For decades, pundits have been predicting the demise of cash for payments, its limitations are well known, being cumbersome, limited to the country of origin and beholden to the governments and central banks that back it. Governments can also legitimately question the value of cash in circulation, it’s hard to monitor, expensive to produce and difficult to manage.
Yet despite these obvious deficiencies for both sides of the retail transaction process, and the numerous technological advances that have been made in recent years such as contactless payments, online banking, distributed ledger technology and biometrics, physical cash in circulation continues to grow as companies innovate to meet the needs of consumers.
This isn’t just down to the increase in high denomination bills in the United States (U.S.), even the $1 bill has seen its compounded annual growth increase by 3.2% since 2010. Europe has seen even higher levels of cash in circulation with total transactional cash in circulation totalling €585 billion at the end of 2016, or more than double the notional amount used in the U.S.
Shift To Digital Money
The price of Bitcoin has certainly been on fire of late, hitting new highs in the wake of derivatives, the CME and CBOE, announcing they would start futures trading in the cryptocurrency. But as some had predicted a reversal was soon coming and this past week witnessed a significant reversal in the price. But whatever else will is transform the payments landscape?
According to Simon Black, CEO of PPRO, a global payments specialist processing some $3 billion annually through over 140 payment methods including the leading cryptocurrency by market capitalization: “Bitcoin itself won’t transform payments alone. But it is a flag bearer for a fundamental shift to digital money, be it a contactless Visa transaction, a purchase using a virtual wallet like AliPay or a bank transfer through a scheme like iDEAL to pay for eCommerce, as around the world cash transactions are being replaced rapidly.”
Elsewhere, a U.S. CEO of a payments provider I caught up with in London earlier this year as the company launched new payment corridors to the UK and the Philippines, provided some thoughts as to whether Bitcoin and other cryptocurrencies could transform the remittance industry.
“We heard much about Bitcoin and crypto, especially when we were raising finance during our Series A round,” said Matt Oppenheim, CEO and co-founder of Remitly, the largest independent remittance company in the U.S. based in Seattle, Washington, that handled over $2 billion in transaction volume in 2016.
He added: “What we kept saying at the time was ‘What is the customer impact’? as everyone was saying that Bitcoin is going to make remittances free - and we really focus on the impact on the customer.”
Oppenheim, a former head of digital banking at Barclays in Kenya who hails from Idaho, at the time noted from Remitly’s perspective: “Unless people are using Bitcoin on both sides [of the transaction] as the primary currency - say between the U.S. and the Philippines - then it really does not take costs out of the system.”
Consequently, he contended that Bitcoin “is not going to transform payments”, notwithstanding it will remain as a store of value.
Fourth Industrial Revolution
As we enter the fourth industrial revolution, the importance of a digitalized and inter-connected economy where payments can be made instantly between consumers and merchants - irrespective of borders or currencies - has never been greater. However, cash and its overarching payments architecture remain deeply entrenched.
And, few consumers realize just how convoluted the payments systems they use are, when they use chip and pin with their debit cards at stores, authorizations and approvals take place between the merchant, the bankcard company’s electronic network, the card issuer as well as the bankcard company’s settlement financial institution.
Blockchain technology has opened up a whole new alternative to how consumer payments are conceptualized. Instead of taking three working days to clear money between accounts, now it can be done instantly irrespective of borders and forex rates.
Digital currencies on the blockchain do not have the same transaction costs as traditional banking systems and payment services. The capital-intensive legacy bank account systems of today’s banks will need to compete with secure peer-to-peer payments services that already exist.
These services have smaller capital costs than bank systems and so have lower transaction costs. Yet with over 1,000 altcoins, the question remains which currency will emerge as the mainstream alternative to cash?
There has been much talk about the rise of Bitcoin and Ethereum. However, their purpose and value lies in that they are a store of value (see above) and smart contract technology. But both have serious deficiencies in terms of making small payments.
For Bitcoin it can take in order of 10 minutes to make a payment. But if an individual wants to make a small transaction (perhaps says under $500) it can take many hours to process. As such the need for frictionless transactions will enable completely new classes of business operations that were impossible before. Well, that is what some industry protagonists believe.
Givv.io, for example, focuses on this need for frictionless transactions and aggregates tiny contributions from thousands of people to build a new model for crowd philanthropy, says Haim Vanunu, founder of Givv, by using the inactive GPUs on personal computers and reducing dependency on miners in politically unstable countries.
Currency of the Internet (COTI), a payments transaction network supported by a digital currency that is headed up by CEO Nir Gazit and CTO Adam Rabie, was designed specifically to address the deficiencies mainstream digital currencies pose. It touts an instant, scalable, secure and low-cost alternative to legacy payments systems through its cryptographically-secure digital currency.
Headquartered in Toronto, Canada, with team members, investors and advisors located around the world, COTI’s vision is for the venture to become the “Currency of the Internet” by being the first digital currency to achieve widespread adoption in payments.
COTI, which is planning is token sale in the near future, supports payments in the way that the traditional, centralized payments networks do. While the major card networks routinely process in the order of 2,000 transactions-per-second (TPS) and have peak capacity of tens-of-thousands of TPS, Bitcoin’s network processes in the order of 5 TPS. (Note: For a grahic on TPS in relation to Bitcoin see this link).
Moreover, while the card networks protect buyers against fraud and user errors, Bitcoin transactions are irreversible and offer no buyer protection mechanisms.
COTI boasts that it can process 10,000 TPS, is Anti-money laundering (AML) compliant and has a community-powered mediation system to ensure a person’s payment track record is clear to see. This is creating enormous potential opportunities for people in developed and developing countries where around 2.5 billion people have in recent year been estimated to be excluded from financial services.
Now while that huge number for the unbanked shrank by c.20% between 2011 and 2014 according to Global Findex, the world’s most comprehensive gauge of progress on financial inclusion, with around 700 million adults globally becoming account holders at banks, other financial institutions or mobile money service providers, it’s still a big figure.
More recent figures from the World Bank pointed to around 2 billion working-age adults globally (38%) that do not use formal financial services. And, there is another statistic provided by the World Bank that is even more horrifying: 73% of the world’s population is unbanked.
World Bank Group President Jim Yong noted back in 2015: “Access to financial services can serve as a bridge out of poverty. We have set a hugely ambitious goal - universal financial access by 2020 - and now we have evidence that we’re making major progress.”
But this will require the efforts of many parties - credit card companies, banks, microcredit institutions, the United Nations, foundations and community leaders.
Consumer Payments
This is not to say that COTI is the only option available for consumer payments. Miguel Leite, Co-Founder of Coinvision, an AI-powered alerts system for cryptocurrency investors, has said there are a number of digital currencies that have faster confirmation times, enable Bitcoin and Ethereum conversions with your debit card as well as open-source platforms that promote cross-border payments.
Few, however, take the “integrated and holistic” approach that COTI claims to espouse.
2017 has seen Blockchain technology and some digital currencies enter the mainstream conscious. That said, not many understand how this pioneering technology works or how it can be applied to everyday lives and situations.
While the value and purpose of some of these altcoins is debatable, COTI is held up as providing a tangible and scalable digital currency alternative to consumer payments, which have been stuck with antiquated and cumbersome processing methods.
The potential benefits and economic gains are considerable. A recent report from McKinsey cited inclusion in the digital economy boosting GDP of all emerging economies by a figure of $3.7 trillion by 2025.
In developed countries cash is expensive to produce (a $1 bill costs 4.9 cents to make), is difficult to trace and yet still maintains its grasp for consumer payments. A streamlined payments system could for instance save UK businesses £1.3 billion in reduced billing costs per year.
The problems connecting merchants to their customers have existed for far too long, and responses have all too often been fragmented and piecemeal. Logically therefore the time has come for an alternative approach or approaches as to how we conceive of the consumer payments industry. Blockchain technologies deployed in the right manner can enable this to be achieved and is COTI amongst those who could provide the solutions. Carpe diem.
Originally Published from http://ift.tt/2BZGGOB
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