May 28, 2018

The future of Money and Payments

How quickly will we see the emergence of a true borderless global payments platform? Let's explore the future of money and payments.

The future of Money and Payments

What if everything we know about the transfer of value and the way we perform commerce was about to undergo the biggest revolution since the introduction of the coin?

Most would say any serious change to the underpinnings of commerce is still many years away. Yet many countries around the world are already moving towards fundamental changes to their currencies and payments, with many conversations focusing around cryptocurrencies. While many conversations have focused on cryptocurrency, that is just part of a global trend towards revolutionising the payments industry and cashless societies.

For example; in Australia the introduction of NPP (the New Payments Platform) has introduced real-time payments to existing fiat-based transfer of value. PayID has simplified the identification of two parties within the transaction and the Government has made it illegal to trade in cash for transactions over AUD$10,000 (with calls from leading businesses to drop this further to AUD$1,000), and the government is seriously considering the removal of the AUD$100 bill (potentially extended to the removal of the AUD$50). Australia is moving quickly to a cashless and therefore digital economy.

So, what about other governments and the move towards cryptocurrencies? Many are currently exploring what cryptocurrencies might mean for them. Norway are now considering replacing their fiat currency with a cryptocurrency. In 2017 India started to consider the viability of replacement of their Rupee with a fiat cryptocurrency and Venezuela launched the Petro, although to be fair the Petro hasn't been a roaring success.

Why are governments wanting to move this way?

There are lots of reasons of course, but many of the reasons boil down to economics. First of all, cash based payments between parties make it hard for governments to monitor and collect taxes on all these transactions. Billions of tax dollars (in Australia the estimate exceeds AUD$10billion in uncollected taxes due to non-reported cash trade) go unaccounted every year for backyard or under the table transactions.

Secondly the cost to maintain a physical currency is a huge burden on any economy (in 2016 the Reserve Bank of Australia spent AUD$55 Million on paper money and over AUD$106 Million on coins) with the ongoing battle to prevent fraudulent currency in circulation.

Thirdly there is a notion to disempower the black markets use of cash for illegal activites. Today an estimated AUD$75 billion of physical cash is in general circulation. The majority of this is in AUD$100 notes, is overseas and is often used for illegal activities. Removal of these notes changes the way black markets operate.

How quickly do experts think this is coming?

At a recent workshop held during MYRIAD in Brisbane and during TechWeek in NZ, experts in the field of currency and blockchain were asked when they thought the emergence of a disruptive digital payments platform (and/or global currency) was coming.

All agreed, the world will see the emergence of a fundamentally new global play that changes the way the world transacts, within the next 36 months. Yes that's months! Is this really possible? It's not like bitcoin payments are becoming mainstream are they? Well Brisbane Airport did just rolled out crypto-payments to all their retailers, so it's coming but it's not quite mainstream yet.

With Facebook announcing the creation of a blockchain group, led by David Marcus the ex-CEO of PayPal, someone who has immense experience in payment technologies, it's not a big leap to see Facebook introducing a digital token for trade within their platform. Facebook could (maybe within 6 to 12 months) enable over 2.1 billion people and millions of businesses to trade using a digital tokens, bypassing fiat currency hassles and exchanges. Likewise Alibaba with their huge e-commerce platform, or WeChat, (which is so much more than a chat app) could rapidly deploy global digital tokens with huge volumes of users on day one.

The consensus is that a true borderless, global payments platform like these will emerge very soon, allowing global trade beginning to leverage these while working alongside existing systems. All experts agree that there won't be one winner in this space, with interoperability between existing fiat and multiple platforms being key.

This of course introduces lots of questions about taxation, and the assumption that trade with a cryptocurrency means trading outside the taxation jurisdiction of government. Taxes have little to do with currency, the confusion seems to arise because taxes are collected and paid using a local fiat based currency. When we move to new business models and new global tools of value transfer, better taxation tools and rules will emerge.

Today's taxation rules allow many big businesses to easily bypass the rules, there are numerous stories of large global corporates avoiding taxes, or paying token gesture taxes. In a digital world monitoring and collecting these billions of dollars in unpaid taxes becomes much easier for all parties.

Advantages of a government embracing a digital currency coupled with blockchain technology also introduce true transparency and real time budgets to government. For example; when a government allocates funds to specific areas, (eg health, education or R&D) the citizens will be able to see the funds in the correct accounts with full public trails on usage of these funds.

As digital currencies and blockchain technologies emmerge this will allow governments to accurately tax corporations and individuals in real time. This collection of additional tax dollars can allow for a Universal Basic Income, improved education, healthcare and public services become a reality.

Changes to currency and payments are really exciting, it will change the power a government has over the value of currency and yet create incredible new opportunities to collect taxes faster, more efficiently and more fairly than ever before. Business trade will continue to become simpler and soon cashflow will no longer be the key frustration in business. MYOB recently published a report on the march to cashless society that is worth a read.

So, what do you think?

Will we see the emergence of these global payments platforms within the next 36 months? And if you think the answer is yes, then how long do you give the age of the dollar? Either way, the next 5 years are going to be amazing in the world of money and payments.