There is little doubt that the Fintech world is one of constant evolution, with new concepts and technologies entering the marketplace at a pace which can sometimes overwhelm consumers who are interested in keeping up to date on the latest innovations.
One of the hallmarks of the Fintech sector is the ability to offer services in an extremely convenient and less expensive manner, often saving consumers substantial amounts of time and money. The sector has also served as a catalyst for philanthropic endeavours through such platforms as peer-to-peer transfers and micro-loans. Additionally Fintechs provide small-to-medium sized enterprises access to financial services, such as international money transfers, which were previously available only to large-scale businesses.
One of the buzz phrases that is often heard in relation to the Fintech sector is “digital currency” and how the sector is playing a key role in this evolution not only in terms of business but in consumer behaviour. The digital currency age is seen as a “utopian dream” by some; others see the move to a cashless or digital currency society as a being far more worrying.
What is Digital Currency?
Digital currency is not new. Basically any movement of funds from one party to another electronically, whether it’s to pay for goods or services, is a form of digital currency. This includes everyday transactions like depositing of paycheques, using a credit or debit card online, or using a bank’s online bill payment system.
They’re fast, convenient and have become a permanent fixture in modern life, however, that’s only one side of digital currencies. Part of the digital currency debate arises from some of the newer currency transfer systems or the introduction of crypto-currencies.
The Swedish Example
Sweden is used as an example of the modern cashless society. This evolution can be seen as ironic or as a continuation since Sweden issued some of the first banknotes in Europe, back in 1661.
Swedes currently make about three times as many credit card transactions as other Europeans. The number of kroner in circulation continues to fall. A 26-year-old Swedish teaching assistant noted in a recent interview that “I don’t use cash any more, for anything. You just don’t need it. Shops don’t want it; lots of banks don’t even have it. Even for a candy bar or a paper, you use a card or phone.”
Many attribute Sweden’s use of digital currency to the banks’ active promotion of direct deposit for wages which began in the 1960s, along with fees imposed for using cheques in the 1990s.
Swish, a mobile app, is also playing a major role in the country’s active promotion of direct deposit. Swish was developed jointly by the major Swedish banks and allows anyone with a smartphone to transfer money from one bank to another by using a phone number.
Niklas Arivdsson is an associate professor at Stockholm’s Royal Institute of Technology who specialises in payment systems. Arivdsson recently stated that “Swish has pretty much killed cash for most people, as far as person-to-person payments are concerned. It has the same features as a cash payment – real-time clearing, the same as handing over a banknote. And it’s now making inroads into payments to businesses, too.” He went on to add that “I think, in practice, Sweden will pretty much be a cashless society within about five years.”
Swedes have also been early adopters of other mobile payment technologies such as iZettle.
The systems are not without their detractors. Reports of electronic fraud have doubled over the past decade. The threat to privacy is considered to be very high by many including the inventor of the iZettle app.
Organisations which work with older Swedes are sceptical as well. Unsurprisingly, millennials are the most likely to adopt the new Fintech innovations. Many activists feel that older Swedes will be at a technical disadvantage or be uncomfortable managing most of their finances and budget processes digitally.
It should be pointed out that some of the articles make Sweden’s trip down the cashless society path appear to be a government decision. That is not the case.
Other Payment Systems
One of the areas where Fintechs have made a significant impact is in the redefining of what a bank does. The early payment processing sites like Skrill, PayPal and NeTeller made it easier to pay bills and transfer funds and were among the first to make international transfers routine for everyday citizens, paving the way for dedicated money transfer services like TransferGo. Now the number of money transfer and payment apps is vast with many replacing traditional banks completely in their users’ lives.
In most cases the transfers are amazingly swift, with close to real-time transactions now available. The fees imposed are typically far less than those of traditional banks as well.
There are, however, downsides to these sorts of digital payment systems. Not all providers are properly regulated or registered, so it’s important to choose one that holds itself to the same high standards as a bank.
Bitcoin is perhaps the best known of the cryptocurrencies and the one which has achieved the widest acceptance. However there are more than 750 other cryptocurrencies in existence.
Bitcoin is perhaps best known for its use on the infamous Silk Road dark web portal. However it should be noted that Bitcoin is also accepted by major online retailers and even by family owned pizza restaurants.
Bitcoin and other cryptocurrencies offer a degree of privacy that is not found with any other payment method. Cryptocurrencies cannot be counterfeited and fraud is practically non-existent.
Many of the advocates of cryptocurrencies also point to their independence from government backing. While this can be an advantage to those concerned with privacy, it has also resulted in volatility in terms of value that is almost never found in traditional fiat currencies.
The Dystopian Version
The convenience of digital payment systems is hard to deny. However, critics of a cashless society have a number of valid points.
Privacy concerns are the main issue. Cash transactions are the most private means of paying for services or goods, aside from some of the less stable cryptocurrencies. Digital currencies provide a record of every transaction, which can be exploited for everything from customer profiling to less benign reasons.
Digital currencies also have a degree of vulnerability that does not exist with cash. Consumers can be cut-off from their financial resources by technical failures, natural catastrophes or other catastrophic events.
Science fiction writers have also painted a less than rosy portrayal of the consequences of fully electronic currencies for years, especially in the hands of malevolent governments. It’s interesting to note, however, that the digital currencies we have seem to be more protected from this kind of thing than traditional fiat currencies.
If all of this sounds very speculative, that’s because digital currencies are still in their infancy. Cash has been around in one form or another since the Iron Age and is still undergoing changes (just look at the Eurozone!). Many of the digital currencies and cryptocurrencies around today are just testing the water of what’s possible and popular. It’s highly likely they will set the stage for even more innovation to come in the coming years.