End of Cash

Payments transfer is a hot subject amongst investors in high-tech.  The trail-blazers in Money Transfer at Xendpay have to stay abreast of any new payments technologies world-wide that might improve the experience of people sending money overseas.  Jake Holloway, Head of e-Commerce writes about the realities of an “End of Cash”.

Barclays’ recent launch of Ping-it, a mobile App that allows person-to-person transfers, re-energises the talk of an “end of cash”.  However is this really possible and do any of the new payments technologies, mobile apps and high-tech start-ups look like they are leading the way in the future of payments

The idea of making a payment using by tapping your phone on a reader, or perhaps even by simply looking at a camera in a shop might sound like a cool way to pay for a sandwich in Pret or at a vending machine, but could you imagine using these methods when buying a bunch of flowers in a street market, or handing out pocket-money?

Cash doesn’t need batteries or a signal.  It doesn’t cost anything to use it or accept it.  It’s very portable, not easy to forge and it’s accepted everywhere – so it’s a hard act to follow!  However, financial institutions, mobile phone manufacturers and network operators, software suppliers and a host of interesting start-ups everywhere are working hard right now to replace the cash in your pocket with something else.
Before we start, it is worth examining the anatomy of a payment.  A simple enough concept, but when you remove the use of cash it becomes surprisingly complicated. A payment without cash is a promise to transfer money, made with the assistance of at least one third party – but normally several.

We are all familiar with chip & pin credit card payments, where the payer authorizes a payment by typing their pin number into a point of sale (POS) terminal.  In the chip & pin payment model the credit card issuer warrants that the identity of the user is correct, and that they have sufficient funds or credit to make the purchase.  So there is an identity verification and live balance check at the moment of payment, followed by a settlement (the vendor gets paid by bank transfer – less any credit card and payment services fees).

Mobile payments
Using a chip in your phone instead of a chip in your card is a small leap in technology – as is the replacement of the card reader with the use of NFC (near field communications) devices that work when touched to an NFC reader in the store.  Some additional intermediaries may need to be involved – for example the mobile phone manufacturer, network operator, payment services providers and the supplier of any software “apps” that interfaces with the phone.

Google Wallet http://www.google.com/wallet/ is a good example of this kind of payment method – Google Wallet is an app based service that operates on their Nexus S 4G NFC-enabled mobile phone (made by Samsung) and running on the Sprint network in the USA only.  It stores your credit card numbers and you can pay for goods purchased at any Mastercard Paypass checkout – of which there are about 140,000 in the USA.

Services like Ping-it from Barclays and Paypal mobile work on a different basis.  Behind the ‘future of payments’ hype, the mobile app is simply used to securely communicate with your account once authorized by you – without using clever chips or NFC.  So it’s simple and there is an existing customer base signed up to the service.  Sending a payment instruction to another person is done by SMS or email – so it works well as a peer-to-peer payment method.

Pay-by-face
There is a lot of innovation going on in the area of identity authentication.  For example, the Payments tech start-ups Square – who are primarily focused on enabling any phone as a payment terminal that accepts cards – and Facecash are proponents of facial recognition as the means of proving who you are.  Your face is your signature!  The possibility of just walking up to a vending machine and saying ‘I’m Jake Holloway, can I have a can of lemonade’ is completely realistic. So it’s very likely that we will be offered more and more ways in which to ‘authenticate’ – all linked to a service that debits our bank accounts or cards.

It also raises the question whether the new innovative methods of payments, be it via Banks, credit card issuers, Mobile phone companies, Payment service provider start-ups, etc… are really bringing us closer to having a new way to pay for our potatoes?  In my opinion there are four problems that have to be addressed before we totally abandon cash;

Problem 1: Do I trust Google, Samsung and some Silicon Valley whizzkids with my money?

First of all, amongst all this tech-led frenzy how about something mundane and very human – trust.  Recent reports suggest that the public by-and-large isn’t ready to accept new players in the payments market just yet – with only 19.6% of respondents expressing trust for Google, versus 39.6% for Visa.  http://adage.com/article/digital/consumers-trust-google-apple-mobile-payments/229163/ This is not surprising considering that it took two generations before the wider public were comfortable with credit cards – and many still will not use them online for fear of fraud.
Widescale acceptance of new payment methods takes time, but not as long as it takes for old payment methods to wither and die – as you can see by the delays in the end of cheques – first used in 1659 and forecast to end around 360 years later in 2018 at the earliest! http://www.guardian.co.uk/money/2011/jun/18/cheques-future-treasury-minister

Problem 2: Universality

With all the different methods available, paying for a skinny soya-milk latte in Silicon Valley is now probably the most confusing checkout process in the world! If your coffee shop is signed up with Facecash, can you use your Google wallet?  Is your NFC phone the right type?  Can Square take Diners Club?  Or should you just pull out those trusted dollar bills from your pocket?  Even Google Wallet is restricted to people with a specific phone on a specific network paying in certain shops only.  These new methods and the businesses behind them are not necessarily interoperable – so pulling together a payments infrastructure with the universal acceptance of cash is probably unrealistic.
Lower tech schemes maybe have an edge.  Look at M-pesa in Kenya with over 14 Million customers and 2 Million transactions a day – all on the back of basic mobile phones and, importantly, delivered through trusted community-based agents across the country.

Problem 3: Is there a demand for the end of cash?

There is no doubt that more and more people go out shopping without cash – but the queues at the ATMs don’t seem to be getting any shorter.  Most of these new methods merely wrap a little high-tech magic around two existing methods; bank transfers and card payments.  Will they deliver enough extra benefits over plastic to push cash out the picture?  Or will they provide additional alternatives that extend the number of methods by which we can pay for things, transport and peer-to-peer money transfers?

Furthermore, what is in it for the retailer?  If your smartphone tells you that the product you are just buying is cheaper next door, how many will want their customers to be quite that well informed right at the point of purchase!

Problem 4: Bad people will have a field day

Since the days of Archimedes working out how to stop people passing off base metals as gold and silver, nothing brings out the bad guys like new payments technology.  While some of the new methods may indeed offer better levels of protection than cash or straight cards, the sheer volume and frenzy of scams, phishing, hacking and theft stories could throw up an almost insurmountable barrier of fear.
Losing your phone is already a nightmare.  How much worse will it feel if it contains payment methods that could clean you out in milli-seconds?

Conclusion: cashless is the new paperless

Personally I am as convinced by the 21st century promise of a completely cashless society as I was by the 20th’s assurance that a paperless society one was imminent.  It was never realistically going to happen, but we sure communicate a lot differently nowadays!

That new payment technologies will change how we transfer trillions of pounds worth of payments is certain. But it would take a superhuman effort of joined up thinking, systems integration, innovation and human behavioral and cultural change to remove cash entirely.

And, even if we could, do we really need to?

Jake Holloway is Head of e-Commerce at Xendpay.com.

Payments transfer is a hot subject amongst investors in high-tech.  The trail-blazers in Money Transfer at Xendpay have to stay abreast of any new payments technologies world-wide that might improve the experience of people sending money overseas.  Jake Holloway, Head of e-Commerce writes about the realities of an “End of Cash”.

Barclays’ recent launch of Ping-it, a mobile App that allows person-to-person transfers, re-energises the talk of an “end of cash”.  However is this really possible and do any of the new payments technologies, mobile apps and high-tech start-ups look like they are leading the way in the future of payments

The idea of making a payment using by tapping your phone on a reader, or perhaps even by simply looking at a camera in a shop might sound like a cool way to pay for a sandwich in Pret or at a vending machine, but could you imagine using these methods when buying a bunch of flowers in a street market, or handing out pocket-money?

Cash doesn’t need batteries or a signal.  It doesn’t cost anything to use it or accept it.  It’s very portable, not easy to forge and it’s accepted everywhere – so it’s a hard act to follow!  However, financial institutions, mobile phone manufacturers and network operators, software suppliers and a host of interesting start-ups everywhere are working hard right now to replace the cash in your pocket with something else.
Before we start, it is worth examining the anatomy of a payment.  A simple enough concept, but when you remove the use of cash it becomes surprisingly complicated. A payment without cash is a promise to transfer money, made with the assistance of at least one third party – but normally several.

We are all familiar with chip & pin credit card payments, where the payer authorizes a payment by typing their pin number into a point of sale (POS) terminal.  In the chip & pin payment model the credit card issuer warrants that the identity of the user is correct, and that they have sufficient funds or credit to make the purchase.  So there is an identity verification and live balance check at the moment of payment, followed by a settlement (the vendor gets paid by bank transfer – less any credit card and payment services fees).

Mobile payments
Using a chip in your phone instead of a chip in your card is a small leap in technology – as is the replacement of the card reader with the use of NFC (near field communications) devices that work when touched to an NFC reader in the store.  Some additional intermediaries may need to be involved – for example the mobile phone manufacturer, network operator, payment services providers and the supplier of any software “apps” that interfaces with the phone.

Google Wallet http://www.google.com/wallet/ is a good example of this kind of payment method – Google Wallet is an app based service that operates on their Nexus S 4G NFC-enabled mobile phone (made by Samsung) and running on the Sprint network in the USA only.  It stores your credit card numbers and you can pay for goods purchased at any Mastercard Paypass checkout – of which there are about 140,000 in the USA.

Services like Ping-it from Barclays and Paypal mobile work on a different basis.  Behind the ‘future of payments’ hype, the mobile app is simply used to securely communicate with your account once authorized by you – without using clever chips or NFC.  So it’s simple and there is an existing customer base signed up to the service.  Sending a payment instruction to another person is done by SMS or email – so it works well as a peer-to-peer payment method.

Pay-by-face
There is a lot of innovation going on in the area of identity authentication.  For example, the Payments tech start-ups Square – who are primarily focused on enabling any phone as a payment terminal that accepts cards – and Facecash are proponents of facial recognition as the means of proving who you are.  Your face is your signature!  The possibility of just walking up to a vending machine and saying ‘I’m Jake Holloway, can I have a can of lemonade’ is completely realistic. So it’s very likely that we will be offered more and more ways in which to ‘authenticate’ – all linked to a service that debits our bank accounts or cards.

It also raises the question whether the new innovative methods of payments, be it via Banks, credit card issuers, Mobile phone companies, Payment service provider start-ups, etc… are really bringing us closer to having a new way to pay for our potatoes?  In my opinion there are four problems that have to be addressed before we totally abandon cash;

Problem 1: Do I trust Google, Samsung and some Silicon Valley whizzkids with my money?

First of all, amongst all this tech-led frenzy how about something mundane and very human – trust.  Recent reports suggest that the public by-and-large isn’t ready to accept new players in the payments market just yet – with only 19.6% of respondents expressing trust for Google, versus 39.6% for Visa.  http://adage.com/article/digital/consumers-trust-google-apple-mobile-payments/229163/ This is not surprising considering that it took two generations before the wider public were comfortable with credit cards – and many still will not use them online for fear of fraud.
Widescale acceptance of new payment methods takes time, but not as long as it takes for old payment methods to wither and die – as you can see by the delays in the end of cheques – first used in 1659 and forecast to end around 360 years later in 2018 at the earliest! http://www.guardian.co.uk/money/2011/jun/18/cheques-future-treasury-minister

Problem 2: Universality

With all the different methods available, paying for a skinny soya-milk latte in Silicon Valley is now probably the most confusing checkout process in the world! If your coffee shop is signed up with Facecash, can you use your Google wallet?  Is your NFC phone the right type?  Can Square take Diners Club?  Or should you just pull out those trusted dollar bills from your pocket?  Even Google Wallet is restricted to people with a specific phone on a specific network paying in certain shops only.  These new methods and the businesses behind them are not necessarily interoperable – so pulling together a payments infrastructure with the universal acceptance of cash is probably unrealistic.
Lower tech schemes maybe have an edge.  Look at M-pesa in Kenya with over 14 Million customers and 2 Million transactions a day – all on the back of basic mobile phones and, importantly, delivered through trusted community-based agents across the country.

Problem 3: Is there a demand for the end of cash?

There is no doubt that more and more people go out shopping without cash – but the queues at the ATMs don’t seem to be getting any shorter.  Most of these new methods merely wrap a little high-tech magic around two existing methods; bank transfers and card payments.  Will they deliver enough extra benefits over plastic to push cash out the picture?  Or will they provide additional alternatives that extend the number of methods by which we can pay for things, transport and peer-to-peer money transfers?

Furthermore, what is in it for the retailer?  If your smartphone tells you that the product you are just buying is cheaper next door, how many will want their customers to be quite that well informed right at the point of purchase!

Problem 4: Bad people will have a field day

Since the days of Archimedes working out how to stop people passing off base metals as gold and silver, nothing brings out the bad guys like new payments technology.  While some of the new methods may indeed offer better levels of protection than cash or straight cards, the sheer volume and frenzy of scams, phishing, hacking and theft stories could throw up an almost insurmountable barrier of fear.
Losing your phone is already a nightmare.  How much worse will it feel if it contains payment methods that could clean you out in milli-seconds?

Conclusion: cashless is the new paperless

Personally I am as convinced by the 21st century promise of a completely cashless society as I was by the 20th’s assurance that a paperless society one was imminent.  It was never realistically going to happen, but we sure communicate a lot differently nowadays!

That new payment technologies will change how we transfer trillions of pounds worth of payments is certain. But it would take a superhuman effort of joined up thinking, systems integration, innovation and human behavioral and cultural change to remove cash entirely.

And, even if we could, do we really need to?

Jake Holloway is Head of e-Commerce at Xendpay.com.