to imagine that we will still be handing over bits of metal (no matter how secure) in 2051,” James Frost, chief marketing officer of the FTSE 100 Index company Worldplay UK commented.

According to him, the decline of coins and notes it’s not driven only by more convenient digital payments but also that “making money – costs money”, pointing that only the change of converting cash machines or ticket machines to accept the new coin will cost £15 – 20 million.  He also quotes data from management consultants McKinsey, which estimates “that the cost of cash to countries with a high rate of cash use can exceed one per cent of GDP. Even in the UK, where cash has been in a long, slow decline, physical money still costs British businesses £18bn a year – or an average of £3,520 for each small to medium-sized business.”

However, the consumers seem to adopt the digital payments much easier than businesses. In the UK, in 2005 notes and coins made up 64% of the payments and today that percentage is 45. According to James Frost, by 2025, hard cash will be used only in 25% transactions. Only “from October 2015 to March 2016 contactless payments grew by 237 per cent, and mobile payments are forecast to increase threefold by 2020,” he said, quoting information from his company’s records.

The automation of many businesses is another factor leading towards a digital money world. A recent research by PwC showed that in the next 15 years about 30% of the jobs in the UK will be affected by robotization, which will also significantly decrease the human factor in many financial transactions. The biggest supermarkets have almost completely automated payments and most of the gas stations are using more and more pay-machines to provide 24 -hour service. And these are only two of the everyday examples. “On every front, cash is fighting a losing battle,” James Frost concluded.

Today 1,7 million UK businesses are accepting payment cards.