Tuesday 20th December 2016
In this issue of Money Truths….
- The drive to digital….
- On the Venezuelan front….
- All quiet on the British front….
- 2017: Going mobile – The War on Cash hots-up….
The drive to digital….
India’s drive towards digital payments is proving to be anything but painless….
Last month we reported on how the Indian government (giving just 4-hours-notice of its intentions) removed 500 and 1000 rupee notes (the highest denomination notes) from circulation – rendering 86% of the cash in the Indian economy worthless at a stroke.
The government took the extraordinary step because it wants to flush black-economy cash out into the light.
Indians can change the old high-denomination notes they hold into new notes – but if they can’t prove they’ve paid the tax on their cash holdings, they expose themselves to liabilities and stiff fines….
All over the country large queues of people snake around banks and ATM machines as man-on-the-street Indians scramble to exchange billions-worth of high-value notes….
Government mints are failing to keep pace with demand for new currency. There is a dearth of cash. Nobody has much of it to spend. Banknotes have become a precious commodity. And what cash people do have, they are holding on to.
Millions of Indians have no debit or credit cards. They have no smart phone. And they are not tech-savvy enough to use the technology, even if they did. In the absence of cash, they have nothing to spend. Millions of businesses report that they are losing money.
‘I’m losing money because of the government,’ a fish trader in Goa told British reporters last week. ‘The government only takes care of the rich, the poor will always be poor.’
But the government is pushing on with the drive to digital despite the hardships many are experiencing. India is determined to go cashless – come what may.
As of January 2017, the state of Goa is to go completely cashless. All businesses – even small street vendors and humble rickshaw drivers – must offer customers the option of paying by card or phone….
Meanwhile, the government is calling on young people to ‘serve the Motherland’ by taking the time to teach older people in their neighborhoods how to make payments using e-wallets and mobile phones.
There will be no turning back. Cash is on its way out in India….
On the Venezuelan front….
In Venezuela, the government recently pulled the 100-bolivar note – the most commonly used note in the country – out of circulation.
The government said it took the step to thwart criminal gangs who apparently hoard the notes.
Critics have been mocking the notion that organized criminals would keep their wealth in the world’s fastest devaluing currency. The 100-bolivar note was worth about 2 American cents at the point it was removed from circulation….
Nobody can confirm what effect – if any – the move has had on any criminal gangs. But ordinary Venezuelans are certainly feeling the effects of the decision….
Venezuela has become a country without cash. The higher denomination bills that are supposed to replace the 100-bolivar bills have been slow to arrive at banks and ATMs.
People must use cards or smaller-denomination notes (almost worthless) to make payments. Many ordinary people have no purchasing power whatsoever.
Protests are widespread. So is looting and violence. Tempers are fraying. There have been many arrests. The big cities are a powder-keg waiting to blow up. The police – decked out in full riot gear – have been using tear gas to maintain order on the streets.
Meanwhile, the government has closed the borders with Colombia and Brazil….
With other nations around the world warning their citizens against travelling to Venezuela, we can only assume the border closures are designed to keep people from getting out of the country rather than getting in….
All quiet on the British front….
Of course, the War on Cash is being fought in Britain too. It is a war that has been softly progressing – one tiny step at a time – for years….
But it is more of a silent war. A war of stealth. An insidious war that is going on all around us – without most people even noticing….
There have been no demonstrations, no riots, no violence on the streets, no looting….
There has been no sudden government decision to remove £50.00 notes or £20.00 notes from circulation – not yet, at any rate….
The war here has been fought – and is being fought – differently. The technology is in place to phase cash out without the attendant social disruption so evident in Mumbai or Caracas….
In less developed locations, such as India and Venezuela, the death of cash will involve much thrashing about and much raging against the dying of the light. In Britain, cash might well slip away silently in the night – like a patient dying peacefully in his sleep….
It might not even be noticed. It is happening right now – so gradually it is almost invisible. You could miss it if you’re not looking….
Cash payments are already steadily in decline in Britain. Figures from the UK Cards Association says 77% of retail sales in June this year were paid for with a card, up from 75% the year previous. Cards further outpace cash as the principle means of spending in Britain as each month passes by….
Contactless cards (which can now be used to make swift payments up to £30.00) are gradually succeeding in weening consumers off carrying and using cash at all – particularly the younger generations….
There is another tactic at work too. Banks are closing more and more of their bricks and mortar branches….
More than 1,000 high street bank branches have shut up shop in the past two years.
HSBC – the bank which bills itself as the ‘world’s local bank’ – has decommissioned 321 branches since the start of 2015. That’s more than 25% of its entire estate of branches….
RBS Group has cut 191 branches. Lloyds Banking Group has cut 180. Barclays has closed 132. The Co-operative Bank has closed 50%+ of its branches in the last two years.
The consumer group, Which, reports that many of those closed branches were ‘last branch in town’ branches – leaving many locations entirely bank-less….
The banks say that the closures are the result of customers going online to do their day-to-day banking.
But I wonder if this isn’t a case of the tail wagging the dog. By closing physical branches, banks essentially force more people to bank online – an environment where electronic payments and a complete lack of physical cash are the norm….
The phasing out of bricks and mortar bank branches serves the cashless agenda. It accustoms people – particularly older generations (whether they like it or not) – to a digital form of personal finance. It makes an entirely cashless society that much easier to sell….
2017: Going mobile – the War on Cash hots-up….
I think 2017 will be the year when the War on Cash really hots-up in Britain….
I think the catalyst will be the growth of low-cost mobile-to-mobile payment platforms….
Smartphone sales in developed countries like Britain are reaching saturation point. And people are using these phones to run their whole lives….
They read the news on their phones. They maintain their relationships on the phone. They bank and manage their utility accounts on their phones. They even control the heating at home from their handsets….
Making payments is an essential part of the smart-phone life. But it is an area that has not yet been fully exploited. My call is that this will happen over the next 12-months….
Platforms that offer smart-phone users the ability to send payments (large or small) from their phone to another smart-phone at low-cost – instantly and all-over the globe – will prove extremely popular.
All the major players in the mobile industry have developed their own mobile wallets – Apple Pay, Android Pay, Samsung Pay. The technology is already in place and it is slowly being rolled out. Apple Pay are already reporting a growth of 1 million new users per week in the US….
I predict that 2017 will be the year when mobile-to-mobile payment options will gain traction and take hold in Britain….
With millennials leading the way, mobile-to-mobile payments will swiftly catch on. They will swiftly become the standard way to pay and to transfer money – driving more nails into the coffin for cash and for credit & debit cards….
A survey released by London & Partners, the Mayor of London’s promotional company, in June this year, concluded that most Britons think we will be a completely cashless society by 2036….
Once mobile-to-mobile payments take off in 2017, the future might arrive a lot more quickly than anyone currently imagines.
We won’t beat Sweden to it. They expect to be cashless by 2022. But we won’t be as far behind them as most Britons currently assume….
If you get a bit of cash off Santa for Christmas, be sure to enjoy spending it whilst you still can….
That’s how it looks from here….
I’ll be back with more in the New Year.
All the best,