Future Forum | Bank of England

Taking everyone together

by
Ramblingsofabard
Ramblingsofabard | 3 months ago | in Banking on a new world

There are a wide range of different payment models available to a modern day individual. One can use cash, debit or credit card, online banking, mobile banking, p2p transfers, cryptocurrencies and so on.. Using a Darwinist approach, these myriad payment options exist for a reason, otherwise the society would have adapted to the latest payment method and the old method be obsolete and die out.

As we look forward to the future of payments, it’s important not to get narrow minded with the latest tech trends or what’s happening in other parts of the world. We need to have a system that takes everyone together. There are a lot of stats around UK’s ageing population. If we are heading to a world of digital currency and p2p payments, would we expect people to change their payment habits that are decades old?

A recent article in the Guardian talks about how the Mayor of London is supporting Buskers in getting ready for a cashless future. Trials are underway with contact less card readers with fixed donation amount and are connected through a fintech company. This is the level of support that’s needed if we want the society to move radically into a different world order. Buskers are just one example of a group heavily reliant on cash. The challenge is to identify other such groups, determine the supportive infrastructure needed for them, and evaluate the benefit. 

Believing CBDC 3 months ago

The Sveriges Riksbank has made great strides with the study in future payments. I recommend the latest summary of their excellent works, from Governor Ingves:
https://www.riksbank.se/en-gb/press-and-publi...-of-the-future/

Shelley (BoE Moderator) 3 months ago

Thank you for sharing this post. It is interesting and I agree that whatever the future is, needs to have buy in from all. However, you will always have those that 'fight against' change. Do you have any thoughts on how to bring everyone on board - whatever the future of money may be?

Ramblingsofabard 3 months ago

Thanks Shelley, for me it’s a lot about making sure that all sections of the society are taken forward together. This Forum and other research that the BoE along with other organisations is doing will help understand more about why different groups of society want to stick to a method that might seem archaic to some. It’s about getting the views of multiple demographics and understanding their needs. Then offering a solution that helps us move forward collectively. The example I share about the mayor of London offering Buskers the opportunity to trial receiving donations through contactless is a great example of applying modern methods in a way that meets a particular groups needs and helps us move forward.

Shelley (BoE Moderator) 3 months ago

Thanks, very thought provoking.

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Sabrina Rochemont 3 months ago

Change is scary, and our ability to adapt seems to decline with age. The changes we are experiencing are closely linked to the digital economy, aka the 4th industrial revolution. Whilst we like to look up to Sweden as an example of a near cashless society, we should take more interest in the rising technologies and driving forces in both Africa and Asia to enable financial inclusion.... and take heed..

There is little doubt that the change will continue, whether or not cash will eventually disappear altogether. The topic is highly emotive, as payments affect all of us on a daily basis, with clear conflicts. Yet, most stakeholders can benefit from the transition, if properly managed.

You may find a detailed stakeholder analysis in section 7 of this paper: https://www.actuaries.org.uk/documents/cashle...isks-and-issues


Shelley (BoE Moderator) 3 months ago

Thank you for sharing Sabrina!

Ramblingsofabard 3 months ago

Thanks for sharing Sabrina. I don’t disagree that transition is happening but is it really needed and inevitable for all sections of the society? To share an example, I have old parents who despite understanding the cost benefits of using internet based calls (e.g. through WhatsApp) would still want to use traditional phone lines. A highly micro example, but the principle still remains. Not every section of society would want to move towards a world of cashless payments. Some might not have the necessary infrastructure to allow them to, even in the UK. Others might still feel more connected to the concept of cash vs a few numbers on a phone screen. What we need probably is a system that allows those that do not want to change, still be able to carry out their payments.

Sabrina Rochemont 3 months ago

Thank you Rambiingofabard (great nickname!)
I can empathise with the parents example on a fixed phone line... such an overspend that many traditional telecoms probably rely on for core cash flow...

This issue is quite complex, beyond change of habits. I am not sure we are arguing that cash should be removed (ie transition forced upon) altogether. Indeed, Sweden and China have recently decided to protect cash in an apparent U turn (https://www.reuters.com/article/us-china-tech...-idUSKBN1K30ZI).

I see several issues:
1- Access to the infrastructure: needs and access are very different in rural areas compared to metropoles. While closing a number of ATMs and bank branches in major cities probably wouldn't cause too many issues, rural areas often lack reliable mobile signal and/ or broadband. Some areas of Canada have pooled resources to keep their ATM functional as a public good commodity, as they have figured out that cash is most spent in shops within a set distance from ATMs.
2- Accessible devices. The West generally is a prime market for "aspirational" (read expensive) smartphones. This is a key barrier to the transition. Popular take up of M-Pesa in Kenya was partly due to low 2G requirements so any low spec mobile phone could send money. Then a Chinese giant introduced entry market smartphones to Africa: https://edition.cnn.com/2018/10/10/tech/tecno...rica/index.html
3- Access to best deals is through digital payments: this is similar to the issue we experienced with customers being overcharged due to low credit ratings forcing them into charging energy meters up front. The best deals (generally, not energy focused) are now accessible through apps only, and further exclude the poor or vulnerable. It means that parts of society, who cannot afford a smartphone, are excluded from obtaining these deals. the issue extends to being able to apply for jobs, take part in community events (mostly advertised through social networks etc), so it is a much broader problem, partly related (in my view) to point 2 above.
4- As another contributor raised elsewhere on the forum, as cash is less used, the unit cost of servicing the network raises, and there will be further pressure for closures.

We reach an extraordinary paradox: the transition towards digital payments is financially excluding parts of society in the UK, whereas it enables inclusion in developing countries that cannot provide core banking infrastructure.

Ramblingsofabard 3 months ago

Very well put! It is that exclusion which Is what needs to be avoided. I see it as stages of maturity. Some countries are able to skip a few steps and utilise the digital payments to improve inclusion, as you say. I am not sure if the scope of the forum is just the UK, but here at least we have a fundamental problem of a working system that will get strained. The challenge is then to explore the stickiness of different groups, which may not be a habitual thing alone.

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Sam Woods 3 months ago

Interesting point - my colleague Dave did something on this recently, link to follow very shortly...

Oliver (BoE Moderator) 3 months ago

Thank you for your question. Dave Ramsden discussed a similar issue during his Future Forum question session and I would encourage you to read his answer - https://bankofenglandfutureforum.co.uk/post/627580

Ramblingsofabard 3 months ago

Thank you for sharing!

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Ramblingsofabard 2 months ago

A great example of a city moving towards cashless, and not leaving behind certain sections of society (at least trying to), is Beijing. Educational programmes for the elderly to train them usage of new technologies/ smart phones so they are able to go with the more technically adept younger generation - https://qz.com/1435320/chinas-cashless-econom...rly-behind/amp/

Shelley (BoE Moderator) 2 months ago

Thank you for sharing!

Sabrina Rochemont 2 months ago

Many countries in Africa and Asia have understood the importance of uniting all stakeholders around national strategies. In 2017, Nigeria failed because it did not engage Telcos, despite a strong central drive for the project. Below are my 2018 notes..

"Nigeria learnt from its earlier lack of Telco engagement. In April 2018, The Nigerian Communication Commission (NCC) and the Central Bank of Nigeria (CBN) signed a memorandum of understanding (MoU) on mobile money payment systems. 

By July, electronic payments recorded a 38.4% year on year rise, showing increasing adoption, along with National Identification Numbers, and “leading to optimism with a renewed push on financial inclusion and the improved stability of the payment system.”

By September, the growth was 56% year on year, as “banks, Fintechs and Telcos intensify efforts to deepen financial inclusion”. These are still early days, as the ecosystem needs to mature and investor support is needed. WePay has now launched its e-commerce platform.

Next is the launch of the Payment Service Banking License, enabling non-banking institutions to provide financial services, following the steps of Kenya."

Ramblingsofabard 2 months ago

Thanks Sabrina! The principle of formulating a common understanding and steps to increase financial inclusion is definitely something that BoE should consider. But it’s important perhaps to put in perspective the varying degrees of financial exclusion in a developing country and the UK. By introducing mobile payments, some African states have skipped some stages of payments industry development. The consumer views on cash and alternatives would also vary between such countries and the UK.

Sabrina Rochemont 2 months ago

Absolutely! However one can wonder why some of the emerging technologies could not be embraced in the West. Many people who hear about M-Pesa for the first time throw this question very quickly. 10 years on, does the same question apply for QR codes? They can be particularly cost effective for small and mobile businesses who cannot afford the usual PoS solutions.

Ramblingsofabard 2 months ago

I think it’s a combination of the extent that the consumer feels the need for a new payment option and the general set of information available about different options. In the West, the need for an average person is low but the information available is abundant. Makes adoption less likely

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Ramblingsofabard 2 months ago

An interesting study around 4 markets (including the UK) where about a quarter of respondents say they’ll never abandon cash. http://www.fstech.co.uk/fst/Cashless_Society_...ex_Research.php

Ellen (BoE Moderator) 2 months ago

Thanks for sharing!

Amy Buckingham 1 month ago

This idea has been advanced to the current phase

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