New digital payment options trump cash and cheques

Money – we all use it. Most people spend most of their time and most of their lives trying to earn it.

Craig Fisher

Craig Fisher

Some call it the root of all evil; others say it is a force for good. “Money makes the world go round” is a great way to describe the importance of money to the local and global economy.

As Yuval Noah Harari said in his excellent book Sapiens: “Money has been essential both for building empires and for promoting science. But is money the ultimate goal of these undertakings or perhaps just a dangerous necessity?”

No matter what the answer, it would appear we can’t live without money. In many respects we take it for granted.

Yet some potentially seismic shifts in the concept of money as we know it are starting to happen.

As a chartered accountant, I have spent my career in a profession dedicated to accounting for things in monetary terms. Most lawyers will have experienced a similar focus on money in their professional lives, whether by direct involvement in financial transactions or simply by charging for their services.

The alternatives to money are a life of complete self-sufficiency or barter. The former is hard to imagine; the latter is hard to scale.

An economy of favours and obligations simply doesn’t work when large numbers of strangers try to cooperate. Hence we have created money as a generally-accepted store of value and as a medium of exchange.

Back to Harari: “Money is not coins and banknotes. Money is anything people are willing to use in order to represent systematically the value of other things for the purpose of exchanging goods and services.”

While most of us tend to think of money as cash, or legal tender issued by the government, it is just a mental invention – something that exists in our shared imagination.

It has value only because we collectively believe it must have value.

Three developments are now bringing this broader concept of money, and especially its future, into question.

Use of cash
In June 2019, our Reserve Bank released a surprisingly interesting discussion document exploring the uncertainties around the future of cash in New Zealand.

For clarification, cash refers to tangible money (banknotes and coins). Cash has the unique advantage of being “bearer pays” – ie, it can be spent by whoever holds it.

This is unlike digital money, such as credit cards, bank accounts and mobile wallets which require authentication from the owner.

The key issue from the discussion document is that while there is an increasing amount of cash in circulation, we are using it less.

As the bank puts it: ”New Zealanders are using cash less and less for transactions. As the transactional demand for cash falls, the per-transaction cost of providing the cash infrastructure increases.

“Just under 2% of the broad money holdings in New Zealand is held in banknotes and the rest is held in digital balances.”

The main issue is that a contraction in the cash network without regard to the wider benefits of cash in society might significantly disadvantage the digitally-excluded and the elderly.

While the Reserve Bank is the sole issuer of cash in New Zealand, no agency is responsible for overseeing the usability of cash by the public, nor the stability of the cash system.

I find it interesting that legal tender means cash must be accepted for debt repayment unless there is an agreement stating otherwise. But while the concept of legal tender provides some certainty for the usefulness of cash, it doesn’t guarantee that cash will be accepted as payment for sales.

New Zealand is not the only country to be pondering the future of cash. The UK Treasury has led some research into this issue and earlier this year announced it was committed to keeping cash and coins for at least the near future.

The Reserve Bank’s discussion document can be found on its website and feedback is due by 31 August.

Demise of cheques
We know that transacting via cheques incurs a level of cost for the convenience.

But Kiwibank recently announced it would stop issuing new deposit and cheque books to customers from the end of September 2019 and stop processing all cheques from the end of February 2020.

This decision is likely to significantly impact certain groups:

  • older people who use cheques for everyday and regular transactions and who rely on cheques as a trusted payment method;
  • the non-profit/charitable sector which receives a significant proportion of its donations via cheques from older people; and
  • some small businesses and traders for whom cheques remain a regular payment method.

I also expect this development will impact the day-to-day business of many professionals such as lawyers.

While it is evident that cheques as a payment method are in global decline, ending the processing of cheques and offering only a digital alternative will have a huge potential impact on older people’s rights, dignity and financial independence.

This cohort is not only the least digitallycompetent but is also the largest donor to the non-profit/charitable sector.

Kiwibank’s move has not yet been followed by the other main trading banks but one suspects they are watching and waiting with interest. It’s also likely they are quietly pleased that another bank is the first cowboy up that particular pass.

In Australia the move to phase out cheques has so far been resisted. While the Reserve Bank of Australia made an announcement back in 2011, lobbying by various groups has resulted in a regular tracking of the use of cheques as part of a managed decline rather than an enforced cut-off point.

New payment powerhouses
In some Asian countries new personal payment technologies such as Alipay and WeChat Pay are becoming pervasive.

While celebrating my eldest son’s birthday at a local Asian restaurant last week, I was intrigued to see several new payment options advertised alongside traditional credit card options. I suspect these new types of payment options will fast become mainstream.

And, with what could be a game-changer, social media juggernaut Facebook has entered the fray by announcing its proposed new digital payment option, a cryptocurrency called Libra.

Facebook describes Libra as a “global currency and financial infrastructure”. In other words, it is a digital asset built by Facebook and powered by a new Facebook-created version of blockchain, the encrypted technology used by Bitcoin and other cryptocurrencies.

It has several interesting features such as its value being tied to a basket of traditional currencies to avoid it becoming a highly-speculative asset like existing cryptocurrencies such as Bitcoin.

Instead, it appears to be aimed at becoming the payment option of greatest convenience.

This is significant because Facebook already has a devoted community of more than two billion users worldwide. Any bank would salivate over that sort of customer base.

As trusted professionals, much of what lawyers and accountants do for their clients revolves around money. But recent developments, such as those above, demonstrate what we have known, and perhaps taken for granted, as money is changing.

How quickly new methods of transacting are adopted will force change. And possibly sooner than we expect.

Craig Fisher FCA (Fellow Chartered Accountants) is a consultant at RSM, a former audit partner and specialist in not-for-profit and charitable entity issues. He is also an ADLS councillor.

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