Jack Ehlers, Director Payments Partnerships, PPRO Group
In 2016, according to a report just published by the European Central Bank (ECB), EU citizens made €123 billion worth of what the ECB calls ‘peer-to-peer’ cash payments . That’s just another way of describing the money grandparents tuck inside birthday cards, donations to charity, payments to street vendors and the hundreds of other small cash transactions people make all the time.
But even as cash remains central to the economy, cashless payment methods become more common with each year. The use of e-wallets such as Apple Pay and Samsung Pay is predicted to double to more than 16 million users by 2020 . Overwhelmingly, the rise of the cashless society is a good thing. It promises greater convenience, lower risk, and improvements in the state’s ability to clamp down on practices such as tax avoidance and money laundering.
But what about those micro-payments? And even more importantly, what happens to the estimated 40 million Europeans who are outside the banking mainstream? These are the EU’s most vulnerable citizens and they have little or no access to digital payment methods .
If we don’t plan properly, the transition to a largely cashless future could see the re-emergence of financial exclusion, which we thought had been vanquished. in Western societies. Ajay Banga, CEO of Mastercard, has talked of the danger that in the future we’ll see “islands” of the unbanked develop, in which those shut out of the now almost entirely digitised economy are left able to trade only with each other .
But are we really going cashless anytime soon?
The ECB report quoted above, also found that cash is still used in almost 79% of transactions. So, do we really need to worry about what will happen when we finally ditch notes for digital payments? Yes and no.
Even though contact payments are on the rise, the demand for cash is also growing. A recent study found that the value of euro banknotes in circulation has increased by 4.9% over the last five years  Given the historically low rate of inflation over the past few years, this would seem to be largely due to a cultural preference for cash. Low interest rates could also be encouraging Europeans to spend rather than save. But whatever the reason, cash isn’t going away soon.
But that doesn’t mean we can relax. Some markets are already much closer to going cashless than the European average would suggest. In Sweden, consumers already pay for 80% of transactions using something other than cash . In the Netherlands, that figure is 55%, in Finland 46% and in Belgium 37% . Today, Britons use digital payments in 60% of all transactions . By 2027, that number is expected to rise to 79%. Already, 33% of UK citizens rarely, if ever, use cash.
Unless we take this challenge seriously, we risk stumbling into a situation in which the majority in these countries use cash-free payments most of the time, even if they still use cash in minor transactions. In such cases, there is the danger of many shops and services no longer accepting cash, leaving those who still rely on it stuck in the economic slow lane.
For most people, cashless payments can offer easier and faster payments, greater security, and improved access to a wider range of goods and services. But to maximise the benefits and reduce the downside, including those for strong personal privacy, we need to start thinking now about how we can manage the transition in a way that minimises the risk of financial exclusion for already marginal groups in society.
Charities and mobile payments show the way
The rise of digital payments does not have to mean the growth of financial exclusion. It is possible to create an affordable payments-infrastructure for small traders, churches, and charity shops — and, even more importantly, for economically marginal consumers.
In the UK, charities are leading the way. After noticing that donations were tailing off, the NSPCC and Oxfam sent out one hundred volunteers with contactless point-of-sale devices, instead of charity collection tins. The rate of donations trebled . The success of the NSPCC trial shows that it is possible to roll out the supporting infrastructure for cashless payments even to individual charity collectors on the street.
But that’s only half the story. While charities and shops — even small independent retailers — may be able to afford and install point-of-sale systems to accept micro-payments, normal citizens cannot. Here, mobile payments may be the answer.
The example of the Kenyan M-Pesa, a system which allows payments to be made via SMS, shows that it is possible to create an accessible, widely available and used mobile payment system that does not rely on the consumer owning an expensive, latest-model smartphone. Already, 17.6 million Kenyans use M-Pesa to make payments of anything from $1 to almost $500 in a single transaction.
An inclusive cashless future—in which mobile e-wallets and other contactless forms of payment dominate—is possible. But it won’t happen by itself. As an industry and a society, we need to plan and work towards it: starting today. The stakes for many businesses and some of the most vulnerable people in our society couldn’t be higher.
- The use of cash by households in the euro area, Henk Esselink, November 2017, Lola Hernández, European Central Bank
- FinTech: mobile wallet POS payment users in the United Kingdom (UK) from 2014 to 2020, by age group, Statista.com.
- Close to 40 million EU citizens outside banking mainstream, 5 April 2016, World Savings and Retail Banking Institute
- Insights into the future of cash, Speech given by Victoria Cleland, Chief Cashier and Director of Notes, Bank of England, 13 June 2017.
- Why Europe still needs cash, 28 April 2017, Yves Mersch, European Central Bank.
- Europe’s disappearing cash: Emptying the tills, 11 August 2016, The Economist
- UK Payment Markets 2017, Payments UK.
- The Global State of Financial Inclusion, 5 March 2015, Pymnts.com
Bitcoin slumps 6%, heads for worst week since March
By Ritvik Carvalho
LONDON (Reuters) – Bitcoin fell over 6% on Friday to its lowest in two weeks as a rout in global bond markets sent yields flying and sparked a sell-off in riskier assets.
The world’s biggest cryptocurrency slumped as low as $44,451 before recovering most of its losses. It was last trading down 1.2% at $46,525, on course for a drop of almost 20% this week, which would be its heaviest weekly loss since March last year.
The sell-off echoed that in equity markets, where European stocks tumbled as much as 1.5%, with concerns over lofty valuations also hammering demand. Asian stocks fell by the most in nine months.
“When flight to safety mode is on, it is the riskier investments that get pulled first,” Denis Vinokourov of London-based cryptocurrency exchange BeQuant wrote in a note.
Bitcoin has risen about 60% from the start of the year, hitting an all-time high of $58,354 this month as mainstream companies such as Tesla Inc and Mastercard Inc embraced cryptocurrencies.
Its stunning gains in recent months have led to concerns from investment banks over sky-high valuations and calls from governments and financial regulators for tighter regulation.
(Reporting by Ritvik Carvalho; additional reporting by Tom Wilson; editing by Dhara Ranasinghe, Karin Strohecker, William Maclean)
Britain sets out blueprint to keep fintech ‘crown’ after Brexit
By Huw Jones
LONDON (Reuters) – Brexit, COVID-19 and overseas competition are challenging fintech’s future, and Britain should act to stay competitive for the sector, a government-backed review said on Friday.
Britain’s departure from the European Union has cut the sector’s access to the world’s biggest single market, making the UK less attractive for fintechs wanting to expand cross-border.
The review headed by Ron Kalifa, former CEO of payments fintech Worldpay, sets out a “strategy and delivery model” that includes a new billion pound start-up fund and fast-tracking work visas for hiring the best talent globally.
“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.
Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.
“This review will make an important contribution to our plan to retain the UK’s fintech crown,” finance minister Rishi Sunak said, adding the government will respond in due course.
The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance all mean the sector’s future in Britain is not assured.
Britain increasingly needs to represent itself as a strong fintech scale-up destination as well as one for start-ups, it added.
The review recommends more flexible listing rules for fintechs to catch up with New York.
“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.
The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).
“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.
Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.
“It’s a question of knowing who to call when there’s a problem,” Swinburne said.
($1 = 0.7064 pounds)
(Reporting by Huw Jones; editing by Hugh Lawson and Jason Neely)
Enhancing efficiency in international trade – the time is now
By Carl Wegner, CEO of Contour
Despite significant advances in digital enterprise technology in recent years, international trade remains overwhelmingly manual and fraught with inefficiency.
Financial market participants spend millions of dollars to save fractions of seconds. Central banks are rushing to offer “fast” domestic payments in under three seconds. But cross-border trade relies on payments involving more than one country and bank, with no common central bank to provide cover and currency conversion. It takes at least a day or, in most cases, two – and that’s not even the most inefficient part of cross-border trade.
These processes are lightning quick compared to trade-related finance and risk mitigation products such as Letters of Credit (LCs), which can take over a week to settle. These involve more parties, more complexity, more paper and less trust.
In global trade finance, a bank will agree to pay an overseas seller after receiving proof that the seller has met their obligations. There is no common network for the seller to provide this proof, and no global database of shipments. Sellers rely on the gold standard of banking communication: wet ink-signed paper documents. Collecting, presenting and checking these documents can take days, if not weeks, stalling payments and leaving goods sitting on the dock rather than working through the economy.
The perceived credibility of “wet ink” signatures on documents is holding the industry back even as other areas are embracing new technologies. Unfortunately, it is all the industry has and the highest common denominator of communication. Bringing trade finance into the twenty-first century will need the development of a new gold standard – a common and trusted digital infrastructure. Luckily, the technology to ease this change and inject massive efficiency gains into the industry is now available.
More than a few small tweaks
Banks, buyers, sellers, shipping companies, ports, customs, and so on; the number of parties involved in international trade and the relative lack of trust among them makes any change a significant challenge.
Even before paper documents are involved for proof of shipment, there are trust challenges in communication for trade finance. While banks have a trusted form of communication among themselves, this does not extend to corporates or other parties. These groups are left with paper communication, email and fax – hardly efficient methods of communication. The industry needs a network, a common identity, and a way to share data securely and privately with all participants. This is the first step and can lead to significant increases in efficiency, especially if communication between participants can be synced in real-time.
Building the network
The future of global trade communication is decentralised. With today’s technologies, it is no longer feasible to have the world’s sensitive trade data sitting in one place susceptible to attack or commercial manipulation.
Every bank and corporate must own their own data and share it only with their trading partners where necessary. Decentralised technologies go further than this, allowing data to be synchronised with trading partners, enabling a new level of trust between parties through the deceptively complicated concept of ”what I see, you see”.
The practicalities of title transfer
The problem of paper and wet-ink signatures seems simple to solve once the network is in place. Remove the couriers, upload PDFs of all that paper onto the decentralised and synchronised network built to authenticate the sender, and trade is digitised. However, while this process is easy in theory, the variety of documents involved in a single transaction complicates matters – especially when it comes to the transfer of title.
The bill of lading is a key example of this – issued in triplicate on original letterhead and signed by an authorised party on behalf of the ship’s captain. They represent title to the documents and can be used as a negotiable document much like a bank cheque.
Digitising these documents has come a long way in the last few years, with specialised platforms and digital registries created and new legal standards drafted to allow electronic bills of lading (eBLs) to be used instead. But adoption still lags behind, and for their efficiency to be realised across the majority of global trade, the concept of digital documents such as eBLs needs to be married to decentralised networks for trade finance.
The security issue
For documents not related to title transfer, the long-held argument that an original signed document is more secure than a digital version is extremely outdated. With the right protocols in place, a digital document can present a more private and secure option than its physical counterpart.
Even an uploaded PDF can be a “digital document” with the right controls in place. Using a decentralised network every member will have an immutable audit log for every transaction, with the uploading party taking responsibility for the documents they introduce to the network in the same way a sender can take responsibility through their signature. These security protocols will also enhance the time it takes to manage trade documents, allowing parties to track and match items to real-time data.
There has already been phenomenal success in combining a decentralised network with electronic bill of lading solutions. Rather than seven days, the time from presentation to payment instruction can be reduced to 24 hours. However, for any of this to be achieved at scale, we need coordinated collaboration to ensure a new global digital standard can emerge, rather than a series of disconnected digital islands.
Fortunately, the industry is well on its way. The Asian Development Bank recently reported that 85% of banks are gearing up to serve the trade finance needs of more businesses through technology, addressing concerns such as inefficiencies and KYC, showing a clear demand for more efficient processes to be established in the sector.
While removing a few hours from overseas payments is a worthwhile goal, reducing a week from trade finance processes can have an even greater impact on businesses’ working capital efficiency and accelerating growth in the wider global economy.
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