The Future Of Money

After going 3 years without an upgrade, I managed to get myself a shiny new iPhone this Christmas. And along with it, I decided to finally start trying out Apple Pay.

Okay, so I may be a few years behind some of you, but I must say it’s been a surprisingly pleasant change to my lifestyle. Thankfully almost every lunch spot around our office in South Bank accepts Apple Pay, and in fact many of them are proactively “cashless.” Coincidentally accompanying my evolution came news that Britain will move beyond “peak cash” this year, with cash superseded by electronic payments.

This UK shift has been driven in no small part by London-based payment companies who are quickly changing global spending habits. And the payments industry – and its investors – aren’t finished. They are tooling up in the belief that the revolution is only just getting started.

In 2016, global fintech companies raised $28.4 billion and a third of that was invested in the payments sector. That mighty wave of capital has led to staggeringly swift change. But is this change good for the world’s consumers? Or is it a further separation of the haves from the have-nots, with the wealthy being ever-better serviced and the unbanked further cut adrift?

 

The Current Payments Universe

The payments sector makes up a sizable chunk of the overall fintech landscape, which isn’t surprising given it offers solutions to an everyday problem for all consumers.

Commercially, investment is flooding in as the addressable market is global and developing, with startups jostling to take advantage of enormous transaction volumes. Consumers stand to benefit from greater security, speed and convenience, as I have with Apple Pay. Transparency will provide ever-more granular data on our spending preferences and help control our finances.

Growth in the payments sector benefits entrepreneurs, investors and consumers and it’s no surprise to see expansion in both B2B and B2C sectors. Open Banking will accelerate growth and consumers are ever-more willing to try new services. Users want choice and better experiences. Agile startups are responding to progressive regulation.

So, the payments explosion looks positive. But there is a downside to this growth.

 

A Cashless Society And A Warning Sign

A third of tech-savvy Sweden, the world’s most cashless society, never use cash, which concerns some who claim that whilst tech is driving innovation, change is happening too quickly.

In the long run, central banks want less cash, especially in the wake of global QE. But given the explosion in demand, Swedish authorities are worried that the nation’s nascent infrastructure built around the new cashless world could be threatened by meltdown and crime.

There are wider concerns about how a cashless society affects the poor and underbanked. Those of us with iPhones and Amexs will find convenience, but those without phones or a bank account risk being completely left behind. Libertarians decry a loss of privacy, with a huge amount of our private data given away every time we tap Apple Pay or open an internet bank account.

But of course, this isn’t new. For years, we’ve willingly given away data – and privacy – to Big Tech in exchange for convenience. The same applies to payments, which will, like social media, become an integral part of our lives. Regulation, especially in sectors like blockchain and cryptocurrencies, must catch up if these darker corners of the payment universe are to overcome speculation and fraud.

 

The Likeliest Future

The likely outcome of this electro-expansion is that we see governments push further into financial services, perhaps providing the framework that opens bank accounts for all as tech and the necessary infrastructure spreads further and the democratisation of finance marches on.

In London, we’ve seen the demise of cash over many years. But once we remove our focus from being UK-centric, we see how payments are changing all over the world in a myriad of ways. Largely, it’s for the better, but there are varying degrees of success.

Sweden is at the vanguard of the movement but fears overheating. India made sweeping changes to the structure of its economy in an attempt to force a move to a digital future. But it was structurally unprepared and growth has slowed as a result. China continues to push ahead, as WeChat and AliPay are used for everything from loans to panhandling. But it is in Africa where the movement has been truly positive for everyone in society.

80% of African adults have no access to basic financial services. But Africa’s population is urbanising and growing more tech-savvy, and near half of the adults in sub-Saharan Africa use mobile phones. Hence, mobile banking is growing in popularity and it’s thought that near half of the total mobile money services operating worldwide are located in sub-Saharan Africa.

So Africa seems open to mobile banking and payments. A blueprint for how to combine the elements above is payments services provider, M-Pesa, whose app has lifted almost 200,000 (2% of all Kenyans) out of poverty. M-pesa is used by 70% of Kenyans for banking and money transfers and is part-owned by Vodafone. More companies will look to follow their lead.

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As reflected by my lunch buying habits on the South Bank, the critical elements of this shift towards a cash-free future are convenience and choice. If the proliferation of social media is any guide, cashless payments – neatly packaged into all of our pocket-held phones – will become an entirely normal part of everyday life, offering us a service we don’t think twice about.

There is much work to do, but the boom in electronic payments is set to continue. From Southwark to South Africa, it looks like the days of cash are numbered.