The Future of Cash in a Mobile-Digital World By Michael Lee, CEO What will happen to money, and especially cash, in this new electronic age? Will all money eventually be digitized? Computers have enabled an exponential digitization of information. For example, the amount of data used globally in 2011 accounted for 1.8 zettabytes (or trillion gigabytes) of digital storage space.1 By 2013 it is estimated that 5 billion gigabytes of data will be created every 10 minutes.2 Not only does computer capacity tend to double roughly every 18 months, but, more importantly, every week more and more of the human race connect to internet, through PCs, mobile phones, smart phones and tablets. Between 2000-2011, internet use increased by more than 500%, including growing at the astronomical rate of 2,988.4 % in Africa. By the end of last year, there were over 2,2 billion users,3 at least a billion of whom live in Asia. There could easily be 3 billion internet users by 2016.4 And internet has already become indispensable to the world economy: if it were a stand-alone national economy it would be a top five performer.5 The spread of mobile phone networks in a global telecommunications net of connectivity is going to be just as world-changing as this growth in computer power and access to internet. At the end of 2011, there were 6 billion mobile subscriptions, estimates the International Telecommunication Union (2011). That is equivalent to 87 percent of the world population. These three technological developments together are producing a 21st century information and communications revolution. It will shape our times just as the mass media of radio, television and print dominated society in the previous century. We will live in a mobile-digital world in which all essential information is digital, stored online and accessed by our hand-held, internet-enabled mobile devices. Considering this scenario, I am faced with a big question as CEO of the global trade body for the 2,3 million strong ATM industry: if information is being continuously digitized, and made instantly available on internet, will all money be digitized, too? ATMs are the world's principal distribution channel for cash so the question touches the lifeblood of our industry. And it goes to the heart of what money is. Money started becoming less tangible when President Nixon abolished the gold standard for the US dollar on August 15, 19716, disconnecting the world's major currencies from physical commodities of value like gold. And we have now reached a point where the technology exists to remove money from the physical world altogether by making it electronic. Today's so-called "fiat" money is in itself useless. It is simply an agreed-upon medium of exchange. And the value of money is determined purely by the supply and demand of market forces. By the time computers and internet came along, money had already become an abstract symbol. So why not turn it into a mathematical symbol, a mere matter of digits? That is what is happening with the growing number of internet-based virtual currencies such as BitCoin.7 BitCoin describes itself proudly as a P2P digital currency or electronic cash system which "does not need authorities to manage". It works by creating a digital wallet, stored on an online system, for each client. Payments can be made to other registered users on the BitCoin network. Virtual money is essentially a digital currency for any registered internet-based community. BitCoin sets up its network of registered users and issues encrypted credits to these online wallets which can be accessed anywhere, anytime by their users from an internet-enabled device. Digital wallets, such as the Google wallet, can store payment options and transaction history as well as virtual vouchers and loyalty cards. We can gain insight into the nature of virtualized money by looking at BitCoin's definition of money. They see it as an entity, a kind of token, accepted as a payment for goods and services, or repayment of debts, in any socio-economic context whether real or virtual. The US virtual goods market could reach over $2 billion this year so these online economic communities are not to be sneezed at. In addition, the growth of online retail is sure to increase the popularity of virtual currencies. We can expect to see a proliferation of integrations between the virtual economy and the real economy such as loyalty credits for retail purchases earned in digital wallets. It is but a short step from fiat money, where money is a "useless" medium of exchange, to virtual currencies like BitCoin. It is not just virtual currency which is changing the face of money. There is also e-commerce, or online payments for real goods and services. In this space, PayPal is the world-leader. It has more than 100 million active users in 190 markets and operates in 24 currencies. One difference between e-commerce and virtual currencies like BitCoin and Facebook credits is that the former is an online payment mostly using financial instruments, like credit cards, provided independently by financial institutions. Also, real goods and services are exchanged in e-commerce, linking this system more directly to the world economy. Expect a dramatic increase in ways of integrating e-commerce and mobile phones. These two technologies are busy forming a self-reinforcing virtuous cycle. The info-communication revolution in progress is likely to produce many other such examples of profitable convergences. At the moment, the marriage of internet and mobile telephony is very dynamic, a game-changing convergence with potential to, once again, transform the way we live and work. It is thought there will be more people accessing internet via mobile devices than PCs by about 2015. It must be remembered, though, that 91% of mobile internet use is to socialize, not to buy online. In our payments and cash industry, there has been a surge of online payments through mobile devices, mostly using a PIN or password for authentication. PayPal has recently noted a month-on-month increase of 25% in mobile payments. Traditionally, its online transactions have been from PCs. Now PayPal is piloting innovations like mobile ticket purchase. Aite Group consultancy forecasts global mobile bill payments will rise from US$16 billion in 2010 to US$214 billion in 2015. Yet in this "mobi-digital" physical cash is categorically not being replaced by plastic money, electronic money and virtual money. This once again highlights the amazing resilience and competitiveness of cash as a technology. Just as plastic money failed to replace cash from the mid- 1950s following the invention of the credit card in New York, so electronic money has not even remotely overtaken cash as the preferred payment method across the globe. Today, cash still accounts for at least 8 of every 10 payment transactions. Pause right there. I said 8 out of 10! That doesn't sound like a technology that is declining, does it? Cash, in other words, is still the undisputed champion of payments fifty years after the invention of plastic money and deep into our info-communication revolution. In 2011, Euromonitor International found that $14.413 trillion in consumer payments was made with cash worldwide in 2010, compared to consumer payment card transaction value at $9.582 trillion. How is that possible? And where is the cashless society which was supposed to arrive shortly after the credit card made its appearance?
Figure 1: Still from the 1963 movie "The Man from the Diners' Club" starring Danny Kaye Why is hard cash, in the hand or pocket, still so popular five decades after money first took the form of plastic? We have seen that neither plastic money nor electronic money have undermined the popularity of cash. No wonder a recent reputable history of money stated: "Despite the rise of plastic cards and electronic money transfers, cash is still the most important kind of money in the world."8 The secret of cash's longevity is that it is a simple, human-friendly technology. Otherwise it would not have survived for 27 centuries. This lifespan alone places cash as one of the top social technologies of all time. While the history of a technology is not going to save its future, it seems there is something universal and alluring about cash that a futurist must take into account in looking ahead to the future of money. At the back of cash's popularity lies what physicist and futurist, Dr. Michio Kaku (http://mkaku.org), calls the Cave Man Principle. He reckons our wants, dreams, personalities and desires have not changed much in 100,000 years and that when modern technology clashes with this primitive human self we carry around inside us, the primitive desires win every time.9 There is a constant competition, he argues, between High Tech (e.g. watching a sporting event on television) and High Touch (e.g. attending the live event in person). All other factors being equal, Dr. Kaku believes we will always choose High Touch. Cash is High Touch, digital money is High Tech. And I, for one, love "moolah" in my wallet and pocket. The KISS principle really works for me in life and business. I love the rule of Keep It Simple, Stupid. Cash is simple, quick to use and offers instant gratification. And for members of the public it's free to use. Founder of BitCoin, Satoshi Nakamoto, highlights a strength of cash when he explains that the costs and payment uncertainties of ensuring trust in electronic payments can be avoided in person by using physical currency.10 They key phrase here is "in person". After all, money is "a matter of belief, even faith", it is "trust inscribed".11 And cash represents instant trust because it seldom relies on any trusted third-party to mediate the exchange. Trust is so important to payments that PayPal reckons the maintenance of trust in online systems requires a whole-of-sector approach, no less. What Nakamoto means is that a cash transaction does not require the mediation of a whole system provided by a trusted third-party. It occurs directly and instantly between buyer and seller. Simple. Effective. Sure, the central bank is in the background guaranteeing the worth of the cash but that is all part of the broad social contract that already exists for life between a citizen and his/her government. By contrast, all forms of non-cash transactions, including uses of plastic money, electronic money or virtual money, are based on the mediation of a system with all its costs and risks. With cash, a coin is a coin and a banknote is a banknote, a buyer is a buyer and a seller is a seller. Simple. Effective. But e-cash is "a chain of digital signatures".12 Oh dear, what happened to the KISS principle here? Nakamoto describes the technical complexities of running the virtual BitCoin currency in his paper "Bitcoin: A Peer-to-Peer Electronic Cash System".13 The man-in-the-street will not understand all the jargon used in his analysis (nor do I). Unless we know why cash is both popular and effective, we will never be able to predict the future of money over the next few decades. That is why anti-cash crusader, David Wolman, who admits he has a personal distaste for cash, has got it all wrong in his recent book The End of Money in which he argues, in somewhat anecdotal style, that cash's disadvantages, such as its germs, its costs, its footprint and its abuse by criminals, far outweigh its benefits to society.14 Wolman believes when it comes to money that High Tech will conquer High Touch. I really don't think so. High Touch will always be part of human experience and cash will always be a High Touch technology. With payments, as in everything, people vote with their feet. And their trust of cash is driving up demand for cash at a rate faster than general economic growth rates. For example, between 2002-2011, the value of banknotes in circulation grew in the eurozone, USA, Brazil and South Africa at the following Compound Annual Growth Rates (CAGR) respectively: 10.6%, 5.5%,14% and 9.5%.15 These are growth rates most countries would die for at a GDP level. Humanity seems resistant to the idea of letting all our money be digitized as if it were just so much information. In electronic and virtual forms of payment, no physical money passes from sender to recipient during transactions made up of digital signals passed along communications networks from one account into another. And here lies an important point about the meaning of money. Money is not just information. Money is a personal symbol. It possesses a human value which represents the fruits of our work and productivity. The money in our wallets and bank accounts is stamped with who we are and what we do for a living. It is part of our social standing. It is a symbol of our labor and our social aspirations. It is this meaning of money which cannot be digitized. In the end Dr. Kaku is right because High Touch trumps High Tech when there is a straight either/or choice between them. You cannot digitize human experience. The fact is, an uncomfortable sense of depersonalization would seep into society if all our money was reduced to bits and bytes. Converting all money into digital characters stored somewhere in computer files inside the vaporous vastness of cyber space would hand control of money from the public to the owners of the digital economy. In so doing, money would lose some of its universal reality. Money would be stripped of its human-friendly qualities. Money should remain primarily a personal and social symbol of value, and not be turned into a cipher others can manipulate on our behalf. No wonder one popular slang word for money is bread. Like bread, cash remains a basic part of daily, human life. The tangibility of cash is important not just as a symbol of the reality of money but as part of its role as a household budgeting tool. The 2012 4th edition of the "Future of Cash" study shows that the Great Recession which began in 2008 has increased global cash demand and use as consumers attempted to shore up their savings and regain control over their budgets in times of economic uncertainty.16 Cash is real money you can feel, whereas the Chinese, for example, do not consider credit real money. With cash you can only spend what you have on you. And cash doesn't depersonalize or vaporize money. Cash is a physical symbol of the value we represent as producers in society. Cash is the public face of money. The physicality of cash is the reason why it plays a vital contingency role in society. When disasters take place, such as in the recent tragedy of Hurricane Sandy, or when there are power or network outages, cash can be the only payment system still working. Some countries are regularly hit by tropical storms or earthquakes, while during changes in the solar cycle, solar flares can disrupt electronic and communication systems. Money should never be reduced entirely to electronic numbers in some digital file owned by a private organization. Electronic, mobile and virtual money are rendered inoperable during downtime. The High Touch nature of cash must be one of the reasons why there is no evidence as yet that electronic payments work as a form of cash substitution. Our friendly anti-cash crusader quotes M-pesa, for example, as a great cash replacement system. M-pesa (M is for mobile, pesa is Swahili for money) is a celebrated world leader in mobile payments. It is a Kenyan mobile-phone based money transfer service introduced in April 2007. By 2012, 17 million M-Pesa accounts had been registered in Kenya. M-pesa allows users to deposit, withdraw, and transfer money easily with a mobile device, move money to a bank account, pay bills and purchase airtime. They can also send balances using SMS technology to other users (including sellers of goods and services), and to redeem deposits for cash. M-pesa customers can deposit and withdraw money from a nation-wide network of agents that includes airtime resellers and retail outlets acting as banking agents. Users are charged a small fee for sending and withdrawing money using the service. The success of M-pesa is one reason why Wolman is betting on cell phone payments to replace cash. But the evidence is not with him. Cash in circulation in Kenya has continued to increase steadily despite the exponential growth of M-pesa, as seen in Figure 2. While M-pesa has facilitated e-cash transfers it has not replaced cash as one can see in Figure 3. Comparing Figures 2 and 3 shows that high growth of mobile payments in Kenya from 2007-2012 was matched by a steady increase of currency in circulation.
Figure 2: Growth of mobile payment transactions in Kenya: 2007-2011
Measured in Kenyan Shillings - millions
Figure 3: Growth of currency in circulation in Kenya: 2007-2011 Whereas Wolman sees the rise of M-pesa as indicating the emergence of a cash-substitute, the increase in cash demand while this revolutionary technology was taking off in Kenya speaks rather to the possibility of a long-term co-existence of cash, m-cash and e-cash in the future mobi-digital world. This is evident when comparing Figure 2 and Figure 3. ATMs and mobile phones are starting to converge in a positive way. Today money can be taken from ATMs using mobile phones in cardless transactions in countries from Japan to Greece, from Turkey to Spain. This kind of contactless technology at ATMs and Point of Sale terminals will probably mean the end of plastic cards in a decade or two. I cannot see the next generation using plastic at all for banking purposes. So the biggest loser in the mobile money revolution is likely to be plastic money, not physical money. Conclusion Neither plastic money nor electronic money have become cash substitutes. The indications are that mobile money will likewise co-exist with cash, as the M-pesa case study shows. The same is almost certain to apply to virtual money. I do, however, forecast the disappearance of plastic banking cards within twenty years. One can readily foresee a mobi-digital world in which cash, e-cash, virtual cash and mobile cash will be complementary money technologies helping to link the electronic world to the physical world and the digital economy to the real economy. Progress is good, especially when it is only obsolete technologies which have overstayed their welcome that are destroyed by innovations. As for cash, I cannot see this physical, public form of money disappearing from society in this century. Consequently I am content to predict another hundred years of cash to add to the twenty-seven centuries of its incredible lifespan. See Mike Lee's book about the future Knowing our Future - the startling case for futurology at http://www.infideas.com/pages/store/products/ec_view.asp?PID=1804 or References & Useful Websites AGIS Consulting & ASI Management Consultancy. September 2012. The Future of Cash 2012. BitCoin - http://bitcoin.org/about.html British Museum Press. 2007. Money: A History (2nd edition). Dean, D, et al. 2012. The Internet Economy in the G-20 - The $4.2 Trillion Growth Opportunity. BCG perspectives by the Boston Consulting Group. https://www.bcgperspectives.com/content/articles/media_entertainment Ferguson, N. 2008. The Ascent of Money. London: Penguin Books.
1 Fortune Magazine, Europe Edition, Number 14, September 24, 2012, p.70. The enormous size of a zettabyte can be better conceptualized by writing it out with its 21 zeros: 1,000 000 000 000 000 000 000!
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