I wrote some 3 years ago in this very publication that Cash had been having a hard time lately. Well the truth is in many places it’s still struggling to survive. The long-gone pandemic drove users away from cash that could have been considered to carry infection. Now the convenience of digital payments from contactless card payments, contactless mobile payments, subscription based pricing, e-commerce online, buy now pay later, the retail “click and collect” are together creating a world of convenience for consumers. The banks themselves are moving to closure an increasing number of bank branches such that not only are the banks disappearing, but also the bank’s ATMs that were co-located outside the banks premises. The retail segment itself is realising that it can outsource a lot of the face to face business by using a click-and-collect model. Consumers pay for their good online, and either delivery it, or have the customers drop by to collect the product. The sales part of that process has largely disappeared, so the staff working in many retail outlets has been reduced to a warehouse operative helping to hand over the goods, or place them inside a package for fulfilment outside. Consider the centuries-old trade of Banking. Banks themselves are asking if they really want to be in the relatively new business of ATMs, distributing money, polymer or paper. Central banks are considering whether they want to be in the business of producing the physical cash itself. It’s an expensive to produce, to transport, and to load into devices for distributing to customers. And then there’s the downside of cash , its anonymous nature that means its use cannot be tracked. It remains the only way for consumers to trade directly with others without the state keeping a close eye on its use. Important to some, but not others who prefer convenience.
The psychology of spending money is equally interesting. Years ago I used to hand over money in a transaction seeing and feeling the money moving from my hand to the recipient. It was a physical action and i felt myself parting with the value that these notes possessed. My wallet started to feel ever more empty as i spent the money. By contrast, in an electronic payment, when i’m using a card or a mobile wallet to pay for something, there is no immediate feeling of handing over anything for the goods or services. In fact, it’s just a sequence of numbers that finds its way onto my bank statement or credit card statement, itself not even a piece of paper anymore but something I have to logon somewhere in the cloud to see and verify myself.
My enthusiastic offspring, keen to sample the delights of the payments world agreed to try his hand in the sales world of two emerging payments companies. Fresh out of college, he was surprised to discover that there are folk who still order stuff over the telephone, better known in the space of commerce as mail-order telephone-order or “moto”. At the point where the website fails or if you’re buying something small and simple like seeds from a mail-order companies, occasionally it’s just better to speak to that one human being who runs that tiny seed company in the middle of nowhere. Not everyone has a fully functioning website and not everyone has the patience to use one.
Returning to the topic of Central Banks and the issuing of Cash to its populations, let’s consider for a moment the broader role of central banks. #1 – preserve stability in prices. This requires them to maintain interest rates at a level commensurate with the growth of the economy and the underlying rate of inflation. Since the rate of inflation has taken off like a rocket within the last 12 months, the least well off feel price rises more than the better-off, the bank must balance their needs to reduce inflation whilst not impairing the economy too much. This is quite a difficult task and they make few friends either way. #2 – control the money supply so that just enough of it circulates to feed a growing economy. What happens in a world where the population increasingly uses digital methods to make their payments? What is the long term role for ATMs in such a scenario. CBDCs (Central bank digital currencies) have been making an increasing number of headlines. Our establishments have taken a keen interest in this topic. To read some of the central bank/ money authority papers on this, it’s quite clear that those economies that rely very much on cash as a means of payment are quite reluctant to bring in CBDCs. Since the US recently gave the green light to the CBDCs, we should expect for them to slowly gain traction, using any short-term crisis as an opportunity to foist them on an unsuspecting public.
Nigeria’s experience of CBDCs should be a cautionary tale for other countries wishing to launch their own. Citizens took to the streets to protest the nation’s cash shortage, further objecting to their government’s implementation of a central bank digital currency (CBDC). The shortage came about due to cash restrictions aimed at pushing the country into a 100% cashless economy. Yet, instead of adopting the CBDC, Nigerian protesters were demanding paper money be restored.
The country’s experience strongly suggests the average citizen understands that CBDCs present a substantial risk to financial freedom while providing little unique benefit. Whilst less than 1% were tempted into CBDCs, this low figure stands in comparison to some 50% of the population who have put at least some of their money into cryptocurrency. Citizens made their point by protesting and waiting in line for hours to withdraw their own paper money.
Whilst we are living in strange times, let’s consider how some of the payment infrastructure providers are behaving. A recent post this week on LinkedIn pointed me to an article where it was clear that a major core banking software provider with a 400-strong base of customers had decided to end-of-life their solution, and users of it were being given as little as 12 months to migrate away from a core banking platform that so many were relying on to conduct their day to day business. Now you could argue that banks and companies in general generally like a single provider to give them a consolidated platform for single customer view with the added benefit that they have “one throat to choke”, but this leaves them open when the provider has a strategy that doesn’t necessarily chime with their own. It’s been reported that users of Postilion are in many cases, experiencing similar pain.
Bank and Payment processors should look carefully at the direction that their provider is embarked upon. So many banks being rather safety conscious and wary of a provider without hundreds of other customers, will choose what they perceive to be the safest option. What they don’t always realise is that in making such a chose, their ability to influence that provider is severely diluted amongst all the other (often much larger) companies. They may be much better off choosing a smaller boutique provider that can partner with them to bring a unique offering to market.
Many providers in the market have succumbed to mergers in an effort to bring size and safety to their position in the market. There are relatively few remaining in the market that can bring a personalised customised partnership to those they seek to serve.