Business

A cashless society in 10 years?

Technology columnist Richard MacManus challenges the talk of a cashless society within a decade. He calls BS on the BIS and argues any disruption will involve cryptocurrencies and blockchain.

Digital payments continue to grow in popularity every year, thanks to technologies like tap-and-go cards and smartphone apps like Square. Add to that the wild west promise of cryptocurrencies, which could yet disrupt the financial landscape, and the future for bank notes and coins seems grim.

Even the Reserve Bank is thinking about issuing a digital currency. “Issuing a central bank digital currency would ensure public access to legal tender money regardless of the presence of cash,” said Reserve Bank Deputy Governor Geoff Bascand last month.

But hold your horses. Bascand concluded that it’s still “too early to say” whether the Reserve Bank will actually issue a digital currency. Given its conservative approach to raising interest rates over the past several years, a national digital currency is probably a long way off.

Accounting software vendor MYOB is in more of a hurry to get to a cashless society. In a media release, the company declared that “cash will be extinct within 10 years” in New Zealand.

MYOB general manager Carolyn Luey told the Payments NZ conference last month that by 2028, “it’ll be as rare to pay for things with notes and coins than it is to use a cheque.” She cited the results of an MYOB survey of 400 New Zealand small-to-medium sized businesses, which found that 36 per cent of kiwis “predict the local economy will be cashless within 10 years.”

The same survey noted that only three per cent of New Zealand businesses currently do all their transactions in cash.

My local barber is one of those three percent. He’s old school about payment and does not accept Eftpos or anything digital. But in truth, he’s the only person I need to make a special trip to the ATM for. Even though New Zealand hasn’t yet taken to mobile app payments with the zeal of Chinese consumers, we are heavy users of bank transfers, online payments, credit cards and Eftpos.

There’s a caveat to that though. Unfortunately, the credit card companies and our own banks are imposing high fees on contactless payments. That’s making it difficult for local retailers to keep up with the digital payments revolution. Burger King is just the latest major retailer to ditch services like Visa Paywave and MasterCard PayPass, blaming fees that are “significantly higher” than for other payment methods.

Greed of financial institutions is one reason why cryptocurrencies hold such promise. Compared to contactless payment fees, the transaction fees for using the likes of Bitcoin and Ether are significantly lower.

Of course at this early stage in their evolution, cryptocurrencies come with their own set of problems. They’re hard for consumers to use, risky to store, and subject to a lot of price volatility. Not to mention most New Zealand banks have cracked down on local cryptocurrency exchanges, forcing people to use overseas exchanges.

The technology that cryptocurrencies are built on top of, blockchain, also has issues. A blockchain is basically a decentralised database, but that decentralisation comes at a cost. Scalability and network congestion are just two of the problems blockchain has experienced so far.

Despite all the question marks about cryptocurrencies and blockchain, it’s a good bet that many of these issues will be solved by 2028. Which makes it odd that MYOB did not mention cryptocurrencies at all in its media release about a cashless society.

Fortunately MYOB has a resident futurist, Keran McKenzie, who was willing to speculate about the impact cryptocurrencies may have on retail.

I asked McKenzie what’s the likelihood that kiwi retailers will offer cryptocurrency payments as an option within 10 years?

“I think it’s very high likelihood that New Zealand will be cashless,” he replied, “and I firmly believe that some form of tokenised payments will be included in that. There are already some New Zealand retailers, the super-early adopters, who are taking cryptocurrency payments.”

McKenzie pointed to examples in Australia, such an entire Queensland town and Brisbane Airport deciding to accept cryptocurrencies.

The problems going 'crypto'

So what are some of the pressing challenges that retailers will need to overcome, before they add cryptocurrencies to their mix of payment offerings?

According to McKenzie, cryptocurrencies are simply too confusing right now. There are too many digital coins and wallets, plus it’s difficult to integrate crypto into traditional accounting systems.

“Simplification of the space is key to mass adoption,” he said. “The good news is that Kiwi companies like Centrality and NavCoin are working to simplify point-of-sale acceptance of cryptocurrencies.”

Finally, McKenzie thinks large internet companies – such as Facebook, Alibaba and Tencent – will be huge factors.

“I’m seeing more and more retailers, particularly those in the tourism space, accepting Alipay and WeChat Pay.”

Facebook dollars?

As for Facebook, McKenzie noted that David Marcus, ex-Paypal and formally in charge of Facebook Messenger, is now heading up a new blockchain team at the company. McKenzie thinks Facebook will eventually enable digital payments over Messenger using their own token.

“These sorts of tools will simplify digital wallets,” he said, “which in turn will drive the desire to trade with tokens.”

I agree with McKenzie that consumer adoption of cryptocurrencies for retail will be driven by a mix of a breakout digital wallet (much like Paypal was the defining e-commerce system a decade ago) and big companies adding tokens to their core communications products.

I think all this will happen despite the current scepticism of central banks around the world.

According to our own Reserve Bank, blockchain “does not improve domestic retail payments, is not scalable and requires high energy use.” The BIS (Bank for International Settlements), an international consortium of central banks, takes an even dimmer view.

Calling BS on the BIS

In a recent report, the BIS wrote that “to process the number of digital retail transactions currently handled by selected national retail payment systems” would require massive amounts of storage and processing power on the blockchain. This “could bring the internet to a halt,” the report claimed.

I call BS on the BIS on that last point. Blockchain technologists are currently working on solutions that would negate the need to store all transaction data on a blockchain.

However, the central banks are quite right that blockchain is not yet an efficient or scalable technology for digital payments. So the credit card companies are safe for now, and hence will continue to charge their high fees.

But in 10 years time? I’m betting that cryptocurrencies will have disrupted the digital payments industry by then. Indeed, I find it hard to believe we’ll become a cashless society without crypto being part of the mix.