The cashless society: The hard road towards an easier way to pay
Cash, while not as common as it once was, is unlikely to disappear entirely, experts believe.
Forget cash, cards or whipping out your smartphone.
Shoppers could soon be paying for goods simply by picking what they want and walking out the door.
It's simple, really. A chip in each item detects your selection and a 3D scanner above the doorway could check your identity against a database and debit your preferred account.
Rather than being a dystopian vision of the future, online shopping giant Amazon has already made this a reality at its checkout-less Seattle store.
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Using the same biometric scanning technology we see at Customs Smartgate kiosks in international airports, customers are able to check in via a smartphone app as they enter the store, which automatically detects when products are taken from or returned to the shelves and keeps track of them in a virtual cart.
It's little wonder that Reserve Bank deputy governor Geoff Bascand acknowledged in 2015 that New Zealand's "new" banknotes could be the last ones designed for the central bank.
We may not yet have dreamed of the way we'll be paying for items in 20 years, ANZ digital transformation head Liz Maguire says.
But how close are we to having micro-chip implants embedded under our skins to make payments?
Like the Amazon stores, this has also already arrived.
One Swedish startup gives its workers the chance to have microchips the size of grains of rice inserted under their skin that can open doors, operate printers, or buy smoothies with a wave of the hand.
Eighty per cent of Kiwis would use a smartphone for everyday purchases, and almost two-thirds are keen to try out new payment technologies, according to a survey by Visa.
The pace of change sweeping the banking and payment industry is reaching a "tipping point", according to Massey University banking expert David Tripe.
Tripe says he has started noticing shop assistants on auto-pilot keying in Eftpos transactions even before checking how consumers intend to pay – and then having to cancel the transaction when someone pulls out a $20 bill.
The so-called "retail apocalpyse", where consumers shift their spending habits ever more online, is forcing bricks and mortar stores to innovate.
Not all that glitters is gold - banking expert David Tripe says Bitcoin is best viewed as a "commodity currency" because of the amount of power used in its creation.
ANZ bank digital transformation head Liz Maguire says it is combining its internet banking app with Apple's Siri and voice biometrics, so customers could securely transfer money to a friend just by saying "pay John $50" to their smartphone.
She says people may want to pay for transport using smart watches or rings, but prefer a different payment device in a posh shop.
"I am sure there will be new things that we have never dreamed off."
Even though cash may no longer be king, Maguire believes the completely cashless society may be a mirage.
The next big evolutionary step has long been touted as being the arrival of alternative "virtual" or crypto currencies such as Bitcoin.
But not everyone is convinced the hegemony of traditional currencies is really under threat.
Massey's banking guru Tripe notes the New Zealand dollar is as much a "virtual currency" as a physical one.
Green Party energy and ICT spokesman Gareth Hughes believes most people would be surprised by the environmental cost of Bitcoin.
Only about 3 per cent of the $150 billion deposited with banks in New Zealand exists in notes and coins, and the rest is just numbers on a computer.
Alternative currencies have "come and gone" over the ages, and Tripe says it is too soon to say whether Bitcoin will be also be a flash in the pan.
What seems to be clear is that Bitcoin has failed to take-off as a "means of exchange" in New Zealand, except perhaps when it comes to paying off ransomware demands, such as the recent 'Petya' attack.
Bitcoin "mines" such as this one in Iceland could be consuming as much power as Denmark within a few years, some pundits fear.
Internet service provider Slingshot made headlines in 2014 when it became the largest domestic company to start accepting Bitcoin as payment for bills.
But it quietly shelved the payment option during an upgrade of its IT systems.
"There wasn't a huge demand," consumer manager Taryn Hamilton explains.
This Amazon Go store in Seattle has no check-outs; instead people pay simply by walking out the door.
"It was a quirky thing to offer, but 'normal cash' won out after a while."
In addition to being associated with ransomware payments and tax evasion – and hence the focus of a growing number of regulators around the world – Bitcoin has another ugly secret.
Bitcoins are brought into circulation by "Bitcoin mining", which is achieved by setting up computer servers to solve mathematical puzzles than turn up Bitcoins at random.
The economics of Bitcoin mining is largely determined by the cost of electricity to run those servers, so creating a Bitcoin, now worth $3545, should cost close to that in fossil or other fuels.
Just as currencies were historcially made out of precious metals such as gold and silver, Tripe says it wouldn't be much of a stretch to say each Bitcoin is made out of 30 barrels of oil.
One study suggests Bitcoin mining could consume as much electricity as Denmark by 2020 and American Nobel laureate for economics Paul Krugman is among those who have described it as a terrible step backwards for currencies.
The environmental debate over Bitcoin mining also appears to have the Green Party thinking carefully, even though it is a natural ally for alternative and barter currencies.
"We don't have policies specifically on Bitcoin. We do have policies supporting local currencies," energy and information, communication technology spokesman Gareth Hughes says.
"I think people using Bitcoin would be surprised to consider the environmental footprint."
So the upshot is, we may be stuck with the money we've got, but that doesn't mean it can't work harder for us.
Tripe expects banking costs to decline over time.
Those costs include not just the likes of bank fees and charges, but the "spreads" between the interest rate at which people can borrow and lend money, and at which they can change money between different currencies.
"As payment systems become increasingly technological, costs are declining," Tripe says.
The growth in the number of non-bank companies that are springing up offering people cheaper ways to move money around the world suggests that the foreign exchange market may be set for some disruption, he says.
Banks typically charge about a two per cent cut in fees and exchange rate spreads when transferring funds across borders.
That is even though they deal in two-ways flows of different currencies all the time, so the majority of transactions will "cancel out" and never require the bank to buy or sell any foreign currencies on a wholesale market.
Banks will instead maintain a "working balance" in different currencies, Tripe explains, and will only buy or sell currencies if they consume that and need to cover their position.
Maguire says ANZ is testing the distributed ledger technology of blockchain – not to be confused with Bitcoin itself – to process international payments faster and more securely.
"This proof of concept has been adopted by international payments service Swift and 45 leading banks from around the world have signed up to be part of the pilot to test this.
"It is always important that there is a reasonable price for the services we offer," she adds.
Aside from being untraceable and hence useful for buying things on the black economy, or from people you'd rather not deal with again, cash may also prove to be valuable when "the big one" strikes – should Eftpos and ATM networks go down.
The Civil Defence and Emergency Management Ministry doesn't specify an amount to have on hand but says people should be able to make do for at least three days.
"We understand supermarkets will still be able to process electronic payments, in most cases, as they have a process that allows this to occur offline.
"We also understand that local bank branches will act to make cash available via non ATM methods," a spokeswoman says.
Bar a natural disaster sending us back to the iron age – and whizzy new payment technologies aside – just what is "reasonable" when clipping the ticket is perhaps the million-dollar question when it comes to the future of money.
Over at Amazon, they're already looking at bringing the cashier-less technology to the 1200 Whole Food grocery stores across the United States that was recently purchased for $18bn.
So the era of swiping and Paywaving may not last long.
- Sunday Star Times
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