Tran$itioning to a Ca$hle$$ $ociety

By Angus Gillespie

Given the propensity of the constantly evolving technological revolution it comes as no surprise that some global jurisdictions are now on the cusp of incorporating a cashless monetary system for all currency transactions. With Denmark ready to officially begin a new cashless era as of the start of 2016 – and several other European countries apparently not far behind – it begs the question as to when Canada will also climb onboard, leaving our traditional wallets and piggybanks behind.

The use of paper money and annoying pocket change has already begun the phase-out stage for a sizable percentage of Canadians who have instead turned to debit cards as the primary source of making payments. Taking it one step further, wireless communication payments can now be made from smartphones. Such a technological transition has seen a number of high-profile tech companies clamour to be the leaders in this new platform. IBM, for example, wants to link wireless smartphone payments to biometric signatures to prevent anyone’s account from potentially being a victim of identity theft. Today, it’s smartphones. In the not so distant future it may be another vehicle that moves money around. Who knows, perhaps one day people will be fitted with a tiny chip that solves everything.

Besides IBM, a number of other multi-national tech giants have also jumped on the cashless bandwagon, including Apple, which has introduced Apple Pay, a one-touch mobile payment system enabled for the iPhone, the Apple Watch, or the iPad; and Google has unveiled the Google Wallet, which allows users to instantly send, receive and spend money. These new players join the likes of Bitcoin, a fully digital currency, which has already been used on an international scale for several years now.

Pioneering a Change

As the so-called prototype country leading the way into this new uncharted territory, the Danish government has proposed that retail stores could do without their cash registers from January, 2016. Meanwhile, the rest of the world will no doubt watch closely to see what types of unforeseen problems may arise before deciding whether or not to follow suit at this stage. It should be noted that essential services in Denmark, such as hospitals and post offices will still accept cash during what is likely to be a relatively long transitional phase. Despite the fact the vast majority of adult Danes have smartphones there is still a hesitance about security concerns. On top of that there are still millions of people not connected to the rest of the world via smartphone. But there’s little down that Denmark is the adventurous pioneer leading the global trend towards electronic money with its Scandinavian neighbours Finland, Norway and Sweden and in hot pursuit. The fact this part of the world is leading the charge comes as no surprise, given the high-level of expertise in wireless devices.

A cashless society is “no longer an illusion but a vision that can be fulfilled within a reasonable time frame,” says Michael Busk-Jepsen, executive director of the Danish Bankers Association.

The trend toward digital money is accelerating elsewhere in Europe with cashless payments surpassing those made with paper notes and coins in the United Kingdom for the first time in 2014. Well-known entrepreneurs such as Bill Gates have also touted the benefits of moving to an electronic monetary system, citing transparency improvements.

As of now, all retailers in Denmark must take cash but a recent survey showed that Scandinavians depend on cash currency for only about 5% of all payments. In contrast, it’s estimated that about 50% of all Canadian and U.S. payments are still made with cash. Contactless credit cards are gaining momentum while Interac debit cards with the tap-and-go feature are at a relatively early stage of market development. Not surprisingly, the use of cash is lower with younger people, but all age groups are using cash less often.

There are an increasing number of advocates who opine that it makes the most sense to dispose of cash – and even credit cards – as a cashless financial system is marketed to the public sector. Companies and even some governmental institutions are selling the idea that reaching to get cash or a credit card from your wallet is primitive, as well as insecure. Digital transactions, equipped with security biometrics could alleviate those issues.

Envisioning a Cashless Society

A panel of experts on this very topic gathered together for a discussion at the Toronto Region Board of Trade to speculate about when and how Canada will join the electronic monetary revolution and how far away are we from being market ready to embrace such a migration. The high-profile cross-section of panelists included: Wendy Braithwaite, Head of Market Development, MasterCard; Fern Glowinsky, Chief Operations Officer, Moneris; Darrell MacMullin, , CEO, BitGold; and Franklin Tallah, Principal Consultant, Verizon Enterprise Solutions.

Ultimately, Canadians want to know what a cashless society will look like for them.

“For us, a cashless future means a safer, faster and more efficient future,” Braithwaite says. “For governments and merchants it means more transparency. Our long-term vision of living beyond cash is that with people using electronic payments there is a data trail, which will enhance loyalty programs.”

“For merchants there is a higher cost in dealing with cash,” Glowinsky states. “You’ve got administrative issues and there’s not a lot of data. There are many reasons why merchants would look to drive electronic payments in their business. The other thing about cash from a consumer standpoint I think it makes for a much richer experience in dealing with merchants moving forward.”

From a business and government point of view the advent of going all-digital means a greater level of transparency, which some like and others do not.

“I think it’s less about cash and more about data,” MacMullin adds. “The payment experience should be invisible and just happen in the background.”

“It’s important that users are empowered to use those platforms online with respect to privacy and security,” Tallah says.

A historical parallel analogy can be made between the burgeoning cashless society and the advent of the automobile more than a century ago. In those early days of crude basic machinery, each automobile owner had to essentially be their own mechanic, cranking their own car and gapping their own spark plugs. By the 1950s technology had advanced to the point that it could have been tiny teams of horses under the hood generating horsepower when you pressed down on the gas pedal for all drivers would have known. The underlying technology had become invisible to the end user; it just worked. With a cashless society it’s much the same. But earning people’s trust will be made more difficult when dealing with their money, as opposed to their mode of transportation. Without a car you can always find other ways around. That isn’t the case if something goes wrong with being able to access money.

Networking Security

The conundrum runs deeper than just the consumer. It also impacts most on smaller companies, many of whom may want to take a leap of faith but are either unaware of how to go about doing so or feel that the costs would be prohibitive. Braithwaite believes smaller merchants want to migrate over completely to a cashless environment, but getting there is not easy.

“For those smaller companies it’s hard to grow their businesses when dealing only in cash,” she says. “By accepting cards or electronic forms of payments they can then build their data, which means building consumer loyalty programs and doing things as simple as managing inventory.”

About 80% of all adult Canadians have smartphones. So why heading into 2016 aren’t we using mobile cashless options at a greater level?

“Habit is a hard thing to change,” MacMullin offers. “Credit card companies and banks spend millions of dollars every year trying to be that first card in your wallet. Most people probably use their primary card 80% of the time and a couple of other cards that they use here and there.”

People in Canada are most concerned about fraud and security risks. How often do we hear about large corporate servers being hacked, and their information compromised? One only needs to recall what happened with Sony to take a pause for the cause. Fraudulent use of bank debit cards and credit cards still accounts for billions in costs.

Further complicating people’s desire to jump on board is the speed at which technology continues to evolve. With many different form factors and technologies, it’s tough to determine the ones that will succeed and the ones that will go the way of the dinosaur. Just think back to Beta vs. VHS or DVD vs. Blu-Ray as a couple of examples. But transitioning to a cashless society is a much bigger commitment. Technology continues to innovate at such a fast pace people are a bit worried about making a big bet, especially if they have a lot of infrastructure. It may take six months to deploy a complex piece of infrastructure and by then the next ‘big thing’ will have come out.

“Eventually we’ll see less reliance on the technology standards and more about building relationships through data,” MacMullin says.

“As consumer confidence rises with investments being made globally in securing and protecting information then it will become more accepted,” Glowinsky adds.

“If you think about what you’ve got in a wallet today, it’s not just money. You’ve got your health insurance card, driver’s licence, a library card, fitness club card, etc. Once you digitize and secure that information and put it in a wallet then people will start using the payment aspect as well,” Braithwaite says.

In a recent Deloitte survey of 2,000 Canadians about mobile payments, of those who haven’t adopted the method the primary reason why they haven’t is due to security concerns. That was in fact the number one reason for each demographic in every province.

“Regarding security you have the device, the data and the user,” Tallah begins. “If the industry can wrap around a series of standards I believe that will go a long way.”

Pros and Cons

As cash transactions continue to be drawn further out of society, the serenity of electronic payments also makes it easier to spend more without realizing it, creating concerns of even larger debt loads. Ironically, arguments can be made that security within a cashless age would provide both advantages and disadvantages, depending on one’s point of view.

On the plus side, it’s very easy to shut down a digital wallet remotely if it were to land in the wrong hands. Your biometric identification is unique to you, and exceedingly difficult to replicate, especially in a timeframe before having it shut. A cashless system is more convenient for users who like to combine multiple functions onto one device. It eliminates the need to carry cash or plastic cards. Payments can be made with a tap of a smartphone. It would also be easier to borrow or loan money.

But make no mistake, at this juncture there are disadvantages. It’s still not known how a total cashless financial system would work on a large scale. There is little doubt that some consumers would expose themselves to growing pains during the learning curve of the new technology, which could in turn lead to some financial quandaries. That in turn may lead to who is responsible for an inadvertent transaction – the maker of the device, the user, the tier-one wireless carrier or the financial institution.

Anytime you are dealing with wireless online, the problem of hackers must be addressed. Google has made claims its Google Wallet system is more secure than cash and credit cards, but did recently have to temporarily shut down a feature that allows users to load prepaid card information onto smartphones for spending. The reason for the shutdown was due to a security vulnerability that was exposed by a Zvelo Labs researcher at a technology convention. Beyond the network Google Wallet is on, the smartphones also may not have the necessary encryption capabilities to keep transactions 100% safe. Biometric ID systems are far from perfect and can fail and once they become part of the public domain, you can’t get them back. It’s like trying to un-ring a bell. If your phone runs out of battery power, payment will have to wait until it’s recharged.

Government’s Role

The federal government will definitely need to take a lead role in bringing the corporate public and private sectors on board along with Canadian citizens while adopting frameworks and standard procedures that will prove beneficial for all players.

“If the government can help to bring all the players together and develop a series of standards then we’ll be able to move forward,” Tallah says.

As evidence the government recognizes the Royal Canadian Mint could one day be relegated to little more than a historical museum, the federal agency recently launched a new project called MintChip, in which it’s researching the creation of a digital coin shoppers could use for transactions under $10.

While banks, businesses, and others will gain financially from an electronic cashless monetary system, government will exponentially increase its power thanks to a vast increase in data that becomes available. It would certainly put a dent into jobs being done “under the table” if the only method of payment were done digitally. It means the government would know about it, even if someone were to make $10 cutting a neighbour’s lawn. For those in society who believe that Big Brother is already too intrusive in our lives, they certainly won’t be on board with this new digital revolution. What is gained in convenience may be lost in privacy.

The Australian federal government has conducted a trial with a new cashless welfare card to stop spending on drugs, alcohol and gambling, saying it could help reduce rates of domestic violence.

Having a cashless global economy is a certainty. Canada may still be a few years away from diving in head-first, but it’s definitely coming; it’s now just a matter of when. You can place a bet – via smartphone – on it.