MSP45: GOING CASHLESS

 Original Images: Pixabay. Glitched @ Kulturpop.

Original Images: Pixabay. Glitched @ Kulturpop.

MSP45: GOING CASHLESS

In a world where money really does grow from trees, are we ready to throw it away and embrace a completely cashless society? Who controls the money if we do? It’s time to Mattsplain.

SHOW LINKS

https://www.newscientist.com/article/mg23931920-800-why-the-end-of-cash-could-cause-a-new-data-disaster/

EPISODE TRANSCRIPT

Money. In our world, it really does grow on trees. And it’s mined from the ground. At least, the materials that represent money are. Why are we still using bits of metal, paper and plastic to fuel the global economy, wonders Kulturpop’s Matt Armitage? If we can moan and whinge and work digitally, why are we still reliant on physical money? Are we ready to take the next step and go completely cashless?

 

If we’re talking about money, does that mean you’re under some new UN sanctions?

·      It’s true that I like cash. I was very unhappy when the US phased out the US$1,000 as it meant I had to buy nine more stash houses to keep the same amount of money in.

·      And after one of them burned down I switched to coins. So now, as we extract the cobalt and uranium from my mines we refill them with coins.

·      It feels good to be putting something back.

 

You’re mining uranium?

·      I bought a DeLorean so I thought it would be better to have my own fuel supply.

·      I only sell to close friends so I don’t know why the UN is interested.

 

I feel like we’re moving further away from today’s topic. Is money really a Fun Friday topic?

·      What could be more fun than money? And especially on a Friday.

·      You’re looking forward to going out with friends. That costs money.

·      Catch a movie over the weekend? Money.

·      Take your kids out. Waste of money.

·      Money is the Friday-est thing in the world.

 

How does any of this relate to being ready to go cashless?

·      For the last couple of years I’ve been wanting to do a show on whether or not I could survive for a week or a month in Malaysia without any cash. 

·      Using contactless payments, e-wallets etc.

·      And where it stumbles is the small details.

·      Things like car parks. Some of them accept touch n go, some don’t.

·      I could get around by taxi and pay for those electronically. But that would mean spending a lot more money.

 

Presumably it also means sticking with big retailers…

·      There are still plenty of places that don’t take cards or scan your phone in Malaysia.

·      Mom & pop places, food stalls. 

·      And let’s face it, using your card is still a lot slower than using cash.

·      It’s why the cash only lane in the supermarket is often the fastest.

 

It must be possible, with a few tweaks to your lifestyle, though?

·      I think it would be possible, but it would be more expensive, as I mentioned about car parks.

·      I’m sure I’m not the only one who has experienced rolling up to a petrol station to find all their electronic payment systems offline.

·      Plenty of times I’ve walked into restaurants and smaller retailers to find their POS systems down and they can only accept cash.

·      So yes, you could do it. But it wouldn’t be seamless or easy in the same way that China seems to be moving towards, or even Sweden where close to 90% of transactions are made with cards.

 

So, today we’re talking about whether or not we need physical money?

·      Yes. The chances are that here in Malaysia you need some physical money in your pocket at all times.

·      When I’m back home in UK or on holiday in places like Australia or Japan, I find I use very little cash.

·      In fact, often I only use cash because I’m hoping that I get a better exchange rate than the ones the banks and credit card companies use for settling different currency transactions. 

·      But we are seeing calls for money to be phased out…

 

In favour of crypto-currencies…

·      Partly, that’s one of the options.

·      And yes, this is me easing my way into a number of shows over the next few weeks where we’ll look at blockchain and digital currencies.

·      Not all the shows, obviously, but peppered across the next few weeks. 

·      Before we even get to the idea of replacing central bank backed national currencies in favour of decentralised international currencies, I thought we should start somewhere a little closer to home.

·      Which is the immediate future of the money that’s in our pockets today.

 

Do we need to go into what money actually is?

·      Other than saying that it probably isn’t what a lot of people assume it is, this is a business station so I guess we don’t need to talk about that side.

·      I’ll paraphrase Victoria Cleland, an exec director at the Bank of England, from New Scientist.

·      Cash has 3 crucial functions in modern societies: 

o  It’s easily exchangeable from person to person,

o  Everyone knows what it’s worth.

o  It’s value changes very little from day to day

 

Which is why you keep complaining that crypto-currencies are currently largely useless?

·      Yes, because people are viewing them as an investment vehicle like a bond or tradeable asset, not as a means of exchange.

·      I’m not going to go off on one today – in forthcoming shows we’ll talk about ways that the blockchain can increase transparency and stability.

·      And why digital currencies currently aren’t doing that.

·      But the present wave of demonetisation isn’t based on digital currencies.

·      It’s based on spending money without resorting to cash, or rather, letting those cash transactions be settled at the macro level between banks rather than at the point of exchange.

 

We hear reports that cash is being used less and less but is that true?

·      I’m quoting heavily from an NS piece by Joshua Howgego.

·      And it seems that globally that’s true. But there are some odd caveats.

·      It’s also being applied a little unevenly…

 

In favour of developed countries?

·      Not strictly no.

·      We all watch the news reports about China’s cities where people use their phone to pay for everything.

·      Yes, some developed economies are leading the way. Like Sweden, Japan, Switzerland and Denmark.

·      Those all have the advantage of being relatively small economies.

·      I don’t have the data, but I think the US is probably a little behind most developed countries, simply because of its size. 

·      But digital transactions are rising in countries that traditionally excluded large parts of their population from the banking sector.

·      So you’re seeing a massive uptake of digital solutions across the African continent, for example.

·      Kenya already sees almost 50% of its GDP transacted through mobile digital payments.

 

And Malaysia?

·      We’re a kind of halfway house. We’re lagging behind Singapore in implementation and roll-out and we pale against Indonesia in terms of volume and population size.

·      At the moment we seem to be in the middle of one of those format battles.

·      We have a bunch of e-wallet solutions all vying for our mobile dollars, and each of them requires their own terminals and scanning solutions, so I don’t think that will last.

·      At the same time, the retail banking sector here has a strong reach. But there is still a vestige of that keep your money under your mattress mentality.

 

Which brings us back to the odd caveats you mentioned a little while ago…

·      Yes. Those of our listeners with the luxury of having savings will be bemoaning the low interest rates we’ve seen from banks over most of the last ten years.

·      Some countries – including Japan and Sweden – have even instituted negative interest rates.

 

You put money into the bank and it’s worth less every day?

·      Yeah. This is generally known as a tax on savings.

·      What is expected is that rather than save, you spend.

·      No big news here – we all know that the stagnation that the Japanese economy has experienced for the last couple of decades is partly caused by high levels of consumer savings and low levels of spending.

·      Low and Negative interest rates push you to spend now rather save.

 

Presumably, that should increase the demand for cash?

·      Yes. Or at least raise the incidence of transactions, whether cash or digital.

·      It can also encourage people to literally put the money under their mattress.

·      If the bank makes you little money or costs you money, or you have no confidence in the banking sector, you hold onto ever increasing amounts of cash.

·      That’s a trend that’s being seen more and more in the UK. People are keeping money at home and out of the financial sector.

 

Which still isn’t weird…

·      It is when you look at Sweden. The convenience of electronic transactions seems to be pushing Swedes to hold ever less cash, even despite those negative interest rates.

·      That’s not to say they aren’t putting their money into other convertible assets – gold, property, potatoes – but they aren’t moving back towards cash.

·      And it’s one of the factors propelling the Swedish Central Bank to take a serious look at augmenting their currency with a second, digital version.

 

When we come back: we look at the case for digitising traditional currencies versus jettisoning them in favour of a digital currency.

 

BREAK 

 

A very odd show this week. Matt seems to be offering us as much fact as opinion. I’m not sure that I like or trust it. On previous shows like this we’ve arrived at the end and he’s admitted it was all a lie.

 

Is today’s show a lie?

·      I hope not. If it is, it’s other people’s lies and not my own, which I guess would be a first. 

·      I admit, this whole world of digital money is a little confusing.

·      For example, before the break we were talking about Sweden’s current exploration of the idea of a digital currency, the e-krona.

·      Now, it’s not obvious to me why you would need to replace the currency rather than simply withdraw the notes of your existing currency as you replace them with a digital version.

·      I imagine that has more to do with monetary policy, governance and credibility than it does with technology.

 

Has any government taken concrete steps to introduce a digital currency?

·      Venezuela seems to have latched onto the idea of a cryptocurrency as a way of reining in the hyperinflation its economy is in the midst of.

·      From what I’ve read about it, no one really seems to understand what it is, or how it’s supposed to stabilise the economy.

·      Most economists don’t seem to be taking it seriously. 

·      Certainly, it’s something to watch, but its hurried introduction and the already parlous state of the Venezuelan economy may make it difficult to objectively analyse.

·      Certainly, Sweden, Singapore and South Africa, all the S countries, are looking into some form of digital currency or backbone.

 

The blockchain?

·      Again, not going to get too involved in what the blockchain is or isn’t today, we’ll do more of that over the coming few weeks.

·      Certainly, if my understanding is correct, Singapore is very interested in the ability of the blockchain to increase transparency, speed, accountability and reduce the cost of banking transactions.

·      I think its Project Ubin is currently limited to backend transactions, settling interbank debts and transfers. It’s not a consumer experiment, at least not yet.

 

And South Africa is taking a more regulatory approach?

·      Yes, SA’s central bank has instituted a regulatory Sandbox, which is quite cool.

·      It’s like the Minecraft generation is finally making policy.

·      So they’re partnering with some technology companies to examine the implication of various cryptocurrency and blockchain implementations. 

 

How is Sweden’s approach different?

·      Sweden’s Riksbank has proposed two alternatives. One would be similar to the kind of money and transaction we already use, except digital.

·      So the digital currency would be maintained centrally and money would be transferred back and forth. 

·      The second is more radical: it’s the digital files themselves that have value. Like a piece of gold.

·      Which would allow you to exchange them with people who are outside the formal banking system.

 

Is that important in a modern economy? Aren’t most people already within mainstream banking system.

·      Most are but it’s easy to overlook people in the dark or grey economy. 

·      Sociologists often look at this section of the workforce as leading precarious or chaotic lives. 

·      Not because they are necessarily doing anything criminal or wrong. Simply because they are at risk of exploitation. 

·      Day workers, casual labourers, people whose income is not fixed or regular.

·      One way to regularise them or normalise people in this sector is to give them a method of transacting that brings them into the wider economy.

·      That enables them to declare their income, pay taxes if they have to or receive government credits and it makes it harder for employers to exploit them.

·      Again, we’ll talk more about this subject and blockchain and the dark economy over the next few weeks. 

 

Sweden can’t have such a large informal sector that it needs a digital currency.

·      Obviously, there are a lot of reasons why the country is looking into an e-currency.

·      One of the interesting ones is to protect Swedes from volatility.

 

Haven’t we seen digital crypto-currencies increasing volatility?

·      Yes, and one of the reasons for that is the lack of absence of a central bank.

·      So there is no one to intervene and stabilise the currency. Great if you’re a free market advocate, not so great if you want to use a cryptocurrency to buy milk and eggs.

·      I keep saying this today, I’m not going to go too much further into that.

·      Back to Sweden – and if any of our listeners want to watch a gentle, funny comedy, check out the two seasons of Welcome to Sweden on your favourite streaming service – 

·      back to Sweden – the Riksbank is proposing the currency to partly to insure Swedish citizens against the power of digital payments merchants.

 

Like VISA and PayPal?

·      Precisely. Cashless transactions are not frictionless.

·      That’s one of the purposes I believe of Singapore’s experiments with blockchain.

·      They involve a third party. Visa, Mastercard, PayPal and increasingly those app based services we mentioned at the start.

 

What’s Sweden’s problem with them?

·      Nothing per se.

·      When you pay something with cash, you make a direct agreement with the retailer.

·      When you make a cashless transaction, there’s an intermediary. A third party who guarantees that you have the money to pay and the retailer will receive that.

·      But that increases the cost of your purchase because the 3rdparty takes a cut.

·      Either the retailer absorbs the cost or it passes it on to you.

·      It’s why, in Malaysia, some retailers will still give you an additional discount for cash.

 

Again, this isn’t new. Forgetting Sweden: why would any country want to protect its citizens from a payment gateway?

·      When cash is the majority, you don’t really worry about the third parties. They’re bit players.

·      Sweden is accelerating this, because, as we said, its citizens are already completing nearly 90% of their transactions electronically.

·      In that scenario the third parties have much more power.

·      Let’s be realistic. Apple and Samsung, Amazon and AliPay are not in this game for a slice of the pie.

·      They want the pie. Apple and Samsung, because it boosts their ecosystem and opens other profitable avenues. 

·      Amazon and Alipay because, well, they want it all. They’re a bit like the Zec in the Jack Reacher movie.

 

And because technology tends to push one party to a monopoly position?

·      Exactly. We’ve seen that frictionless adoption in tech tends to favour a dominant party.

·      Facebook is for whingeing about your boss. LinkedIn is for pretending you’re a boss.

·      Instagram is for cat pix. Snapchat is for – does anybody know what Snapchat is for?

·      If you do Tweet us but then twitter is for crazed despots so we don’t really want upi to tweet us.

·      Google is for search, Bing is just funny 

·      And Apple Maps is someone’s weird steampunk vanity project. Last week I tried it again and it told me it would take 12 minutes to walk to somewhere that was literally two minutes away in a straight line.

·      It also wanted me to use an elevated walkway to cross the same highway twice, essentially coming back to where I’d started. 

 

Tangents aside, your point is what?

·      The fear is that one or two companies would eventually rise to the surface.

·      That’s what has tended to happen in the digital revolution.

·      And then that power is concentrated. Not such an issue when it’s a 3 way tussle between Visa, Mastercard and American Express for a 20% share of transactions.

·      Less fun when it’s Apple and Amazon fighting over 90%.

 

So there’s a possibility of a chilling or distortion effect?

·      If there’s one dominant payment system then the likelihood is that payments would become more expensive, because there’s no competition to encourage lower costs.

·      It becomes take it or leave it, and you can’t leave it because no one carries cash anymore.

 

And presumably there are security concerns?

·      That’s also part of the argument. When we’ve seen concerted cyber assaults on countries like Estonia and Ukraine, payment systems come under heavy attack.

·      Taking government websites offline is one thing, but stopping ATMs and debit cards from working is a really blunt tool for causing social chaos. 

·      If you only have one system, and that system is a third party private company, you open yourself to some fairly substantial security issues.

·      No matter how good the system’s security, there will always be a weakness or flaw that bad actors can exploit.

·      And then of course there’s all that data…

 

I knew it! We’ve come back around to one of your pet subjects, privacy…

·      I told you today wasn’t going to be a pack of lies.

·      I never claimed it wouldn’t be self-serving. 

·      Why do you think my name is on the show?

·      Yes, those transaction companies would have an enormous picture of your life. 

·      Go back to Amazon. If you use the imdb website, Amazon knows your film and TV preferences, even if you aren’t using any of its services to watch or stream them.

·      Repeat that a dozen times over, and then, if you use Amazon or any of its partners for your online shopping, imagine the picture of your life it would have if it also controlled the payment gateway.

·      Considering how many transactions most of us make every day – from public transport or paying tolls to buying a coffee after lunch.

·      That’s also a physical tracking mechanism. Those till receipts show where you are and when.

 

You really don’t like Amazon, do you?

·      I’m ambivalent with Amazon. I marvel at it and fear it at the same time.

·      But it isn’t really about Amazon. Maybe Amazon won’t rise to the top.

·      But it’s an example we can all picture and imagine, so it’s useful as a tool.

·      On the other hand, digital advocates say that this data concentration needn’t be all bad.

·      Some online banks already consolidate your purchases into categories, to make it easier for you to track and manage your expenditure, showing what percentage you spend on groceries or beer.

·      But they admit it requires a different approach to privacy, which is why they maintain that the information gathering has to be upfront and obvious.

 

People have to understand what they’re opting into?

·      Precisely. And that brings us back to the e-krona. 

·      With a digital currency you know what you’re opting into.

·      With our existing money supply and the digital part controlled via intermediaries, you don’t always know what you’re opting into.

 

Most of us don’t need money for its own sake?

·      It’s not an original Star Wars figurine you want to keep pristine in its box.

·      Money is a necessity but it’s also part of our security and safety. 

·      And until we sort out the issues of security, safety and privacy, I think most of us will want to keep a little cash under that pillow.

·      You can keep your digital currencies. For now.

MATTSPLAINED, Podcast, BFMMatt Armitage