The future of exchanging value

Cover for ‘The future of exchanging value’ reportI had the pleasure, over the last few months, of working with Peter Williams (Centre for the Edge) and Ian Harper (Access Economics) at Deloitte to pull together a report on the future of money. You can find the result of our deliberations on the Deloitte web site in the report The future of exchanging value{{1}}. Down load it, mull over the questions it raises, and share your thoughts.

[[1]]Peter Evans-Greenwood, Ian Harper & Peter Williams (2012), The future of exchanging value: Uncovering new ways of spending, Centre for the Edge, Deloitte[[1]]

The major trend we saw in our review was an accelerating shift away from the cash register as the place with consumer and merchant transact. When we think of buying something – either from a merchant or a friend – we typically assume that the transaction will be cleared and settled at the same time. This is no longer true as when, where and how we pay are all rapidly changing.

When we pay has changed. First with cheques and then credit cards and, most recently with the rise of the internet. Where we used to engage in a shopping mission to find the things we needed—searching for the channel that had the best trade-off between price and product and then heading to the point-of-sale to settle with the merchant—the trend is toward impulse buying. We skip between channels with a vague notion of what we might want, buying impulsively when we realise that we have a need (a need we might not have even recognised until that moment) that can now be filled.

A teenager has been admiring her friend’s sports shoes, investigating different styles while they were window-shopping during their last trip to the shopping centre. At her friend’s house one night, she tries on her friend’s shoes to see how comfortable they are, and decides to buy some then and there. Going online she quickly finds a retailer that has the style she wants in her size, and at the lowest price. She places an order, with the sports shoes being shipped directly to her home.

Where we pay is changing too, driven by the growth of the internet and the mass adoption of smartphones. The point-of-sale is migrating from where it is most convenient for the merchant to where it is most convenient for the customer. The Apple stores are a great example of this, with the cash register initially located near the Genius Bar before moving to the iPod Touches that staff carry, and it’s now jumping across to the customer’s own iPhone. The recent virtual shops that Tesco and Woolworths have been putting at train stations is another aspect to this trend.

A consumer is wandering through a shopping centre, whiling away a hot afternoon in air-conditioned comfort by trying on a few clothes and catching up with friends. Finding something they like, they scan the barcode with the camera on their smartphone. An app searches on-line and off-line retailers to find where else the same garment can be found, providing the consumer with a list of options ranked by colour and cost. The consumer can choose the garment they prefer and either walk around the corner to another off-line retailer offering a cheaper price, or simply have the garment sent directly to their home from an on-line retailer.

How we pay is changing, as consumers becoming increasingly comfortable with using complimentary currencies to pay for purchases and settle their debts. This is due both to the dramatic increase in merchant gift cards (despite the bankruptcy of the RED Group, and consequent devaluing of all the group’s outstanding gift cards), and the boom of virtual currencies such as those used in World of Warcraft and Apple’s iTunes store.

A teenager wants to buy the latest episode of their favourite videogame online, but finds themselves unable to obtain a credit or debit card. Heading to their local newsagent they use cash to purchase a gift card from a major retail chain. When they return home they use the credit stored on the gift card as a complementary currency to purchase their game via the Internet store of a second retailer, one related to the company providing the gift card only by their willingness to accept the gift card in lieu of sovereign currency.

This is all very exciting, but also somewhat terrifying if you’re a business or regulator involved in the current payments network as it changes some of the assumptions behind how these organisations operate. What does it mean to a merchant who accepts a majority of their sales in something in a complimentary currency provided by a social media platform, and how does this change their risk profile? Will that investment in rolling out NFC to the payments networks payoff (I wouldn’t hold my breath)? And how does a government secure its tax base when transactions move offshore and into a currency that it does not control? These are the sort of questions we look at in the paper.

The big question everyone asks though is ‘does this mean that we can do away with cash?’ Unfortunately this is not a question that we have an answer to. For techno utopians cash won’t die fast enough, as they prefer the convenience (as they see it) of mobile and contactless technologies. Regulators would like to see an end to cash as well, as it floats the black economy and is a major conduit for financing crime. On the other hand, eliminating cash has the potential to disenfranchise the most vulnerable in society—those of us struggling to cope and sometimes homeless—as they don’t have the bank accounts, credit ratings of mobile phones required to move away from cash. Until we solve these problems cash is here to stay.