Writing for Payment Expert, Alex Reddish, Managing Director at Tribe Payments, explored the possibility of tapping into crypto to overcome new boundaries and recognise consumers who may be left behind in an accelerated shift to digital payments.
Cash isn’t going to disappear, at least according to industry body UK Finance. In their most recent report looking at payments, they predict that cash usage will continue to fall and by 2031 will only make up 6% of all payments made in the UK. The UK won’t become a cash-free society over the next decade, they say, but will simply become an economy where cash is less important but remains valued and preferred by some consumers.
Valued by who, though? While there are those who prefer cash and are resistant to change, convenience may change some attitudes. Supermarkets, for example, have shifted to accommodate new ways of shopping and have introduced more self-checkouts—many of which are card-only.
Some pubs and restaurants have decided to stick with mobile ordering even if the rules no longer demand such social distancing. Many businesses are simply deciding to go cashless as it’s more convenient even if it’s not necessarily cheaper.
We could see cash disappearing faster than UK Finance expects. The head of the Link ATM network has said that cash “only has five years left”. The “cashless society” has always threatened to leave some people behind, people without online access or lacking a bank account.
Who is being left behind?
Thanks to a shift to online and mobile banking, plus efforts to roll out better broadband speeds, people in rural areas are increasingly likely to have access to an internet connection rather than a bank branch or ATM.
The launch of “banking hubs” to provide services and access to cash will not solve this problem, they’re more like a sticking plaster. The FCA estimates that at least 5.4 million UK adults directly depend on access to cash, mostly older people, the homeless, and those suffering from financial abuse.
It’s a world away from the “crypto bro” stereotype of memes and undying belief in technology, but could cryptocurrencies and CBDCs (central bank digital currencies) in fact be part of the answer? There’s understandable scepticism. How could technology be the answer to a problem created by the advance of technology?
One argument is that many people are locked out of banking through a cycle nearly impossible to break. A low credit score means it’s impossible to get financial products, while not using financial products makes it impossible to improve a low credit score. Bank products that are aimed at the unbanked tend to be very restrictive and can sometimes carry high fees. Potential customers may also lack the right documents for KYC checks.
The advantage to a decentralised digital currency is that it doesn’t care about credit scores. Theoretically, anyone with access to a smartphone has access to digital currencies, and the distributed ledger technology cryptocurrencies use mean more openness rather than less.
By making payments outside of the traditional banking system, fees will be the same for the biggest customers as for the smallest. If these payments are made using a central bank-controlled currency, then these people become part of the nation’s financial system, rather than outside it.
Proponents of DeFi see cryptocurrencies as solutions to other problems, too. International remittances can be expensive and slow, but can be much faster and cheaper with crypto—potentially a much better option for migrant workers looking to send funds home.
Is this realistic?
Can it really be possible for people who have been left behind by technology to be helped by a more obscure and sometimes controversial technology. The answer is, “maybe”.
A good parallel is the use of mobile money in countries like Kenya, where access to cash is limited but the use of technologies like m-Pesa are widespread. This might not be a cryptocurrency, but it does show how digital currencies can be used to fill in the gaps where cash is in short supply.
If there is a hope of cryptocurrencies helping here, there needs to be a lot of work done to create something that is simple to use and easily accessible, just like m-Pesa. Sign up would need to work on all devices, no matter how basic. On-and-off ramps would need to be in place so that it’s easy to get money in and out of the system.
There would need to be a great deal of education and promotion of such a system—this is why a CBDC is perhaps the best solution as government backing would make it easier to trust such a project. Most importantly, the cryptocurrency would need to act like a currency and less like an investment vehicle, again making the stability of CBDCs a more attractive option.
The simple fact is, however, that while crypto may be part of a programme of inclusion, it cannot create inclusion on its own. Any technology to help people deal with the gradual disappearance of cash would need to be supported by social programmes that would help those left behind. Crypto may help, but it can only be a part of the solution.