Over fifteen years ago I quipped in my Auckland Metro technology column that we were entering a less-cash world with smarter cards and more online transactions, but a cashless society was as likely as a paperless toilet.
Shifts happen and sometimes they creep up on us unprepared. Fast forward and we’re on lightspeed fibre with pervasive mobile devices functioning as social media computers with cameras and apps for everything including online shopping, banking, and financial services.
There’s less rattle in our pockets, more use of smart watches and phones for transactions, and heightened chatter around wave pay proximity cards and the imminence of bitcoin and other cryptocurrencies.
We’re being urged to give up the paper trail for accounts and receipts and as I recently discovered at Kiwibank, cheques and deposit books will soon be history.
There are fewer bank branches and those that remain are skimping on personal tellers, and like supermarkets, opting for self-service ATM-style machines.
An indicator of what’s ahead is the smart hardware wallet, a battery powered smart card-sized device with associated mobile app.
These super cards can store data online, convert multiple currencies and crypto funds on the fly and function as standard credit cards. So far only one ATM in Auckland accepts them.
As for paperless toilets, have you been to Japan?!
Meanwhile Kiwi siblings Alan and Janine Grainger have been brokering the buying and selling of 74 major and alternative cryptocurrencies on their Easy Crypto site since 2017 and are now turning over more than $2 million a month.
The emergence of this new electronic money is based on ‘blockchain’ technology, an intelligent peer-to-peer distributed database with multiple layers of encrypted security that continually checks for hacking or broken links.
The rapid evolution of cryptocurrencies has caught global banking giants and regulators off guard.
The IMF and World Bank, at their annual meetings in Washington in October, conceded their roles and future economic stability were at stake as they wrestled with the future of money.
Concurrently the Reserve Bank of New Zealand (RBNZ), responsible for monetary policy and a sound and efficient financial system, warned New Zealand was “nowhere near” ready for a cashless society.
We haven’t even begun to have the right social or policy conversations ahead of the inevitable changes these new technology platforms will bring.
RBNZ claimed 90% of us “preferred” to pay electronically; three-quarters used cash at least once or twice a week, and had cash in our wallets, purse or pockets, while six percent used only cash in the period surveyed.
Cash use was most common at farmers’ markets and roadside stalls. Some used cash for convenience or because they valued their privacy.
Cash decline concerns
RBNZ warned if cash use continued to decline it might be unprofitable to have ATMs or for businesses to supply cash to the public. It was concerned about its role, about upgrading cash vaults, and the impact on the digitally disadvantaged who relied on cash as a main means of exchange.
EIT principal lecturer Dr Emre Erturk who has a PhD in the international economics of information technology, says cryptocurrency will be disruptive in a “gradual and very deep way” and banks will need to revise their systems to accommodate the changes.
However, he says, that’s “not philosophically what the creators of cryptocurrency and blockchain necessarily want”.
They want to overturn or at least revolutionise the future of money in the same way Uber continues to challenge the taxi industry or Airbnb the accommodation market. “They’re looking for independence, not a centralised system that relies on banks or a regulator.”
Erturk, a self-confessed cryptocurrency geek, says some of the largest tech and finance corporates and top researchers in the world are watching or participating in this rapid evolution.
There are currently around 1,000 cryptocurrencies in a field described by one writer only months ago as “extremely volatile and anarchic with limited governance”.
While mostly used by hobbyists and often traded as an investment by those with enough extra cash to play around in this nascent market, the field is narrowing.
What Is Cryptocurrency?
Traditionally buying and selling has required banks or credit card companies to manage the transaction and take a fee for doing so. International payments are often costly and take time to clear, but we have trusted these agencies with our money and personal data.
By contrast, a cryptocurrency is a digital-only medium of exchange, using the science of cryptography, to protect and verify the information using complex maths.
This digital money moves directly between buyer and seller, removing the middleman, and the network, which cannot be fooled, keeps a permanent record of that transaction. The cost is significantly lower than bank charges and there’s little or no delay even between countries.
FANGs for the memory
Tech commentators suggest each of the FANGs (Facebook, Amazon, Netflix and Google) will have cryptocurrencies within two years, either competing or co-operating with other players like Microsoft, IBM, and Apple.
With the right kind of backing, alignment with an acceptable exchange rate, and options to merge or consolidate with existing credit card companies, Erturk suggests cryptocurrency could quickly become less geeky and ready for global use.
New developments include Ether, easier to create and exchange than the original resource intensive Bitcoin (now a generic term), and Libra, floated by Mark Zuckerberg’s social media giant Facebook, with the backing of Uber, PayPal, Visa and others.
Libra, a “low-volatility e-currency” scheduled for 2020 is underpinned with a “secure, scalable and reliable” blockchain network governed by the non-profit Libra Association based in Geneva, Switzerland.
No member will control more than one percent of the “pseudo-anonymous” network which will operate as “a true public service” with no personal data held and key details visible only to members.
Libra will have to comply with laws and regulations in all jurisdictions; users will have access to custodial wallets and businesses will have to comply with Know Your Customer (KYC) regulations.
It won’t be tied to a single currency or have a fixed value in any real-world currency but will be backed by bank deposits and government securities from stable central banks.
Kiwi crypto wages
All of this may appear removed from life in New Zealand, but in this age of global networks nothing is isolated. IRD guidelines released in August on how to declare tax on wages paid in cryptocurrency make this present reality.
Unlike Libra’s plans, payments are based on the New Zealand exchange rate in the same way as PayPal, ApplePay, GoogleCoin and others piggyback on real currency or credit cards.
While we are using less cash the amount in circulation continues to rise, but the Reserve Bank only knows where about 25% of that is. There’s evidence some no longer trust banks and are keeping it outside the system.
The RBNZ also revealed that shops and individuals aren’t technically obliged to accept cash and can insist people pay electronically, although they can’t refuse it for debt payment.
Apparently no state agency has a mandate to ensure cash continues or to manage a scenario where reduced cash disadvantages or socially excludes people.
The RBNZ warns commercial operators that ignoring the wider benefits of cash could lead to “a market failure” and require government intervention.
RBNZ Governor Adrian Orr wants the power to insist banks provide access to cash while warning us to be better prepared to face “the cash equivalent of falling posted letter volumes”.
Banks creaming it
Traditional banking systems and financial regulators face some serious challenges amid growing public frustration that foreign banks are creaming it at our expense.
According to KPMG the big four Australian-owned New Zealand trading banks raked in $5.77 billion profit in 2018, mostly sent offshore.
They have covert or overt charges on just about every transaction from bank fees to currency exchange rates, cashing cheques and using contactless or payWave cards.
The cashless or less cash, low or no fee digital pushback won’t require costly bricks and mortar offices and staff to manage and maintain and represent a kind of revolt against the existing system.
For example, the TransferWise zero-fees debit card is a response to the fact Kiwi travellers are being “over charged by banks” who took $1.55 billion from offshore card users in 2018.
It’s Platinum debit Mastercard can store up to 40 currencies with local bank account numbers making it free to use while conversions are half a percent and withdrawals of up to $NZ350 at overseas ATMs, are two percent.
Westpac Australia launched a ‘digital only’ partnership with 10X Bank to try and keep younger tech-savvy customers from defecting to open and app-based neo-banks offering easy to open and use accounts, like the new Facebook Pay, enabling payments to emails and mobile phone numbers.
New Zealand trading banks are apparently in wait and see mode, bracing for the inevitable disruption and perhaps erroneously believing most customers are satisfied with the status quo.
Most developed economies are now looking at becoming cashless. In Sweden, notes and coins account for just two percent of transactions by value and South Korea is planning to phase out cash completely in 2020.
New Money Review editor Paul Amery says the transition is happening more rapidly than most people are aware, predicting “cash will have completely disappeared in five years”.
If banks don’t help transition their customers to some form of cryptocurrency, that could, he suggests, undermine confidence and accelerate defection to the new platforms.
Personalised financial eco-systems, with smart loyalty cards for bulk-buying collectives, are already emerging around goods and services and using artificial intelligence to recognise and target customers.
Based on our social media and purchasing profiles, interests and financial capabilities, they make it simple, attractive and affordable to click and buy on-line.
Take VeganCoins, “a cruelty-free cryptocurrency” introduced in March 2018 to build greater solidarity among the world’s 300 million vegans or FairCoin, launched in 2014 as “an eco-friendly, post-capitalist cryptocurrency”, based on a circular economy with payments only released to accredited suppliers.
While that might be fine for niche groups, EIT’s Emre Erturk harks back to the Middle Ages when every fiefdom had its own coins or medium of exchange. “At some stage you need to have structure around that.”
Realistically they’re only as good as their value in relation to bigger cryptocurrencies and their ability to be translated back to a real currency. “Cryptocurrency is probably at the stage where it needs to move from that kind of chaos.”
To achieve mainstream penetration, greater integrity and stability is needed to get beyond stock exchange-like fluctuations where users fear market manipulation from investors buying and dumping.
Erturk says the market still awaits a compelling reason to transition and that might mean governments getting on board and some are already using blockchain for high-level secure services.
New Zealand, he suggests, could start with its RealMe online client identification then use an official crypto currency for passports, immigration, parking tickets or traffic fines.
A catalyst for more rapid adoption might be China, the US or the EU accepting an official cryptocurrency.
Eturk cites “network theory” as one way to understand what might happen: A system, service or network becomes exponentially more successful as the number of users grow and the value to the customer or consumer increases. “It could suddenly snowball,” he says.
Digital laundering dilemma
The digital challenge is coming hard and fast at a time when financial, border control and tax agencies are toughening their controls.
Under a proposed Australian law change, cash transactions by businesses or individuals over $A10,000 would be criminalised with fines up to $A25,000. This alleged “assault on economic freedom”, which could jump the Tasman, has been stalled for further review in February 2020.
Meanwhile the Anti-Money Laundering and Countering Financing of Terrorism Act 2017 caught many law abiding New Zealanders off guard when banks, lawyers, real estate agents and accountants were forced to revise their terms and conditions.
More detailed proof of identity was required with cash transactions over $10,000 and international payments over $1,000 flagged to safeguard our “least corrupt nation” status.
This follows claims that about $1.35 billion in proceeds from fraud and illegal drugs is laundered annually through New Zealand businesses.
Meanwhile, the IRD estimated small business underpaid tax by about one billion in 2017 and the World Bank claimed our shadow economy was over $20 billion.
Some commentators claim cryptocurrency undermines consumer protection, could destabilise global monetary policy and accelerate the misuse of money laundering and financing of crime and terrorism.
Erturk says it’s no different than the internet, which can be used for good like education, science, research and news, but also for porn and criminal activities.
“Criminals always find a way to misuse and launder money and already have their own cryptocurrency networks.”
Despite more people shopping online and using less cash, Erturk says “some will always want that personal touch of talking to a person or going to the cash register”.
While banks won’t disappear in the short term, he says, they need to be open to all options and demographics. “If you only rely on virtual money then the economy will shrink. You need cash to keep the economy going as well as new relationships with proven cryptocurrencies.”.
Erturk is cynical about wild predictions of the world going cashless within five years. “It’s like saying we’re going to be flying in spaceships … we’d like science fiction to take place sooner but I think it’s an evolving, vetting process before deciding on what works best.”
What we’re witnessing is not simply a catch-up game, it’s a new race for independent, faster, cheaper and more intuitive local and cross-border transactions and the traditional banking systems are being outflanked.
Next generation click-to-pay direct marketing and consumerism, enabled by fibre, 5G wireless and the Internet of Things (IoT), is insinuating itself deeper into our lives.
We can’t hold back the digital universe; cryptocurrencies don’t discriminate between country or currency, card or device, and it’s too late to put a paywall around New Zealand, the old walls have already been breached.