Are We Heading Towards a Cashless Future?

What the future holds for financial services may be the stuff of present-day science fiction – or something far more revolutionary If you’ve watched a sci-fi movie in the last 30 years, you’ll know what the future of money is – because no one ever pays for anything. From Arnold Schwarzenegger’s cab ride in Total Recall to Luke Skywalker getting a drink at a scary spaceport bar, nary a shekel changes hands. Which isn’t, it turns out, lazy scriptwriting – it really is the future of seamless payments.

Obsessed with removing the distressing, time-consuming and purchase-squashing horror of pulling a £10 note from your pocket, a host of digital startups, tech labs and major banks are looking to revolutionise every aspect of anteing up. They are turning to biometrics, data, artificial intelligence (AI) and even bio-implants to ensure you can leave your house, step into a driverless taxi and grab breakfast from your usual coffee shop without even thinking about payments. Indeed, the main reason for interacting with the smartphone or wearable banking app will be to manage your personal portfolio.

So dramatic are the anticipated changes that Francisco Gonzales, chief executive of Spanish banking giant BBVA, predicts the next 20 years will see an entirely new financial ecosystem being created, going from 20,000 analogue banks today worldwide to no more than several dozen digital banks. He predicts that diverse niche businesses will exist, but will be tied into the digital banks for the so-called banking rails that underpin transactions.

Predictions versus reality
Of course, nothing is as simple as this. For a start, cash is stubborn. The working man’s tax haven, hard to track and easy to spend, is outperforming predictions of its demise. In 2015 it was still the most popular form of payment, accounting for 48 per cent of all transactions, compared with 24 per cent for debit cards and 10 per cent for direct debit. 2015 was, however, the first year cash slipped below 50 per cent of all transactions. With just 34 per cent of payments expected to be cash by 2024, what will take its place?

Jesse McWaters, project lead of disruptive innovation in financial services at the World Economic Forum, predicts three key systemic changes: the triumph of the “default card”, the card that consumers use in online and mobile payments; expecting this to be a debit card, he predicts the death of the credit card; and he expects digital currency systems to modernise the payments infrastructure. What this doesn’t account for is the surge in innovation in financial technology (fintech), with challenger banks and new service providers hoping to use predictive technology and AI to overhaul lending, and introduce sweeping changes.

“The biggest change we’ve seen recently is that for the first time in 350 years, banks are interested in their customers’ experience – customers used to have to go to the bank, now the bank has to come to them,” explains Phil Cantor, iGTB’s head of digital. “In time, technology will help restructure the way banks work with customers completely. Right now, if I need a loan to pay an overseas supplier, that’s at least two departments at my bank. What customers need is a bank that can keep them liquid so they can order money into an account when they need it and pay it back when they have it.”

Mr Cantor points to Square, the payments platform now offering loans to its merchants without them even requesting one, basing the loan offering on the transaction volume it sees the merchant processing and repayment directly out of the transaction stream.

Taking lending a step further
Moving corporate banking closer to this fluid lending, iGTB recently launched sanctions screening, an AI which offers a natural-language contextual search of social media to identify high-risk clients, along with a wearables extension of its corporate banking digital enterprise platform CBX, offering the complete spectrum of transaction banking and aimed initially at the Apple Watch.

This kind of broad interface offers trusted banks a chance to move from traditional bank to bonafide consumer brands, argues Andy Masters, head of savings and wealth at KPMG. In the short term he envisages a near future where mainstream financial services brands such as Barclays would use technology that already exists to bring together all their pension, savings, borrowing and cash account values from any provider on the same smartphone app. Slightly further out, he predicts machine-driven financial planning advice, which will view assets and liabilities, understand a customer’s risk attitude, and recommend strategies in real time and prompt customer action.

“There are data privacy concerns, of course, but if you’d suggested ten years ago that private companies would issue people with a device that measures their health on a minute-by-minute basis, there would have been a big brother outcry,” says Mr Masters. “Then along came the likes of Fitbit. It needs an under-the-radar approach like the Fitbit, but banks could become the mobile equivalent of the old AOL home pages.”