In this article, I will discuss the likelihood the UK economy will doggedly pursue cheap, accessible Financial Technology, or ‘FinTech’ for short, following suit with the Scandinavian pioneers in their quest for an intangible "cashless" monetary system of exchange. The scope required under such an operation and the consequences for the wider economy are far fetching for 'cash in hand', 'black market' and tax evasion cohorts, but equally, for the average British consumer.
While cash has yet to vanish from everyday rigmarole, the world's technology giants beaver away to introduce wireless smart phone communication for all. Biometric scanning features are developed to securitise your sensitive data accounts from the ravages identity theft leaves in its wake.
The FinTech revolution
Start-ups are challenging the dominance of many aspects of the banking sector. The newcomers insist that a system ‘too big to fail’ is too set in its ways. It's being called the financial technology - or FinTech - revolution. Google Wallet (Android Pay) was created to rival Apple Pay for close contact, quick payment systems using phones and watches, to fingerprint scanning. Although these two are the common household name brands jumping on the bandwagon, many others have sprung onto the scene. A revolutionary payment accessory for festival goers, Festipay, has partnered with Sziget music festival in Hungary and the country’s leading electronic transaction provider CARDNET to provide 100% cashless payments via their App/cards.
The system, as we know it, is changing. Innovators leave the incumbent giants behind, having underestimated their disruptive evolution. Can Apple and Google alongside major banks pave the way, or are they too fix set in their approach to really restructure the system?
The real pioneers overhauling the current model with their aggressive expansion programme are ‘Stripe’. Their unique selling point is to ease business transactions on-line by providing no-fee transfers. Their model incorporates Apple to aid development of mobile payment technologies, such as digital wallet (payment by electronic devices) with near-field (close contact) communication, or NFC.
Sequoia Capital, one of the more prominent Venture Capital enterprises to grace Silicon Valley, invests in Stripe, alongside PayPal co-founders Elon Musk, Peter Thiel, and Max Levchin. The company is reportedly in the process of raising more cash to expand into wider markets, such as Scandinavia, while perched atop a cosy valuation of $5 billion. David Collison, Stripe co-founder, commented: “One of the reasons we started Stripe was because the barriers to starting an online business had tumbled so much.”
One of the reasons we started Stripe was because the barriers to starting an online business had tumbled so much.
David Collison, co-founder of Stripe
The next 'dot-com' bubble
Advances are indubitable, yet restricted by the habitual nature of consumers. It takes time for consumers to come to grips with the new readily available technology at their fingertips. As the market expands for such products, we may move away from the narrow, controlled environments and approved systems into riskier, more speculative territories. Businesses, equally, have yet to catch up in upgrading their systems to allow for such advanced formats of mobile payments. Many lack the capacity for contactless card, phone or watch scanners in order to accept payments.
The wave of progression may yet stall. Some experts have suggested the industry may be blowing up into the next 'tech bubble'. 16 years have elapsed since the Dot.com bubble reached a climax.
The internet is undergoing a progressive monetisation of popular websites and apps. Charging for site use is considered akin to charging for a party. Internet firms which are well established such as Google with a seven times profit to valuation ratio are secure. However, start-ups do not. They spend large using Angel Investor money with little or no viable proven return for the investment. The hype surrounding these new and exciting apps and lifestyle aided technology software features leads to speculation, and subsequent over valuation. Progressive technology may simply be too far ahead of the game and ingrained consumer habits.
The future of FinTech
The future is here already. Automatic triggering within device reader proximity to the phone or watch. 'Digit scanning' and 'pass code' algorithms breeze off the tip of the tongue at FinTech Conferences and in the mainstream banking sectors’ digital departments. Proprietary unique biological signatures can verify identity having built a biometric picture from fingerprints, eyes, face, heartbeat signature, or voice recognition data. That net ATM withdrawal or online account access by retinal scan could soon be mainstream instead of sci-fi phenomenon for the daily consumer.
A cashless system would represent the ultimate time-saver to the consumer. Some have suggested extracting cash from a wall or paying by card archaic, primitive and easily rectifiable with secured biometrics. Implementing such procedure is not too far removed from reality. According to Credit Suisse, 80% of all purchases in Sweden are electronic, while their supply of physical currency has declined 50% over 6 years, to the extent where even homeless street vendors use mobile card readers.
Government pretexts of counter terrorism, money laundering, stifling black market and tax evasion all inconvenience any such future ‘hard cash’ exchange has.
Though technology undoubtedly may make life more convenient, it is not without its flaws. A survey discovered that young adults would rather frequent their dentist than a bank. These findings play to the speculations millennials are all too willing to ditch brand-name companies for new apps on their smartphones. While the modern consumer appears all too happy to plug in their social security number into a web page, they take laborious efforts to physically go to the teller in the bank. A testimony to changing attitudes and lifestyles or is this merely a sign of the lazy disposition our modern day society has adopted?
FinTech and influencing consumer perspectives
As FinTech shows, the question is not purely one of whether the technology is available to us. There is also a question of trust. The only formative experience millennials hold is the financial crisis. They hold a deep-seated cynicism and suspicion of large corporations, presuming them all to hold the stereotypical self-serving attributes. FinTech is an answer to the aftermath of the crisis to address the trust issues lurking behind a system that did not work. The results are self-evident with $20 Billion investment. The claimed target audience is convenience for lower income families that cannot afford high street bank fees, charges, exchange rates and the dire interest on loans.
In Britain today, it is relatively more expensive for a poor person to bank than a more affluent client. The reason lies behind the special treatment and incentive packages focused at attracting higher savers. Larger pot sizes alongside untouched long term savings in accounts are attractive targets for the banks. These funds can then be utilised to bolster the bank’s Investment branch's liquidity for speculative picks.
Enter high street bank closures
Financial revolution is not without its drawbacks. Three of Britain's largest banks (HSBC, Barclays and RBS) are undertaking bank closures in the region of 400 branches this year. The repercussions from these actions include axing staff and premises. These revelations come under a new programme of cost cutting in the industry that could leave thousands of customers without easy access to a bank. "The bank closures will accelerate the death of the British high street," said Derek French, Campaign director for Community Banking. "This will particularly have a knock on impact on local businesses and the elderly."
UK major banking groups’ branches have halved in the last 20 years and are set to reduce yet further amid profit warnings and tighter capital restrictions. Yet, banks are liable to the marginal degree of a mandatory assessment as to the impact on local communities of a branch closure.
The UK had 25 bank branches per 100,000 adults at close 2014, according to Citigroup. Comparative to our European counterparts Spain and France, with 70 and 38 respectively, we either lag far behind or are poised to join our Scandinavian neighbours in the pursuit of progress.
The bank closures will accelerate the death of the British high street. This will particularly have a knock on impact on local businesses and the elderly.
Derek French, campaign director for Community Banking
The risks of outmoding cash
Waves of speculative media reports disown and discredit current FinTech payment systems as potentially subject to fraud. While the convenience of a tap or wave appeal to consumers, the potential associated risks with outmoding cash remain. Google Wallet has suffered from plights of security vulnerabilities. One such instance was emphatically identified in style at a technology convention by a Zvelo Labs researcher. While technology ploughs on ahead, the phone’s securitisation has lagged somewhat behind.
In this modern age of digital surveillance and infiltration, there is a likelihood hackers are working on ways to exploit systems as with any other networking technologies that utilise the fallible World Wide Web. Remote shut down of digital wallets is not inconceivable.
Governments possess the capacity to isolate individuals' funds or gain access to biometric signatures and data, stifling undesirable activity toward their regimes. The potential repercussions for democracy could be extensive. Public liberties, purportedly espoused by their own governments, are under threat.
Bitcoin and the anonymity conundrum
Bitcoin is a form of digital currency, created and held electronically. It utilises a peer-to-peer system. All nodes verify transactions in a public distributed ledger called the block chain, making it incorruptible and unalterable without the private key information.
The race is on to extract this private key information behind the Block chain technology that is Bitcoin from the alleged Australian founder ‘Craig’, or by his more notorious alias Satoshi Nakamoto. Whether this individual is in fact the creator is unknown. However, it is believed he is being bribed, blackmailed and threatened by those with vested interests in keeping the system watertight.
Coercive extortion is the tip of the iceberg in the dark shady underbelly of an untraceable digital asset and payment system that conceals billions, hidden in plain sight. Everything from the legitimate investor through to tax evaded funds, illegal black market exotic pet trades, weapons, human trafficking, illegal narcotics, and even embezzled political dues may frequent this murky version of monetary Exchange.
The End of Privacy?
Firms presumed to be driven by profit motivations and maximising shareholder returns, are notorious for selling private information to governments and other firms. However, the worst culprits are to be found if one should follow the paper trails. 'Defence' spending by modern governments has gone unchecked for a long time. The US Government currently has $9 Trillion in unaccounted for military spending and surveillance alone. The audit, issued in 1996, has never been undertaken, nor, perhaps, will it ever unearth the besmirching, incriminating facts.
It remains unclear as to whether there exist any bounds limiting the proliferation of mass surveillance. The precedent has been set in electronic securitisation. The outcome may reduce civil liberties to be leisurely infringed upon or political dissent undermined through COINTELPRO government surveillance networks. For instance, the UK has 1% of world's population but 20% of its CCTV cameras. Britain is now being watched by a staggering 4.2 million - one for every 14 people, despite experts having called for a halt in the proliferation of CCTV cameras.
The desirable anonymity traits of cash
Cash is considered desirable for its anonymity. People enjoy privacy. Naturally, on more subjective or contentious purchases, who wants their names on lists? Take the recent Ashley Madison infidelity hook up webpage hack releasing the streams of personal data on serial cheating offenders in plain view for their partners, business colleagues or employers to view.
Economists have long charted how large denomination notes facilitate money laundering. Cash remains the preferable conduit by which the mafias, gangs and cartels operate, desired for its untraceable qualities. Follow the money trail further from the European high streets and the plot thickens. High value €200-500 notes in vast quantities end up in South America in the hands of the drugs cartels alongside the generic 'greenback' $100 cartel bills.
In retrospect, given that the circulation of the notorious ‘Bin Laden’ £50 note in the UK is considered an accurate indicator as to the extent of the Black Economy, the real surprise would have been were it not utilised for illicit purposes.
The €200 note is set to follow the banned €500 in the UK for this very reason. The €500 note was taken off the streets for the average consumer after it was discovered that only 10 per cent of the €500 million worth of notes brought to Britain were used legitimately. Using notes of even €200 facilitates €20,000 to fit inside a cigarette packet.
Fake exchange bureaus would request stacks of fresh, crisp euros in exchange for high street sterling. Unbeknownst to the British authorities, the British Sterling was acquired via the proceeds of crime. Individuals could then circulate the 'clean' euros discreetly, enabling the hard cash to travel abroad out of the UK in the pocket of a solo passenger.
Sticky trends and securing data
The ultimate flaw in a cashless future is the reliability of being able to pay. Whether your phone or watch dies and you cannot pay for anything presents a considerable hurdle for the engineers to tackle. This comes as many mobile devices are preprogrammed to hold short battery life and ultimately lifespans. The intention behind this ephemerality is to create an artificial consumerism for purchasers to buy the next model in the chain.
Currently, device security encryptions are not up to scratch and humans on a night out or on the tube are not certain they will not lose aforementioned device.
“Breaches” and “hacks” – the damning headlines for software developers that make front pages around the globe. The financial systems and smartphone security may be improved and more traceable than cash ever was, but humans are always a liability. It seems every day we hear about data breaches and payment system hacks, often at the hands of the average consumer’s blunder.
Of equal note, forecasts have not always proved accurate in their future predictions. The movie industry survived the VCR in the 80's and Laser Discs did not replace VHS cassettes in the 90's. Naturally, reconstructing a customary practice for billions of consumers will take time. Nostalgia and inertia are always at work, pushing back the frontiers of change. The secrecy and discrete nature of some version of cash in hand will always hold appeal for certain industries, from untraceable infidelity to the underground black market.
The real questions to pose will be the government’s position in tackling borderline topics. For instance, whether they shall either legalise certain lower category 'casual' drugs or whether implementing a cashless society will stifle the procurers' and dealers’ incomes. Emerging trends are never guaranteed to take off and ultimately the decision lies with the consumers as to how they want their identification to be verified and traced. TMM