Digital money – investing in our future

Bernhard Lachenmeier, head of products and marketing, SIX Payment Services

Bernhard-LachenmeierAs the incoming Bank of England Governor, Mark Carney, hints that the days of paper cash in England may be limited, Bernhard Lachenmeier, head of products and marketing at SIX Payment Services questions why England’s Central Bank is investing in cash, when society is moving to a digital age.

It’s all change in the financial services industry. New technologies, changing customer loyalties and emerging ‘new finance’ players are all contributing to creating this unparalleled change in the ecosystem. July 2013 will see yet another change as, after 10 years in the post, Sir Mervyn King will step down as Governor of the Bank of England, to be replaced by Mark Carney. Carney, former Governor of the Bank of Canada, is entering an industry which is hungry for disruption, rejuvenation and innovation. It is unsurprising then, that one of the first ideas we have heard from Carney is that the Bank of England is looking into the possibility of introducing plastic banknotes in the UK in order to ‘future-proof’ Sterling. While innovation in financial services should always be encouraged, I have doubts about this particular move – when the rest of the world is looking to digital money, is now really the time to be investing in cash?

A history of cash

Plastic money is not a new idea. Australia has had plastic banknotes since 1988, while Carney’s home country, Canada, introduced plastic notes in 2011. There are a number of well-documented benefits of using plastic notes over paper – namely around durability and security. An Australian $5 note lasts an average of 40 months, compared to an English £5 note which is worn out after just six months. Canada claims that its plastic $100 bill, complete with hologram, is the world’s most secure banknote.

What’s more, the pound Sterling is the world’s oldest currency still in use. This is a heritage that the UK can certainly be proud of and no one would argue against innovation designed to preserve such history.

Yet to talk about the replacement of paper notes purely in terms of benefits and heritage is to ignore one of the key issues around plastic money: the significant infrastructural costs the change would entail. Not only would the full replacement of the currency cost time and money, but a whole nation of ATMs and cash registers would also need to be upgrade – an expensive and time-consuming process. Plastic money represents a great infrastructural investment and I question whether now is the right time to be ploughing valuable investment into cash-based payments?

The digital future

The payment landscape, much like the rest of the industry, has changed significantly in recent years. In the past five to ten years, the way consumers and businesses want to make payments has evolved, with ever increasing importance placed on convenience, speed and security. A number of factors have converged to influence this situation – these forces are complex but can be broadly broken down into three categories: the financial crisis, regulation and technology. The result has been a move away from cash and towards more innovative and digital payment channels.

It important to note that these changes are consumer-driven, and as such it is unsurprising that we have witnessed banks moving to offer digital payment products as standard. The new generation of bank customer, the Gen Y customer base, expect access to products such as online and mobile banking, while it is increasingly anticipated that mobile payments will enter the mainstream in the coming years – the UK Payments Council predicts that mobile phones will totally replace credit cards and debit cards in the next eight years. Unsurprisingly then, banks are moving to meet these demands in order to maintain customer loyalty. These traditional financial institutions are also using innovation as a way of maintaining relevance in this brave new world of payments – and against the likes of Google and Apple. Google has already begun to make noise in the payments space, with its Google Wallet mobile payment product; commentators suggest it is only a matter of time before Apple also enters the competitive marketplace. The digital payments landscape is one of new players and increased competition – banks must pull out the stops to keep their customers.

Merchants have also been adapting payment offerings in line with customer expectations. Increasing digitisation and smartphone ubiquity has fed an appetite for ‘commerce-on-the-move’, and merchants are increasingly expected to provide both e-commerce and m-commerce payment options. The new digital-savvy consumer is increasingly spending money via their smartphones and tablets, and they want retailers to appreciate and cater for this. In the US, findings suggest there was a 221% year-on-year increase in mobile sales on Thanksgiving Day 2012, but crucially, only on commerce sites where the experience has been specifically tailored and optimised for smart phones. With figures like this, merchants will do all they can to make their payment experiences as seamless as possible for consumers-on-the-move, and this means focusing attention on digital payments.

All of this combines to tell us one thing: consumers want to make digital payments – and we know that where consumers go, banks and merchants will follow. Which begs the question: if consumers, banks and merchants are all focusing attention and investment on digital money, why would the Bank of England not follow suit?

Safeguarding the future

Cashless payments are a cheaper, faster and safer method of payment – even when compared to plastic money. In a world where you can buy anything from a holiday to a packet of chewing gum using your card or mobile, who even wants to carry around cash anymore? The Gen Y consumer demands convenience, and banks and merchants are already working to provide the digital payment infrastructure, products and experiences that provide this. The UK has always led the way internationally on payments – if the UK is to maintain its place at the forefront of financial services, it needs to be investing now in the digital future, not in safeguarding the past.

Bernhard Lachenmeier, head of products and marketing, SIX Payment Services




Comments are closed