Digital Payments and the Currency of the Future
“Credits.” We’ve heard the term used in science fiction for decades.
A universal, digital currency that is used worldwide (or galaxy-wide, depending on the setting). And it makes sense. It’s hard to imagine spaceships crews and colonists on other worlds with pockets full of paper and coins. Authors and movie makers seem to imply digital-only currency not only probable, but inevitable. And given the headlines today, it seems hard to argue.
“By the year 2020 only 10% of financial transactions will be in cash...By 2050, there is every possibility that we will have one global digital currency, whether we like it or not.”
Richard Watson, Future Files: A Brief History of the Next 50 Years
Twenty years ago, the idea of a digital currency may have seemed far-fetched. Today, the estimate seems conservative. In the space of a little more of a decade, we have gone from simple credit card processing to buy books online (books.com first went live with e-commerce in 1992) to 2014, where people voluntarily embed RFID chips under their skin to pay for the subway with a wave of a hand.
What began with e-commerce and PayPal has spawned a whole industry of digitally-native payment tools. RFID-enabled credit cards, BitCoin (a wholly invented digital-only currency), Google Wallet and Apple Pay (mobile credit card tools connected to your phone), as well as transaction tools such as Square (to let devices swipe credit cards) and SnapCash (an app to help you split tabs and send your friends money) are all designed to make paying faster and easier.
Every day it seems people are coming up with new ways to exchange digital dollars, or invent new ones of their own. And why not? The idea of money is a made up one to begin with; the only thing giving it value is our collective faith in it. But can we have faith in something we can’t hold in our hands? Something that can be potentially manipulated by algorithms, hackers and supercomputers?
Yes, we can!
There are some good, practical reasons for embracing an all-digital economy, at least for our own U.S. dollar-based system. Consumer need for spending speed, efficiency and convenience are driving the digital payment evolution, but there are other benefits as well.
Cost savings compared to printed currency
It costs five cents to produce every U.S. one-dollar bill—millions of dollars wasted so we can physically feel our wallets are a little fuller. In 2014, the Bureau of Engraving and Printing delivered approximately 6.2 billion notes at an average cost of 10 cents per note. That’s 620 million dollars every year just to make dollars. Granted, a currency must work for everyone, not just the smartphone-wielding millennial consumer, but that’s a lot of money. Could 620 million be used to develop a digital solution available to everyone?
Mobile buying power
If paying is faster and easier, people are more likely to pay, or so the logic goes. Sending a check by mail used to be the slowest form of payment imaginable. But today, going to the ATM in order to get cash to hand to another person is becoming just as antiquated. Tap and go, swipe and enter, scan and play, it’s all about removing barriers from payments to allow money to move more easily and encourage spending.
For example, offering PayPal as a checkout option, which allows users to avoid creating an account or inputting their payment information, has been proven to increase sales to the point of becoming standard practice. And mobile payments are just getting started. According to a 2014 report from Accenture, 31% of people use their mobile phones to pay in-store at least once a month, and the trend is quickly growing. With Apple Pay rolling out to iPhone users to counter Google Wallet, there are now 159.8 million smartphone users ready, and apparently increasingly willingly, to jump on the bandwagon..
Actionable personal data
For most people, transactional records that are native to digital payments make just make life easier. Avoiding cash transactions gives consumers more insight over their finances. But services like Mint, for example, takes it a step further and uses your data to help your budget and plan your finances. They tout over 10 million users who are saving money, thanks to digital financial data that’s all tied together to help you see just how much you spend on coffee, parking and all those other things we tend to forget. Think about the last time you withdrew money from an ATM, where did it go? Some of it might still be in your couch cushions or a jacket pocket right now.
But, there are risks.
Security is a problem
The risk of manipulation of digital currencies is real. On the surface, the average person is far more secure with digital currency than without. Paychecks deposit automatically. Transactions are tracked and cataloged. Today, losing one’s wallet has become an inconvenience as opposed to a nightmare. Or at least it seems that way.
However, in 2011, identity theft and scams cost Americans 1.52 billion dollars and affected millions of people. These cases often target older folks who may be unfamiliar with modern digital scammery with the crooks profiting off their Social Security. Compared to the 2011 FBI crime statistics on robbery, which estimates losses at 409 million, digital theft costs us nearly four times what old-fashioned mugging and robbery crimes do. So, while we may feel a little safer not carrying cash around, our digital piggy banks are not impenetrable.
Inequality and the lowest common denominator
As mentioned above, digital payment systems can’t be built entirely for the elite. Digital payments for low-income settings do exist and are well-intentioned efforts at increasing accountability and minimizing corruption. Unfortunately, lack of infrastructure and a business model that is built around fees often discourages use in favor of more real money in hand. Currency will always have to work for in a lowest common denominator setting.
Regardless, it’s happening anyway
Despite the risks and inherent problems associated with all-digital payments, it’s clear the market is pushing for more and more digitally-powered purchasing. Unless you’re a Ron Swanson type who prefers to bury gold in various secret locations to stay off the grid, digital payments are at your fingertips now. But don’t be afraid. Like smartphones, which were once the mysterious outside who became our best friend, digital and mobile payment methods will increasingly offer flexibility and mobility, despite the risk.