How are a we doing on the road to digital money? Here’s a round the world, whistlestop tour of some countries who seem to be pulling ahead of the pack in the race to a fairer and more efficient economy.

Someone sent me a link to an article about world cashlessness on CNBC. It uses the results of MasterCard report to make a top 10 list of countries heading towards cashless economies.

Based on the rate of cash-free transactions and the percent of the population that relies on a debit card, here is a look at the 10 countries leading the pack toward a nearly cashless economy.

[From The world’s most cashless countries]

Ok, why not: let’s have look through. I’ve put the comments from CNBC in italics and added my own comments underneath. I stress again that these are not my rankings (I would have Iceland at no.1, since as far as I know it has the highest proportion of non-cash payments at retail POS anywhere in the world and a well-developed mobile account-to-account infrastructure) and I’d also have Norway somewhere near the top of the list. But anyway that’s not the point of the post, which is about exploring the CNBC top 10. I’m naturally curious as to your first-hand perspectives on these countries and there cashless gradients so please feel free to comment.

10. South Korea

Non cash payments’ share of total value of consumer payments: 70 percent Percent of population with a debit card: 58 percent South Korea might have been higher on the list, but societal and governmental initiatives that seek to reign in household debt by reducing usage of credit cards have pegged it down to number 10.

I’ve written more than once before that Korea is an interesting place to look at for lessons and ideas but because of the particular and unusual market environment it is not a template for either Europe or the US. One interesting lesson to look at right now is the relationship between “tap and pay” and “app and pay”. Both types of mobile payment are in use in Korea already, and the race isn’t even close..

The curves have been clear from the start. In-app payments dominate by volume and value and the important impact of ApplePay is not an uptick in NFC usage in the USA but the transformation of remote payments from card-not-present to cardholder-present.

9. Germany

Non cash payments’ share of total value of consumer payments: 76%. Percent of population with a debit card: 88 percent Munich’s Oktoberfest, long known for dirndls, lederhosen and tipsy American tourists gaping at the people wearing them, has become a more expensive proposition in recent years: A liter of beer ran revelers around 10 Euros this fall.

I was taken aback to see Germany in at no.9 as a good friend of mine who spent a few weeks in Germany this year told me that she was genuinely surprised to see people paying for everything, in all kinds of shops, with wads of Euros, despite the wide variety of card products available.

Germany remains one of the most cash-intensive advanced economies on earth.

[From Why Germans pay cash for almost everything – Quartz]

I would have thought that there were a bunch of countries that are more cashless than Germany, but there you go.

8. United States

Non cash payments’ share of total value of consumer payments: 80%. Percent of population with a debit card: 72 percent The simmering shift to electronic payments has boiled over in the past few months, with Apple announcing its new “Wallet” service and introducing, along with Microsoft and other tech companies, electronic watches with payment capabilities.

Cash use in the US is falling as the debit generation takes over and the cash in circulation statistics are misleading because so much US currency is actually out of circulation.

$20 in cash. This may seem like a strangely small amount. But younger people will tell you that carrying $40 sounds strange. We are starting to see the first signs of the end of cash

[From Cashless Society? It’s Already Coming – NYTimes.com]

You can’t even spend a $100 bill in a lot of shops in America yet production of $100 bills is booming and the production of $20 bills (a decent proxy for the use of the cash in retail transactions) is at its lowest level for a quarter of a century.

7. The Netherlands

Non cash payments’ share of total value of consumer payments: 85 percent Percent of population with a debit card: 98 percent Driving into Amsterdam? Make sure you have a credit or debit card on you; the city’s parking meters no longer accept cash or coins. A number of retailers and restaurants in the city also refuse to take cash; Dutch customers have taken such policies in stride, with 75 percent of them understanding and accepting of no-cash rules.

The Netherlands is as near as dammit cashless already. That picture comes from the window of pharmacy and you haven’t been able to use cash at pharmacies for four years. Some supermarkets are talking about going cashless within the next two or three years. Last time I was there I used my transit and my credit card and… er, that’s it. Absolutely everywhere takes cards and absolutely everyone has one. Well, when I say “everywhere”, I mean everywhere except coffee shops (and not for the reason you might think, as I wrote a few years ago).

6. Australia

Non cash payments’ share of total value of consumer payments: 86 percent Percent of population with a debit card: 79 percent If a relative is taking “No Shave November” a little too seriously, it may help to turn them on to another trend that may be beginning to catch on: No Cash November, launched by Australian billionaire Andrew “Twiggy” Forrest in his home country. Unfortunately, however, there’s no reason why somebody can’t both not shave and not use cash.

The picture shows me paying in a cab in Sydney using a UK contactless card a couple of years ago. The whole continent is contactless crazy. Around two-thirds of all card transactions in supermarkets are contactless.

On my last trip to Australia. I paid with cards everywhere, and almost everywhere I paid I paid with contactless

[From Crime and contactless]

Australia and New Zealand are both well on the way to becoming post-cash societies. When I was last in New Zealand I couldn’t pay with cash at the convenience store I visited because they didn’t take cash after 7pm.

5. Sweden

Non cash payments’ share of total value of consumer payments: 89 percent Percent of population with a debit card: 96 percent Bank robberies in Sweden plunged from 110 in 2008 to only 16 in 2011, the lowest level since the country started recording its numbers in the early 1970s. The reason? Swedish banks are carrying less cash than ever before. There’s often nothing for would-be thieves to steal.

Sweden is the one country in the world where the amount of cash in circulation has actually started to fall, which leads some people think that Sweden might become the world’s first cashless country. Bjorn from ABBA, for example.

Why we don’t accept cash at ABBA the Museum…

The Swedish Krona is a small currency used only in Sweden. This is the ideal place to start the biggest crime preventing scheme ever. We could and should be the first cashless society in the world. We at Swedish Music Hall of Fame and ABBA the Museum want to be in the vanguard of this revolution and if this means a small inconvenience for you, please bear with us.

[From Cashless EN | Abba The Museum]

Sweden is, to me, a terrific case study because it Sweden there is a broad alliance against cash, comprising the labour unions, law enforcement and other groups.

4. United Kingdom

Non cash payments’ share of total value of consumer payments: 89 percent Percent of population with a debit card: 88 percent Before you step on one of those famous double-decker buses in London, make sure that you have an “Oyster Card” or a prepaid ticket on you. From July 6, city buses stopped accepting cash as a valid payment. Still, it’s doubtful that too many Londoners will care; only 1 percent of commuters used cash in 2014, compared to 25 percent in 2000.

According to the British Retail Consortium, cash use at POS fell again last year and is now down 14% over the last five years. We’re on the way to cashlessness, but it’s a shallow slope. I expect the UK will divide along class lines (there you go bringing class into it again, Ed.) with the middle classes abandoning the stuff entirely except for tax evasion, drugs and prostitution.

3. Canada

Non cash payments’ share of total value of consumer payments: 90 percent Percent of population with a debit card: 88 percent If you’re from a border town like Buffalo or Detroit, at some point you’ve probably rummaged in your pocket for a few pennies, only to find that one or more of your coins is emblazoned with Queen Elizabeth instead of Abraham Lincoln. That scenario is about to become a lot more unlikely; starting in February 2013, Canada stopped minting and distributing pennies, supposedly saving the country $11 million a year.

I think Canada is another country on the way to practical cashlessness. I can’t remember the last time I used Canadian notes or coins when visiting. A year ago Canada has raised its contactless limit to $100, which would cover 86% of all credit and debit card payments, and ontactless transactions are already 10% of all card transactions there. The take-up is wasy to explain: Canada is an EMV market, so tapping is much quicker and easier than inserting a chip card and tapping in a PIN.

2. France

Non cash payments’ share of total value of consumer payments: 92 percent Percent of population with a debit card: 69 percent If you live in France, are saving up to buy a new car (perhaps a Citroën), and keep all of your money under your mattress, we have some bad news for you: The country has disallowed any cash transactions over 3000 Euro. You can still buy a car using cash from a friend, but if you’re paying them more than 1,500 euro, you legally need a bill to prove payment.

France has, according to the ECB figures, a rather inefficient payment system overall because of the continued high cheque usage in the country. Having said that, it is debit card nation that is actively working to get rid of cash..

In case you’re wondering, that’s me drinking French champagne in a toast to celebrate that France took over from the UK as the card fraud capital of Europe in 2013.

1. Belgium

Non cash payments’ share of total value of consumer payments: 93 percent Percent of population with a debit card: 86 percent Belgium has a law similar to France’s with regard to limiting cash payments to 3,000 euro. Belgium’s law goes a step further, however: It could charge up to 225,000 eurosfor a violation. Perhaps the 14 percent of Belgians without a debit card ought to reconsider their choice.

I was really surprised to see Belgium no.1 as I was under the impression that many retailers there still prefer cash because of tax evasion.

At dinner, a couple of people were reminiscing about “Proton”, the 1990s accounted electronic purse scheme that had been launched in Belgium… the merchants didn’t want electronic money, they wanted cash because they didn’t want to pay tax. Cash wasn’t 2% or 5% or 10% cheaper than cards, it was 50% cheaper than cards.

[From Search Results belgium]

Belgium has just launched a national mobile payment scheme as well, so this might serve to displace cash further because of the convenience using smart phones with bank accounts for payments in a country where, essentially, everyone has a smart phone and a bank account.

So well done Belgium, but let’s hope that this time next year the UK will be able to claim the no. 1 position now that we have a new Payment Systems Regulator and a Chancellor of the Exchequer with the foresight to see cheques clearing in only two days in a couple of years time.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Central banks and criminals are colluding to grow the shadow economy, which seems mad to me, because the seigniorage income from the circulating medium of exchange is a fraction of the tax gap it stimulates. Surely we should have a plan to do something about this?

In my recent book… wait, did I mention that I have a book out? It’s called “Identity is the New Money” and it is available from all good bookstores… I point out that there is a growing “cash gap” in developed economies as the amount of cash in circulation races ahead of economic growth.

In a superb new paper, the economists Jonathan Ashworth and Charles Goodhart delve into the fact that this is also true for the UK.

It is a remarkable fact that the ratio of currency to GDP in the UK has been rising, despite the greater use of card and online payments (see Figure 1). The currency-to-GDP ratio now stands at 16.1%, compared to 13.3% in Q4 2007.

[From Trying to glimpse the ‘grey economy’ | vox]

In their detailed examination of the statistics, the authors make a clear distinction between the “black economy” (e.g., drug dealing and money laundering) and the “grey economy” of activities that are legal but unreported in order to evade taxation. When your builder offers you a discount for cash and you pay him, you are participating in the grey economy. When your builder offers you crystal meth and you pay him, you are participating in the black economy. They define a total “shadow economy” as the sum of the black and grey economies. This shadow economy is growing and is costing billions (which mortgage-paying, PAYE-slaves like me have to make up for with our taxes).

Patrick Stevens, tax policy director of the Chartered Institute of Taxation, said: “These figures suggest that tax evasion and other illegal activity are costing the Exchequer nearly five times as much as tax avoidance”.

[From UK tax gap climbs to £34bn – FT.com]

Hence the question as to whether the amount of cash in circulation might be in some way related to the shadow economy and me being taxed up the rear-end to to provide services to self-employed tradespersons whose income comes in just under the income tax threshold? Are there other explanations? The authors note that there was a jump in the amount of cash in circulation around the time of the global financial crisis (which might be expected as the public saw television pictures of customer queuing to withdraw their money from Northern Rock) but that it did not fall back after stabilisation. Thus, they ask, is the amount of cash still high because the general public are concerned about the safety of banks (hint: no) or are there correlating indicators of a growth in the grey economy (hint: yes, ranging from the growth in self-employment to VAT increases and, hence my earlier example, housing repairs).

Just to illustrate what is going on here, I took the latest figures that I could find and made them into a chart similar to the one above but showing the actual figures for the UK. As you can see, the jump that Jonathan and Charles talk about is clearly visible but the decade-long trend lines are the same as for the US: the amount of cash “in circulation” is racing ahead of the growth of the economy.

Charles and Jonathan refer to an older paper “Is Cash Becoming Technologically Outmoded? Or Does it Remain Necessary to Facilitate “Bad Behaviour”? An Empirical Investigation into the Determinants of Cash Holdings” (London School of Economics: 2000) that looks in detail at the substitution of cash at retail point of sale (POS) and shows that ATMs and POS terminals have an impact on the demand for small notes but overall, and I think this is a really interesting and important point to bear in mind, the central conclusion is (as they say) “on our evidence, the effects of modern payment technologies on the demand for cash are not that strong”.

Wow. That’s huge. In essence, it means that the demand for cash from central banks is not to support the economy but to support crime. We need to have some joined-up thinking and it is time we tackle the issue of cash and criminality head-on.

Lots of shady activity may also be bad for growth. Shadowy firms find it hard to borrow, which limits their productivity. According to Francesco Pappada of the Einaudi Institute of Economics and Finance many small firms in Greece deliberately avoid taking out loans because it involves being more transparent. Unproductive firms pay low wages.

[From Greece’s shadow economy: The treasures of darkness | The Economist]

But back to the point. Charles and Jonathan’s work (which estimates that the UK economy is significantly bigger than shown in official figures) seems to me to explain the growing tax gap in the UK as well as some other strange economic behaviour around the labour market. Now, in a talk about electronic money that he gave a couple of months ago, Charles was kind enough to refer to some of my thinking around “privacy money” as a way forward so I’m going to promote some ideas around that to our clients in the payments world to see if there is a win-win around the corner.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Cash is becoming a payment mechanism for poor people (and poor countries), but because of its high costs it’s very bad for both of them. Oh, and it’s really annoying for women, even if they are not in poor countries.

The latest survey of payment preferences in the US show that cash is still holding on for small purchases but it’s steadily sliding. Everyone used to use case for this. Now, two-thirds do. Soon (praise be to Apple) it will a half.

In-person purchases of less than $5. The breakdown: 11 percent prefer credit cards, 22 percent debit cards, 65 percent cash.

[From Poll: Cash or card for $5 purchase?]

Personally, I never use cash unless there is absolutely no alternative. I’m not particularly unusual, given my demographics. Broadly speaking, cash is the preserve of the poor.

A combined 38 percent of those making $75,000 or more preferred plastic for small purchases, compared with 43 percent of those making $50,000 to $74,900, 32 percent of those earning $30,000 to $49,900, and only 23 percent of those making less than $30,000.

[From Poll: Cash or card for $5 purchase?]

I came across a very interesting gendered perspective on all this a while ago. I know from the statistics that women are heavier users of debit cards than men but I hadn’t really thought about why. It turns out, however, that other people have.

It’s the fault of every “service” establishment that puts up the most oppressive sign a woman will see in her life: “Cash Only”.

[From Reductress » White Woman Speaks: I Don’t Have Any Cash On Me]

Now I hate those signs as much as the next person, and I am outraged that it is not the law in New York to force restaurants to have a sign on the door in big letters if they do not take cards — something along the lines of “mafia front, cash only” or “you pay taxes so we don’t have to” — but I hadn’t thought how much more annoying they are for women who don’t have pockets with loose change in them.

I can only afford to keep actual things of value in my wallet: my debit card, my dad’s Amex, and my Discover card that has a great rewards system.

[From Reductress » White Woman Speaks: I Don’t Have Any Cash On Me]

Last time I went to a restaurant that didn’t take cash, it cost me $3 to get cash out of the ATM next door (compared to the 50 cents it would have cost the restaurant if I’d been able to use my card). I’m not the only person who has noticed a steep increase in the overall total social cost of payments, driven by attempts to shift private costs between stakeholders (in a sub-optimal manner).

Let’s use a transaction at a local juice bar in Prospect Heights, Brooklyn, as a real-world example. As a first-time customer, I ordered a $6 smoothie. When attempting to pay for the item, I was abruptly told: “Cash only! But, there’s an ATM for your convenience in the store.”

The surcharge-fee was $2. The problem here is that as a consumer, I’m now paying 33 percent more for the cost of my desired product. Had the merchant accepted debit/credit cards for a $6 purchase, they would have paid typically between 2.75 percent and 4.25 percent.

However, in this type of environment, the consumer is footing the transactional cost and actually paying 7.7 times to 12 times the rate the merchant would have paid in interchange.

[From Consumers’ real-world cost of cash: A defining moment for ATM deployers and merchants | ATM Marketplace]

This is truly bizarre state of affairs. I guess for most of the people reading this blog (who are not, by and large, poor) the fact that is costs a dollar or two extra to buy drink doesn’t matter. As far as I am concerned it should be a condition of getting a business licence. If you want to take consumers money, you must by law accept debit cards with no surcharge. If you want to surcharge for credit, check, cash, old gold or cowrie shells then it’s up to you. But if you want to be in business, you should have to take debit “cards”.

If I had left the store, I never would have enjoyed a smoothie that day, as there were 15 other businesses that housed ATMs on the same street, all with similar cash-only policies or minimum purchase amounts for using a debit or credit card. Some merchants even charged 50 cents to $1 as a surcharge for accepting debit or credit cards.

[From Consumers’ real-world cost of cash: A defining moment for ATM deployers and merchants | ATM Marketplace]

Gender issues aside, the numbers are telling us a simple story. Allowing merchants to accept cash is bad for society, bad for the economy and especially bad for people who are trapped in the cash economy. And it’s bad for women too. End the cash menace now!

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

The relationship between payments and anonymity (which we can label “cash” for short) is far more complicated than it appears. If you ask people whether they want anonymity in payments, they are very likely to say yes, but that’s because they haven’t really thought about it.

A resurgence of interest by journalists means that I am once again drawn to Bitcoin and the question of whether Bitcoin or some other cash replacement technology is the future. I generally send the journalists to sleep with my standard four hour lecture on the history of the impact of technology drivers on the functions of money and end up by telling them that Bitcoin isn’t like WoW Gold or PayPal. Bitcoin is a different beast: Bitcoins aren’t like Amazon Coins or online game credits because they combine the mechanisms for exchange with the store of value. Bitcoin is therefore much more interesting, which I why I take an interest in the evolution of (and learning from) the Bitcoin ecosystem even though I remain sceptical of its long-term traction as a currency. And why I was so happy to see my old friend Jon Matonis on the agenda at the EPCA in Brussels last year. It’s important to have serious debate on these issues with serious thinkers. (There was a definite connection between Jon’s excellent presentation on Bitcoin at the EPCA and Bernado Batiz-Lazo’s talk on the paleo-future of cashlessness at the Tomorrow’s Transactions Forum in London, by the way, in that they both used the word utopian.)

Jon and I agree on a lot of things. For example, I’m not sure I buy Douglas French’s bullish take on Bitcoin at the Laissez-Faire Club, but I think Jon and I share his take on private currency as part of a spectrum of future currency choices. They way that money works now, with fiat currencies under the control of nation states is a transient implementation. There is no reason to imagine or expect that it is the only, or optimum, way of organising money. It may well be the private currencies, for example, are the future (I have written about this for a forthcoming book on digital currency – details will follow).

Maybe what the banking industry is really afraid of is the Amexes and Wal-Marts of the world creating their own currencies and banking systems.

[From Currencies of the Future | Laissez-Faire Bookstore]

Indeed, I was pontificating on same not only in my book chapter but also at the wonderful Cafe Scientifique at our favourite pub down at CHYP End, The Keystone, when they invited me along last autumn. I’m not sure that the banking industry is absolutely as frightened about this as the Bitcoin acolytes think: if Wal-Mart ran the world’s money and Sam’s Shillings were the official currency of the USA, I’d still need to borrow some from Wells Fargo if I wanted to buy a house.

So what don’t Jon and I agree on? Well, Gizmodo had an article about the technologies that we will still be using a couple of decades from now. One of them was, as it happens, cash.

In the information age, paying by cash is the best way to keep your purchases anonymous. Aside from simply preserving your privacy, paper money is a great shield against identity theft, because the payee doesn’t even get your name, let alone an account number. The government would probably love to end the use of cash, because it allows payees to keep illegal transactions off the books, but paper money is the only form of payment that doesn’t require a third party like a bank to get involved.

[From 15 Current Technologies We’ll Still Be Using in 2030]

It does require a third party (like the US government, in the case of Benjamins), but that’s not what I want to argue about. It’s that point about anonymity as a desirable characteristic of a cash replacement technology that I want to drill down into and explore.

As society goes increasingly cashless, payment companies will have a larger business, and a more valuable one, in closing the loop for offline transactions and helping deliver customers. The data they possess is without equal; did somebody buy something? How much did he spend? What did she buy? Paper money cannot be tracked in this manner.

[From Payment Data Is More Valuable Than Payment Fees | TechCrunch]

This last point is very, very crucial because it touches on the privacy issues that will be central to any realistic plan for realising the value of this data. These are perfectly reasonable concerns. But they are a plea for privacy, not anonymity.

Now, in some of the online discussions around Bitcoin, this anonymity is held to be most important in a political context, to stop the godamn federal government from taxing the sheeple. But it seems to me that If I disagree with government policy on, for example, taxation then I should either move to another jurisdiction or vote for change. Using cash and not paying my taxes (thereby increasing the tax burden on my fellow taxpayers) is not the right choice, moral, ethically or practically. The right answer is to get society to work out where it wants to set the privacy dial and then get the technologists to implement it. If we are given an unambiguous statement of requirements then we (the payments industry) are perfectly capable of designing a solution. Since no-one seems to know what these requirements are, some form of strongly-authenticated pseudonymous solution seems the right way forward to me.

Cash is not a metaphor for freedom, it is a requirement of freedom. A strong society that accepts human nature without moralizing will always have anonymous cash. Only totalitarian governments — where everything not expressly required is illegal — would want to monitor the flow of every cent.

[From Anonymous Cash = Freedom | Stowe Boyd]

There are, it seems to me, two things wrong with this argument. First, cash is not a requirement for freedom. They have cash in North Korea and they don’t have cash in Norway (well, they do, but only for criminals). Second, the tension isn’t between total anonymity and total surveillance but between the faux anonymity of an industrial society and the managed pseudonymity of the post-industrial society. Let me explain what I mean by each of those points.

Freedom is a political term in the sense it is being used here. If you live in some countries, then you don’t have any freedom and it doesn’t matter whether you are using cash or a credit card. I don’t think it helps the discussion one way or the other. Whether you think that Bitcoin is a Zionist plot or the last redoubt against the Zionists of the Federal Reserve (both opinions I’ve heard expressed in the Church of Bitcoin), it’s got nothing to do with democracy.

Anonymity makes for a more interesting discussion. I don’t want to live in a society that allows anonymity for all but the smallest transactions. I want to live in a society that provides the appropriate level of privacy. If all transactions are anonymous, then the rich and the powerful are not accountable. I’d rather all transactions were public than all transactions were hidden.

Which means we either continue to obscure and socialise financial information for the sake of retaining a truly fungible and anonymous bearer currency system — i.e. we allow the government to replace the private banking system’s money creation function — or we opt for the sort of transparency and personal accountability that kills the anonymous function of cash entirely.

[From Gorton’s battle of light and dark money | FT Alphaville]

This choice is false. The right solution is privacy-enhanced money (PEM or, as I think I will call it, ???$), not anonymity. Money that remains private in the normal course of events but if there is a fraud or some other crime, or if the police have a warrant following due process, then the veil can be peeled back and the transaction details revealed. I think that when it comes to anonymous cash, the bad outweighs the good.

Bitcoin, in an odd way, is a step in the right direction. The blockchain tells me that Wallet X sent a Bitcoin to Wallet Y, but I don’t know who wallet X and wallet Y below to. One might imagine a future version of a blockchain where I don’t know who wallet X and wallet Y belong to, but I know that (say) the “system” does and will reveal so under warrant. So, for example, if you want money from me and you send me a certificate that contains a Bitcoin public key that is digitally-signed by a regulated financial institution, then I can be confident I am actually sending money to my gardener and not an Eastern European fraudster, So who could sign the key? It would have to be someone who has carried out the relevant KYC on the key owner and can keep their personal data secure. Let’s a call it a “bank”, for the sake of argument.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

The middle class don’t think that paying their builder or nanny or gardener in cash is a crime. But it is. And, just for the record, I pay mine using FPS. We need to change this attitude to start the revolution.

Remember the interesting discussions a while back concerning the use of cash in informal economies world wide? I have speculated at a couple of recent events, including at the enjoyable Wired Money in London in July, that this “cash gap” can no longer be tolerated in developed countries and ought to lead to government policies that boost the electronic payments sector. Now I read in Prospect magazine — H. McRae. “Make your own work” in Prospect (Jun. 2014) — that Morgan Stanley estimate the UK economy might be around four percent larger than the official GDP per work statistics indicate because of this informal economy. Apparently, the increase in the VAT rate to 20% seems to be correlated with a jump in the amount of cash in circulation, as cash-in-hand becomes the norm even amongst the normally law-abiding middle class. The number of us PAYE wage-slaves is decreasing as more people become self-employed (at some point in the next few years, the number of self-employed people in the UK will exceed the number of government employees) and this has major implications for fiscal policy.

Which means, despite the fact that the use of currency in the legal economy is dwindling due to advances in cashless payments, the world still remains hopelessly addicted to cash for black economy reasons.

[From Rogoff on negative rates, paper currency and Bitcoin | FT Alphaville]

How much longer can cash be tolerated? As the burden of taxation falls squarely on the backs of those of us honest enough (or dim-witted enough) to pay electronically, and as that burden will increase disproportionately as the informal economy grows, when are we going to storm the note-issuing department of the Bank of England shouting “I’m mad as hell, and I’m not going to take it any more’ ?!

“CASH”, wrote Marcus Felson, an eminent American criminologist, “is the mother’s milk of crime.”

[From Cash and crime: Less coin to purloin | The Economist]

I suppose the average middle-class reader doesn’t regard actively conspiring with their builder to defraud the authorities and raise my tax burden to be a crime, but it is. And the scale of the crime is enormous.

For the government, the annual value of under-reported taxes in the United States is $400 billion to $600 billion. According to the national taxpayer advocate’s estimates, 52% of this gap is because of under-reporting by self-employed taxpayers. If even half of this under-reporting is directly enabled by a cash economy, the U.S. Treasury loses at least $100 billion annually because of cash.

[From The Hidden Costs of Cash – Bhaskar Chakravorti – Harvard Business Review]

But we shouldn’t be mad at the Bank of England and the US Bureau of Engraving and Printing only because of crime. Although that is reason enough to get rid of cash, there are other good reasons for changing government policy to actively manage the stuff into oblivion.

First, it would eliminate the zero bound on policy interest rates that has handcuffed central banks since the financial crisis. At present, if central banks try setting rates too far below zero, people will start bailing out into cash. Second, phasing out currency would address the concern that a significant fraction, particularly of large-denomination notes, appears to be used to facilitate tax evasion and illegal activity.

[From Paper money is unfit for a world of high crime and low inflation – FT.com]

As that piece in the FT notes, getting rid of physical currency and replacing it with electronic money would kill both birds with one stone. Why are we waiting?

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

We used to talk about the “Scandinavian model” when talking about the mixed economy and welfare state. But I’m interested in the other Scandinavian model.

In the UK we love a good episode of The Killing or The Bridge. I’m a big fan. (Wallander not so much.) One thing I kept thinking when watching The Bridge recently was how the mobile phone had been integrated into the crime drama. The mobile phone changed crime drama for good. Now you have to have complicated plot devices around why someone doesn’t have a phone, or a signal, or has two phones, or can’t be tracked or whatever. Then it occurred to me that when the Scandinavians get rid of cash, they will have to rewrite the crime drama again.

Get rid of cash? Yes. Look at how things are developing over there. In Sweden for example. In the old days, there were domestic debit cards in Sweden: BankKort and Sparbankskort. These were free to customers, who mainly used them to get cash from ATMs. Credit card volumes were low. By comparison with their Nordic neighbours, the Swedes were heavy users of cash (and hence saw far more armed robberies than their neighbours.

In 1995, the Swedes decided to ditch the domestic debit cards and replace them with scheme cards. So Visa Sweden and EuroPay Sweden sprang up — with a system of bilateral interchange fees (there are now 29 issuers and 10 acquirers who have these agreements, which are not seen — as I understand it — by Visa or MasterCard) — and began to market cards as an alternative to cash. And they had success. Today, there are no paper cheques and debit card transactions dominate at point of sale.

If you look at Swedbank as an example, they have seen debit card transactions go from 12m in 1995 to one billion today while ATM transactions have grown only from 50m to 85m. A pretty successful effort by any measure. More than 97% of Swedes have debit cards (these are issued to citizens from the age of seven years up, with parental permission) and more than 99% of merchants accept cards, with the consequence that 80%+ of retail transactions are card (it’s about half in the UK and about two-thirds in the US).

The Swedish Central Bank’s goal has begun to be achieved, in that Sweden is one of the few countries in the world where the cash “in circulation” is actually falling. However, as the Riksbanken said back in 2012, the use of cash even in Sweden is still far too high compared to where it should be on the basis of social costs (because debit cards have the lowest total social costs. They want to drive cash usage down still further.

Niklas Arvidsson at the KTH Royal Institute of Technology in Sweden predicts that paper money and coins will disappear from Swedish society – “but probably not before 2030,” he says.

[From The cashless society is closer than you think | ScienceNordic]

Cards will not, of course, be the final nail in the coffin for Swedish cash. That honour will go to the mobile phone. But there is still work to be one.

“It would also have to meet several requirements, such as good emergency backups. People would need to be able to pay even during power cuts, or when electronic systems crashed or were hacked. Currently cash payment is the only system that never fails, so it’s difficult to see how we could go totally cashless.”

[From The cashless society is closer than you think | ScienceNordic]

As I’ve mentioned before on the blog, the reason why I am curious about the Swedish situation is that in Sweden the anti-cash alliance is a broad church, embracing not only banks and law enforcement but the trade unions and the retailers.

Swedbank is piloting the use of mobile couponing with merchants in Uppsala, the country’s fourth-largest city which is bidding to eradicate cash as part of a local crime-fighting initiative.

[From Finextra: Swedbank pilots mobile couponing in cashless utopia Uppsala]

Not everyone is heading down this same path, though. While most of the bank branches in Sweden are now “cashless”, there are still reactionary forces at large.

In fact, for three of the four major Swedish banks combined, 530 of their 780 office no longer accept or pay out cash. In the case of the Nordea Bank, 200 of its 300 branches are now cashless, and three-quarters of Swedbank’s branches no longer handle cash… Fewer then 10 of Handelsbanken’s 461 branches currently do not handle cash and the bank’s goal is to have cash in every branch by the first quarter of 2013.

[From Sweden’s War on Cash Runs Into a Wall–and a Heroic Bank :: The Circle Bastiat]

Hurrah for competition. So long as the three major bank’s electronic payments are not cross-subsidising Handelsbanken’s cash then no problem. When I say that the anti-cash movement is broadly-based, by the way, I really mean it. And they have a great figurehead too: Bjorn from ABBA. I loved the interview with him in the “Digital Values” magazine, where he comments that Sweden, Denmark and Norway would be the ideal countries to go cashless first (of course, I’m hoping Scotland will beat them to it after hearing my talk to the FS Club in Edinburgh back in April). But listen to him: he is spot on!

• Go Bjorn! “It is completely incomprehensible why Sweden’s central bank is to issue a new series of notes from 2015”
• Go Bjorn! “Who needs 500 Kroner or 1000 Kroner notes?” (and as far I as understand the situation, the Swedish banks have said essentially the same thing to the central bank).
• Go Bjorn! “The problem of begging isn’t a problem of payments or payments technology”

What a guy. He’s even made the ABBA museum cashless! And when asked about that, he said “some people asked did we want to frighten away the Russians with their bundles of notes”, which might well be a more general comment about activities in a number of European capitals. Incidentally, in the same magazine, Professor Kai Olsen notes that, of course, going cashless wouldn’t eliminate crime but goes on to say that if the Nordics went cashless they would at least export some of their Eastern European criminals (“Digital Values”, p.44). Which brings me to a serious point, that I raised following a super presentation by Kurt Gjesten from the Pan-Nordic Card Association at the PayComm MEETS 2014 event. Why aren’t the general public more outraged about the use of cash to support — indeed, subsidise — a variety of nefarious activities?

Like many other Greeks, Mr. Mantzouranis said, Mr. Kantas would bring bundles of cash to his banker, who would fly to Switzerland to make the deposits when enough cash had accumulated to make the trip worthwhile.

[From So Many Bribes, a Greek Official Can’t Recall Them All – NYTimes.com]

I spoke to Kurt later in the day and we concluded that we (ie, the payments industry) need to become considerably more effective at communicating these issues to the general public. We can’t blame them for remaining ignorant about the pernicious and revolting impact of cash on our civilised society if don’t make an effort to explain them. I intend to start right away.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

There are good reasons for providing electronic payment systems to the less formal parts of the economy, for people who deserve better than cash.

As Professor Douglas McWilliams entertainingly described in his Gresham College lecture (14th February 2014) called “Prostitutes and software developers — A short history of the Italian black economy”, Italy decided to revise its GDP calculations back in 1987 in order to obtain membership of what is now the G8 by including estimates for its “black economy” in the figures. When these estimates were added, Italy’s GDP surpassed the UK’s and Italy was asked to make a greater contribution to the European Union! Oops. Anyway, to restore fair contributions, some years later, European Union statisticians revised their methodologies to treat the black economy equally in all EU countries and things like software and drug-dealing and prostitution were added to the figures in 1995.

In Diane Coyle’s excellent “GDP: A Brief but affectionate history”, she talks about this statistical revision and says that “the largely cash-based informal economy of moonlighting, avoiding taxes and regulations, but creating work and output, has been placed inside the production boundary”. So it’s measured, but the people in that economy are not contributing their fair share to the national piggy bank. We [the payments industry] don’t spend much time thinking about the black economy, but it’s an untapped market for electronic payments. Why? Well, yes, there’s a tax penalty to switching to electronic payments, but on the other hand dealing in cash is not always the optimum transactional solution. There are problems living in a cash economy.

When I went to a strip club where I could pay in Bitcoin, a dancer told me she had been tipped in Japanese and Pakistani currency in the past and had no idea what it was worth until she went to a money exchanger to cash it in. The latter wasn’t even worth changing for dollars.

[From 21 Things I Learned About Bitcoin Living On It A Second Time]

I was fascinated by this story about the weakness of cash in relation to Bitcoin and it reminded me of something I’d seen elsewhere about the relationship between cash and, and I hope readers of a gentle disposition won’t be offered by this phrase, “sex workers”. People who live on the margin get screwed by cash.

In the eastern Indian city of Calcutta, a non-governmental organisation has started a programme to help sex workers recognise fake currency given to them by clients,

[From BBC News – Teaching Indian sex workers to spot fake currency]

I can genuinely say in all of the impassioned rants against cash that I have made an industry gatherings, it had never occurred to me that one of its failings was that people would use counterfeits to defraud prostitutes. So another count is added to the prosecution charge sheet.

Prostitution is illegal in India, meaning the country’s estimated three million sex workers cannot complain to police if they are paid with fake notes. But a campaign group known as the Committee for Indomitable Women has now begun a training programme in Kolkata’s notorious Sonagachi red light zone, where an estimated 8,000 sex workers ply their trade.

[From Indian sex workers learn to spot counterfeit currency – InterAksyon.com]

Should I ever go to Calcutta, I swear I will go to meet the Committee for Indomitable Women and offer them my full support and a mobile POS. In a country where counterfeits are widespread, it is obviously the marginalised groups trapped in the cash economy who are the big losers. Fortunately, the Indian central bank has decided to help out a bit by withdrawing some of the most counterfeited notes.

Few months back, the Reserve Bank of India has clarified giving reason why pre-2005 are being removed from the system. The RBI had said, “Before 2005, the neighbouring countries had printed fake currency in large quantities”.

[From Post-2005 counterfeit notes enters Indian system before election, NIA increases surveillance : Highlights, News – India Today]

What’s my point? Well, we need to provide payment systems that deliver privacy (not anonymity) so that we can provide better alternatives to cash for people who live in the margins. They deserve better than cash.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

I’ve got a new favourite phrase! “Post-functional cash”. Love it.

When I went to the Future of Money dinner at Method the other day, one of the images that stuck with me was this. Post-functional cash.

This is something that I’ve written about before, but didn’t have a crystallised concept for so discovering “Post-functional cash” was perfect! Once cash has begun to vanish from polite society, people will need a substitute for special cases. Just like the Chinese “hell money” or the money pinned on a bride at a Greek wedding, there is cash does not serves to function as a circulating medium of exchange or a (very poor) store of value. This cash has “ceremonial” functions in society and these will survive the transition to virtual money down to the retail and individual level.

Not all of the ceremonial functions of cash will be replaced by post-functional £cash. One of our software engineers is Chinese and when we were talking about WeChat, she told me that her peers already use messaging services like that and mobile payments to send the good luck money that they used to give in red envelopes. So clearly some ceremonial functions do not need to retain a mundane foothold.

Since I was in Las Vegas drafting the original text for this blog post, at the Electronic Transactions Association’s Transact14, it would be prudish of me not to refer to the two most obvious examples of ceremonial money: casino chips (which are used for functional purposes specific to the application when money would work as well) and the Federal Reserve banknotes that I understand persons of low moral tone tuck into dancers’ clothes. Just as you buy casino chips when you walk into the casino, I don’t see why you couldn’t buy post-functional cash when you walk into a pole-dancing club. In which case I don’t think it should be made out of paper. Some kind of washable polymer might be a better choice. This may well be why the Bank of England has decided to start issuing plastic banknotes in 2016. I will ask when I next visit.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

If we are going to replace cash with more efficient electronic alternatives, we must have practical solutions to hand for certain niches not suited to digital revolution.

Since I am a wage slave of limited means, I live well away from the areas of Woking that are home to lawyers and bankers. This explains why some of the supermarkets near me have a deposit system in operation. If you want to use a supermarket trolley while shopping, you have to unlock the trolley by putting a one pound coin in a latch mechanism. When you return the trolley after shopping, you latch the trolley back on and your coin is returned. They do this so that people will not steal the trollies and melt them down for valuable scrap or simply push the shopping back home in them and then dump them in the canal. If you think it’s amazing that people do that, what’s even more amazing is that many people forget the pound coin when they return the trollies.

For we are now told that every year £20 million in pound coins is left in supermarket trolleys

[From Why do we leave £20 million a year in supermarket trolleys? | Stoke Sentinel]

Personally, I find the whole system hugely annoying, for two reasons. First, because I never have a pound coin and, since I normally shop at Waitrose, never think to go and try to find one when I’m going shopping. Second, because it’s one of those annoying use cases that people present in order to argue that there are practical barriers to a cashless society. So imagine how happy I was to discover that my wife and her friends have an ingenious solution: they have fake coins on their key rings!

The pink disk is the same size and shape as a pound coin, and the latch mechanism can distinguish it from coin of the realm. So my wife is never without a means to unlatch a trolley, even as she revels in cashlessness. I don’t see what is wrong with letting people use trollies but only once they have produced suitable identification documents and registered the identity of the trolleys that they can be named, shamed and prosecuted to the full extent of the law should the trolley be found in the Basingstoke canal, but I am happy to concede that my wife’s interim solution is practical and cost effective.

In less polite circumstance (e.g., Australia) I was asked a similar question, but about strippers. I am told that it is customary to give them banknotes during their performances. In an e-cash world, how might they prosper? If we put to one side the rather obvious solution of a Bitcoin address tattoo, I am sure that the “casino solution” will prevail. Just as in a casino you use your card to buy chips, so in Peppermint Hippo you will use you card to buy rectangular vouchers in convenient sizes that are made from durable and washable polymer. Or, as we will soon call them in the UK, banknotes. You can give these to the strippers and they can cash them up at the end of the day.

There are no barriers to cashlessness.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

A Newport man has been searching a landfill site in south Wales hoping to find a computer hard drive he threw away which is now worth over £4m. James Howells’s hard drive contains 7,500 bitcoins – which is a virtual form of currency for use online

[From BBC News – James Howells searches for hard drive with £4m-worth of bitcoins stored]

This is just the sort of story you would have seen in the Dutch press four centuries ago. Chap accidentally eats valuable tulip bulb, and such like. James is never going to get his Bitcoins back. How disgusting would it be to dig through that landfill anyway? I suppose you could over teams of prospectors a couple of million quid between them to dig down through the two metres of fetid, decomposing garbage to try and find the compacted remains of the drive, but even then would it be readable? And would he remember the password? Perhaps he took better care of the Post-It with his secret phrase on it. Anyway, with all this talk of Bitcoin wallet loss (and hijacking and theft) going on, it is good to see that there are entrepreneurs looking at the security problem from a practical perspectives.

By printing out your own tamper-resistant bitcoin wallets and generating your own addresses, you can minimize your exposure to hackers as well as untrustworthy people in your home or office.

[From Print Tamper Resistant Paper Bitcoin Wallets (BitAddress Generator)]

Unfortunately, I can see at least one tragic vulnerability to this high-security strategy for fending off e-bandits. You create a new wallet and print out the address on a piece of paper instead of storing it on your node in the global bot net. Now, what happens if you lose the piece of paper? Or what happens if, to choose an unlikely contingency, the dog eats it? If the dog eats your cash, there is a ready-made rectal recovery strategy…

Eventually, he drained and rinsed the pieces, using a screen made for sapphire panning. Once the bills were dry, he painstakingly pieced them back together with tape and put each individual bill in a plastic bag.

[From U.S. Treasury reimburses Helenan $500 after pet’s snack]

Now, to me, this is yet another reason to never use cash again. If a dog eats my Amex card or I accidentally throw it out with last night’s leftover curry, Amex will send me another one I don’t have to pan through dog shit or rotting food to find the fragments. But other people think differently, and they don’t want the man tracking them. They want to use Bitcoin and they want their hoard to be secure. Hhhmmmm…

Well, this could be good for the cash guys. Much as the European Commission insists on a completely pointless and misleading “merchant indifference test” for electronic payments, I think they should introduce a dog indifference test for new currency. I imagine that plastic banknotes might be made resistant to the digestive enzymes in a dog’s stomach in some way, and this would give the folding stuff another string to its bow. The Bitcoin chaps will have their work cut out trying to replicate that aspect of cash in circulation.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.